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DE RUEHYE #0073/01 0420749
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R 110749Z FEB 10
FM AMEMBASSY YEREVAN
TO RUEHC/SECSTATE WASHDC 0023
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAFCC/FCC WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 YEREVAN 000073 
 
SIPDIS 
 
E.O. 12958: DECL: 02/04/2020 
TAGS: ECON EINT EINV AM TU
SUBJECT: NEW TELECOM ENTRANT IN ARMENIA BRINGS FIBER TO THE 
HOME 
 
REF: YEREVAN 52 
 
Classified By: A/DCM JOHN MAHER. REASONS 1.4 (B/D) 
 
SUMMARY 
 ------- 
 
¶1. (C) The development of Armenia's information, 
communications and technology (ICT) sector promises another 
advancement with the introduction of "triple play" service 
and fiber to the home. U-Com, a new entrant in the Armenian 
ICT sector, plans to launch this convergent service. 
Customer trials are now underway in downtown Yerevan and two 
nearby neighborhoods for a planned launch in April 2010 and 
further expansion later in the year.  This service offers a 
major advancement in telephone, television and internet 
service.  Though allegedly backed by powerful political 
insiders who see opportunities in the potentially lucrative 
telecoms sector, U-Com faces significant obstacles in 
educating the public and building owners about the service 
and its advantages, as well as a potentially debilitating 
cost structure. Interconnecting with other existing operators 
has also met with limited success, and may limit widespread 
acceptance outside Yerevan. An open border with Turkey would 
lower operating costs. END SUMMARY. 
 
BACKGROUND AND PLANS 
-------------------- 
 
¶2. (SBU) U-Com (www.ucom.am), an internet service provider, 
began operations in 2007 with a rudimentary WiMax technology 
that connects corporate customers to U-Com's fiber-optic 
network on a limited basis. By 2008, the strategy to deliver 
a fiber-to-the-home (FTTH) solution took shape and by 2009 
they had wired central Yerevan and two nearby affluent 
neighborhoods. Depending on its success in Yerevan, U-Com 
plans to expand "triple play" service (TV, Internet, and 
fixed-line telephony) to the cities of Gyumri and Vanadzor by 
the end of 2010.  Stringing the country with fiber optic 
cable can be extremely costly, and Hayk Yesayan, General 
Director of U-Com, added: "We have to make money in Yerevan 
before we can expand any further." 
 
WIRING YEREVAN 
-------------- 
 
¶3. (SBU) U-Com is stringing fiber-optic lines along the 
streetlight electrical cables in each neighborhood. The fiber 
enters residences on the same conduits used by telephone, 
electric, and gas lines. Within buildings, the fiber uses 
existing service shafts or ducts to reach individual 
dwellings. 
 
¶4. (C) U-Com did not reveal their investors' identities, but 
hinted at foreign investment from Europe, the U.S. and Russia 
in addition to domestic Armenian sources. (NOTE AND COMMENT: 
One local name mentioned is the current Mayor of Yerevan, 
Gagik Beglarian, who, it was suggested, used his influence to 
facilitate access to streetlight poles. An ownership role by 
such an insider is entirely consistent with how of business 
is typically conducted in Armenia. END NOTE AND COMMENT). 
 
SERVICE LEVEL AND COMPETITION 
----------------------------- 
 
¶5. (SBU) Each end customer will have the capacity for maximum 
speed of 1 Gigabit per second (Gbps). This allows for 
convergent triple-play services: Internet, fixed-line 
telephone and TV (including 76 standard definition, 4-5 high 
definition (HDTV), and interactive video-on-demand services 
in high definition).  No other competitor in Armenia has 
announced such an ambitious plan. 
 
¶6. (SBU) U-Com,s competition is fragmented over several 
service types: Mobile operators in the voice market, cable 
and satellite TV in the video market, and the many internet 
service providers (ISPs). Their biggest challenge so far has 
been in educating the public about convergent services and 
the advantage of switching to a single provider for three 
services. The lack of number portability is seen as the 
biggest obstacle in convincing customers to adopt the new 
model. 
 
FIBER NETWORK IN YEREVAN AND BEYOND 
----------------------------------- 
 
¶7. (SBU) U-Com owns the fiber used in Yerevan and plans to 
own the fiber laid in any future area. It currentlyleases 
fiber capacity between towns and cities from all three major 
bandwidth providers in Armenia: GNC Alfa, FiberNet, and 
 
YEREVAN 00000073  002 OF 002 
 
 
Armentel. U-Com has partnered with GNC Alfa by investing in 
their infrastructure in return for favorable prices. U-Com 
currently does not have redundancy in their fiber network, 
but plans to improve survivability of cable breaks by 
creating metropolitan rings of fiber that would connect each 
customer to at least two different servers of content and 
connectivity. 
 
CURRENT AND FUTURE PLANS 
------------------------ 
 
¶8. (SBU) U-Com has completed a contract to connect municipal 
offices in all the regions of Armenia with high-capacity 
fiber links. It plans to deploy fixed-line telephony service 
in all the towns with municipal offices.  The competitive 
advantage will be lower tariffs on international calls and on 
long-distance charges within Armenia between customers on the 
same network. U-Com is in the process of applying for an area 
code and a number scheme, . The company is not involved with 
the GOAM's nationwide broadband initiative ("Broadband 
Armenia")(reftel), but is receptive to participation. 
 
IMPORTING EQUIPMENT 
------------------- 
 
¶9. (SBU) U-Com has faced little to no difficulty in importing 
electronic equipment from Europe and the U.S. It has taken 
advantage of a GOAM policy that defers the VAT payment on 
imported goods for three years if the value of the good 
exceeds AMD 300 million($800,000). The network equipment is 
primarily imported from Ericsson in Sweden. U-Com also 
imports their CISCO and Motorola set-top-boxes directly from 
the U.S. 
 
INTERCONNECTING WITH INCUMBENT PROVIDERS 
---------------------------------------- 
 
¶10. (SBU) One of the major challenges U-Com faces is in 
interconnection with fixed-line telephony providers. While it 
has successfully tested its interconnection with the mobile 
operators (Beeline, Vivacell, and Orange), interconnection 
with the fixed-line telephone service of Armentel in Yerevan 
was only partially successful. In addition, Armentel lacks 
the ability to interconnect with operators at any location 
outside Yerevan. Armentel does not have the equipment at 
their regional offices to interconnect (billing and 
connectivity) with other operators, nor do they have any 
plans to add such equipment. This means that a U-Com customer 
outside Yerevan would incur long-distance charges when 
calling an Armentel customer in the same town or in any 
location outside Yerevan. Failure to resolve this shortcoming 
could seriously complicate U-Com's efforts to expand its 
services outside Yerevan, and there is little incentive for 
Armentel to help U-Com resolve it. (Note: Under current law, 
no operator is required to interconnect with any other 
operator unless the Public Services Regulatory Commission 
(PSRC) specifically mandates it. END NOTE.) 
 
ACCESS TO TURKEY 
---------------- 
 
¶11. (SBU) U-Com looks forward to the open border with Turkey 
for connectivity to Europe, which it expects would lower the 
price of providing Internet and improve the quality of all 
services. 
 
COMMENT 
------- 
 
¶12. (SBU) U-Com's planned service is part of the meteoric 
improvement in telecommunication services in Armenia in just 
the past year. They have an ambitious service model and while 
-- as with many recent entrants to the ICT sector -- they 
appear to have murky insider participation, the company thus 
far appears to be acting within the scope of the law.  Their 
success or failure is difficult to predict, but introduction 
of this service will increase expectations of the Armenian 
public.  END COMMENT. 
YOVANOVITCH