Naubet Bisenov in Almaty -

Kazakhtelecom, Kazakhstan's state-owned telecom, and Sweden-based Tele2 have agreed to create a joint venture to combine their mobile businesses in the country.

The move demonstrates the tight competition in the Kazakh market, which is likely to become even more fierce after parliament passed legislation enabling subscribers to take their number with them when they move to a rival operator.

Tele2 will have a 51% stake and Kazakhtelecom a 49% interest in the new joint venture. Tele2 will also retain control over management at the new entity, which will be incorporated in the Netherlands.

The new joint venture’s subscriber base will amount to 5.6mn, which represents a 22% share in the market, compared to market leader Kcell’s 41% and Russian Vimpelcom-owned brand Beeline’s 37%. At present Tele2 and Kazakhtelecom’s Altel, the country’s only 4G/LTE operator, are respectively the third and fourth largest mobile operators in the country. The population of Kazakhstan is 17.5mn people.

Tele2 and Kcell have been involved in an acrimonious war of adverts with the former launching bitter attacks on the latter. Tele2’s advertising agents used to rent ad space next to Kcell to make up an ensemble reading “Kcell recommends Tele2”. It also put up billboards in the country’s commercial capital, Almaty, with congratulatory messages “Happy Holiday, dear Kcell! Yours inexpensive Tele2”.

However, following numerous lawsuits Tele2 started masking its messages and substituting “Kcell” with “Kisel” which translates into English as “jelly”. To this, Kcell retorted with adverts attacking the sometimes poor quality of Tele2’s connection outside urban centres. “Kcell or Kisel? Can’t hear? Congratulate without (radio-) jam(ming), Kcell,” one advert for Kcell read.

Advertising expert explained Tele2’s recourse to advertising tricks by limited advert budgets because of losses it had made because of dumping its prices in an attempt to increase its subscriber base.

“This is a mixed development for Kcell,” Russia’s Sberbank said in a note on the joint venture announcement. “On the one hand, Tele2 and Altel competing with each other and with bigger players was the reason for the huge drop in revenues on the Kazakh wireless market. Kcell’s revenue decline accelerated from 2% y/y in 1Q15 to 11% in 2Q15 and 13% and 3Q15. So theoretically, the merger should lead to competition easing somewhat on the market,” it said.

Kcell – owned by Swedish-Finnish TeliaSonera, which has announced it will sell the company – made KZT23.5bn (€72mn) in net profits on KZT86.1bn sales in the first half 2015.

“On the other hand, the 4G licence in the hand of a JV headed by Tele2 management might make it more difficult for Kcell to retain its share of high [spending] ARPU subscribers. What we think could help here is that the Kazakh market is likely to be tech neutral from 2016, which will allow other carriers (including Kcell) to launch 4G services.”

The JV should also take some time to integrate operations, so it is unlikely to be a strong competitor in attracting 4G customers until the integration is mostly done. “Overall we think the news is more positive than negative for Kcell, as it should gain at least a temporary respite from the intense market competition.”