On December 21, 2010, Turkmenistan’s authorities suspended the license of the local branch of Russia’s major mobile service company Mobile TeleSystems (MTS). The sudden refusal of the authorities to renew or prolong the company’s license led to a major dispute between the Ministry of Communications of Turkmenistan and MTS. The suspension of the service also generated nationwide frustration and live queues of thousands of people across the country trying to quickly switch from MTS to the state owned Altyn Asyr (Golden Age) mobile service provider.

BACKGROUND: MTS Turkmenistan is the only and leading foreign cellular communications operator in Turkmenistan. It has been providing services in the country since 2005 after it bought the shares of the U.S. registered mobile service provider Barash Communications Technologies (BCTI). In so doing, MTS struck a trilateral deal with BCTI and the Ministry of Communications of Turkmenistan. According to the terms of this deal, the agreement on profit sharing between MTS and the Ministry of Communications expired on December 21 and the Ministry refused to renew it without giving any reasons for doing so. The decision to suddenly stop the MTS’ mobile services was not reported in any media sources in the country and the government’s sudden move caught both the public and MTS by surprise. The MTS nationwide customer service centers released a letter a few days prior to December 21, saying that the government gave no reasons for its sudden suspension of its license and that the services will resume normal operation after one month.

According to official company reports, MTS currently has over 2.4 million subscribers in a nation of about 5 million people and has enjoyed a monopoly position in the mobile service market.  Mikhail Shamolin, the President and Chief Executive Officer (CEO) of the MTS Group in Russia, stated that MTS-Turkmenistan holds an 85 percent share of the existing mobile service market in Turkmenistan and that the remaining 15 percent of the total number of mobile phone users belongs to the state mobile service provider Altyn Asyr. At a press conference on December 22, Shamolin stated that Turkmenistan’s Ministry of Communications also demanded that MTS dismantle all of its equipment by the end of 2010. He claimed that a period of less than two weeks for dismantling all MTS equipment across Turkmenistan is “illegal” and that it is physically impossible to do so at a short notice.

MTS-Turkmenistan put a 3G internet network into operation in 2010 and was planning to make it available in all provincial centers of Turkmenistan in 2011.  In addition to its mobile phone and internet services, MTS-Turkmenistan has also been sponsoring projects such as the construction of the US$ 23 million shopping and entertainment center “Children’s World”, planned to open in Ashgabat in 2011. Since there is no official government release or media report on the matter, the reasons behind this sudden move are still unclear. Shamolin said that the Turkmen government has raised no previous complaints against the MTS services in Turkmenistan. He said that all respective state agencies in Turkmenistan such as Turkmen Telecom and others have unilaterally broken deals with MTS regarding renting offices, equipment and usage of air frequencies. “There is an ongoing coordinated attack on the business of MTS-Turkmenistan with the purpose of bringing its activities to an end”, said Shamolin. It is also feared that Turkmenistan’s authorities are orchestrating a ‘behind the scenes’ plan to nationalize MTS-Turkmenistan and start using the MTS’ equipment as well as SIM cards under the new name “Galkynysh” (Revival).  

IMPLICATIONS: MTS-Turkmenistan claims that under the terms of the initial contract of 2005, it can continue its operations until February 2012 and that the current cancellation of its entire mobile service network is ‘premature’. In order to resolve the standing dispute, MTS has filed several lawsuits with the Arbitration Court of Turkmenistan and the International Court of Arbitration, demanding the government to pay a compensation fee of US$ 600 million. At the same time, MTS is currently attempting to enter into negotiations with the government hoping that it would be allowed to continue its operations in Turkmenistan. Local analysts and representatives of international firms suggest that the Turkmen authorities may be seeking to significantly change the terms of the agreement on profit sharing or invite other cellular communications operators like MegaFon and Beeline. However, no signs of negotiations have occurred over the course of the four weeks since the mobile service was shut down. On the other hand, it is questionable whether any other mobile service operator would want to open in Turkmenistan considering the authorities’ current treatment of the MTS. There is so far no sign of involvement on part of the Russian government to help mediate the standing dispute.  

Frustration grew steadily as the MTS-Turkmenistan mobile network was shut down and the basic communications system nearly halted before New Year’s Eve, the biggest celebration in the country. Ordinary people on the streets of Ashgabat and provincial centers express their frustration by sarcastically saying that the government’s sudden pulling the plug for the mobile network is the biggest New Year gift to the entire population of Turkmenistan. In an informal interview, local entrepreneurs and traders who import goods from countries like Turkey and China complain that a sudden cancellation of the mobile network is significantly affecting their businesses, and has a major impact on the country’s economy. As the MTS waits for any positive sign from the government to continue its business, this stalemate also sends out a message to other foreign companies doing business in Turkmenistan and exhibits the general investment climate in this gas and oil rich country. The Heritage Foundation’s 2011 Index of Economic Freedom gave Turkmenistan an overall freedom score of 43.6, ranking its economy as 169 out of 179 countries on its chart. On investment freedom in particular, the index notes a standing non-transparent and politicized bureaucracy in the country.

In order to stop the massive inflow of disappointed MTS customers, the city administrations and the Altyn Asyr state mobile service company are taking unprecedented precautionary measures such as maintaining strict police surveillance and fencing their door gates with high reinforcement bars. Desperate to make phone calls, the public is simply lining up at the doorsteps of Altyn Asyr offices before sunrise and stay until dark to get a new SIM card. Some are spending several consecutive days in these long queues, either since their new SIM cards turn out to be dysfunctional or they simply want to pay their monthly phone bills at the cashier. Due to this massive switch of MTS subscribers to Altyn Asyr, the mobile network of Altyn Asyr is extremely overloaded. It takes at least 30 to 50 attempts to make a single phone call or get a ring tone during daytime. Because of the overload in the system, Altyn Asyr’s 3G internet network also stopped functioning properly for a while. This added to an already existing dire situation with the internet, access to information and media freedom in the country.

CONCLUSIONS: Turkmenistan’s sudden termination of the only properly functioning mobile service in the country caused immense disappointment among the population. Such a move once again demonstrated the secretive, behind the doors decision-making process of Turkmen authorities and the unpredictable nature of Turkmenistan’s business climate. If many were optimistic when President Berdimuhammedov started initiating reforms in the educational and healthcare systems, recent moves like the abrupt cancellation of a mobile service and last year’s similar unexpected travel restrictions for Turkmen university students abroad contradict these positive expectations.