Joint implementation of 4G / LTE services, will allow Kcell to reduce the competitive advantage of Altel and and reduce the attractiveness of low tariffs of other operators without the LTE standard.
According to the press release from 31 of August, in order to improve efficiency and speed of implementation of 4G/LTE services in Kazakhstan, Kcell and Beeline concluded an agreement of shared use of 4G/LTE network. Under the terms of the agreement, Kcell plans to develop the network in seven regions: Almaty and Almaty region, South Kazakhstan, West Kazakhstan, Atyrau, Mangystau, Kyzylorda and Aktobe regions. Beeline, in turn, will be responsible for network deployment also in seven regions: Astana and Akmola oblast, Karaganda, Zhambyl, East Kazakhstan, North Kazakhstan, Pavlodar and Kostanai region.
The agreement has been achieved through the introduction of 4G/LTE RAN Sharing technology with the geographical differentiation by the optimal grid. The geographic differentiation assumes that each of the two operators invest in their area of responsibility 50% of the total investment. It is expected, that the shared 4G/LTE network will provide coverage for more than 30 percent of the population of Kazakhstan until the end of 2016.
Our opinion. The news is fully in line with our expectations: The Company planned implementation of 4G/LTE, together with another major operator in September this year. Thus, reduced capital expenditures for start-up and expansion of 4G networks have already been taken into account by us. In our opinion, effective and, most importantly, fast coverage of 4G/LTE network in Kazakhstan will reduce the competitive advantage of Altel (which also offers LTE), and reduce the attractiveness of low tariffs of other operators without the LTE standard. We confirm our BUY recommendation with a twelve-month target price of T1390 per share ($ 4.1 per GDR).