US embassy cable - 04YEREVAN2388

C O N F I D E N T I A L SECTION 01 OF 02 YEREVAN 002388 
 
SIPDIS 
 
DEPT FOR EUR/CACEN, EB/CIP/BA 
 
E.O. 12958: DECL: 10/27/2014 
TAGS: PREL, AM, KTRD 
SUBJECT: ARBITRATION PRODUCES TELECOM DEAL; ARMENTEL TO 
GIVE-UP MONOPOLY? 
 
REF: YEREVAN 1456 
 
Classified By: DCM A.F. Godfrey for reasons 1.4 (b) and (d). 
 
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SUMMARY 
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1. (C) Minister of Justice David Harutunyan told the 
Ambassador on October 27 that the GOAM expected to make an 
announcement regarding a pending agreement with Armentel to 
bring a second mobile operator to Armenia and liberalize 
internet services within the next 10 days following months of 
international arbitration.  (Note:  A Greek firm bought 90 
percent of Armentel in 1998 and was granted a monopoly 
through 2013 on all telecommunications in the country and 
communications lines allowing access to the international 
market.  The GOAM has taken regulatory and legal action to 
deprive Armentel of its monopoly on all telecommunications 
because Armentel has failed to meet its investments 
commitments.  End Note.)  Harutunyan said the Ministry of 
Justice and others within the GOAM considered the expected 
terms of the deal to be "favorable for Armenia" without 
leaving Armenia susceptible to the "dangers of uncontrolled 
liberalization."  Harutunian predicted that increased 
competition would provide better high-end service while 
Armentel would continue to provide basic services.  End 
Summary. 
 
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ARMENTEL DEAL EXPECTED SOON 
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2. (C) Justice Minister Harutunyan told the Ambassador during 
an October 27 meeting that the GOAM expected to announce a 
settlement to ongoing international arbitration (reftel) 
within the next 10 days.  He said that the GOAM and Armentel 
had agreed "in principle" on a settlement package but that 
Armentel had requested a brief period before officially 
signing the deal and making the information public. 
Harutunyan expressed confidence that Armentel would sign the 
deal and shared his relief that arbitration -- which had 
become a major financial burden for the GOAM -- would finally 
come to an end.  He said that it was unlikely that the GOAM 
would be able to continue to finance arbitration were it to 
continue past the current set of negotiations. 
 
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"FAVORABLE FOR ARMENIA" 
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3. (C) Overall, Harutunyan said the expected terms of the 
deal were "favorable for Armenia" without leaving the country 
susceptible what he called the "dangers of uncontrolled 
liberalization."  It was clear from his remarks that he was 
wary of opening the telecommunications market too quickly 
without the presence of proven service providers who could 
compensate for any holes left by an Armentel that was free to 
immediately exit unprofitable sectors. 
 
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IMPROVED HIGH-END SERVICE 
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4. (C) The deal, according to Harutunyan, would open the 
market to allow for direct satellite downloads, access to 
international list circuits and point-to-point connectivity. 
The minister noted that these reforms would greatly increase 
Armenia's access to the full range of internet services that 
would foster a more favorable business and encourage further 
investment in the country.  He claimed that a number of 
contentious issues (including satellite connectivity) were 
simply results of sloppy language or translation in the 
original agreement between Armentel and the GOAM which 
unintentionally gave Armentel undue freedom in its operations. 
 
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COMMENT: MAKING SURE A BETTER DEAL MEANS BETTER SERVICE 
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5. (C) While saying most of the right things in terms of 
market liberalization and open competition, Harutunyan's 
concern that Armenia could become even more of a 
telecommunications "hostage" to Armentel in the 
short-to-medium term says volumes about the complexity of the 
issue.  Assuming Harutunyan's optimism about the announcement 
is not overstated, the agreement might still be a tough sell 
for the GOAM to local critics who do not share Harutunyan's 
concern about the need for an incumbent operator to maintain 
operations during a transition period or who profit from the 
status quo.  Armenia's current level of telecommunications 
service -- woefully inadequate at best -- desperately needs a 
jolt from healthy competition.  We will continue to encourage 
all players in this issue to focus on the economic benefits 
of liberalization so that the temptations of short-term gains 
(by those with political/financial interests in the status 
quo) do not hijack what could be the beginning of better 
telecommunications service for Armenia. 
EVANS