Magti’s and Geocell’s appetite curbed
20 January, 2011
Magti’s and Geocell’s appetite curbed

Magti and Geocell, two leading Georgian cell market operators, can no longer enjoy the high profit as they used for years. Georgian communication regulatory body fixed limited retail tariffs for them. Companies question the methodology of the limited tariff calculation and feel discriminated.
Magti and Geocell charging outgoing calls by 32 and 28.8 tetri per minute respectively will have to cut rates to 24 tetri starting April of this year otherwise they will face serious penalties.
Presumptions that cell operators enjoy

unfairly high profit margin in Georgia came true at last.
In February of 2010 Georgia was named as one of the most expensive country globe over respective to cell tariffs by research of a non-governmental watch-dog, the Association of Young Financiers and Businessmen (AYFB). AYFB argued that the reason was the cartel agreements practiced by two monopolists Magti and Geocell for years and hailed Georgian National Communication Commission (GNCC) to handle with the problem.
GNCC disagreed with the accusation however cut down the interconnection tariff [fixed on outgoing calls between cell operators] by 45% past May [from 14.8 tetri per minute to 8 tetri] to give an impetus to cell operators to reduce consumer tariffs. The regulatory body also warned that if retail tariffs did not change by the end of 2010 they would introduce cap tariffs. Cell operators bustled about initially and offered the market different preferential tariff products but the premium [retail] tariff did not reduce. On the contrary, cell operators increased tariffs on outgoing calls to offset the loss.
GNCC kept promise and after a four-month market research [started on September 17, 2010] came to conclusion that Georgian cell market operators enjoy unfairly high retail tariff rates.
To curb monopolists’ appetite GNCC introduced cap tariff of 24 tetri that enters into effect on April 1st, 2011. Beeline, a part of Russian-based Mobitel and the third cell operator of Georgian market, is exempted from the cap tariff till it reaches 15% of market share. According to Georgian law, cap tariff covers only companies with significant market power, and a company is authorized as a significant market player when it takes at least 15% of the market.
Beeline takes just 12% share by today and charges outgoing calls by 18 tetri - much lower than its monopolist peers of Magti and Geocell making 49% and 43% of the market respectively.
According to GNCC figures, Magti charging outgoing calls by 32 tetri per minute spends 17.1 [the figure includes all taxes and profit] in fact, and Geocell charging outgoing calls by 28.8 tetri per minute spends maximum 18.5 tetri itself. Simple calculation shows that Magti and Geocel have been enjoying 87% and 55% profit respectively.
AYFB analysts believe that this profit margin was even higher for the last 15 years as much as the recent calculations include 10% of excise tax imposed on cell calls starting September of 2010 when the GNCC research started.
“Obviously cell companies enjoyed much higher profit till September of 2010,” the AYFB official paper reads. It is a lamentable fact that GNCC needed 15 years to make a decision [to introduce the cap tariff]. During all this period companies enjoyed superb-profit in fact and subscribers had to pay unreasonable tariffs.”
GNCC argumentation is that it has been monitoring the market and cut down interconnection tariffs for several times [from 24.8 tetri to 18.8 and 14.8 gradually, that slipped to 8 tetri past year] to boost cell operators to reduce retail tariffs. GNCC expectation was that tariffs had to be reduced automatically as a result but to no avail.
“After 8 tetri interconnection tariff entered into effect starting August 8, 2010 cell operators even increased charges on outgoing calls,” GNCC informed Georgian Journal. “Commission decided to research the market and as a result introduces 24 tetri of cap tariff that will protect subscribers from unreasonable tariffs on the one hand, and boost operators to offer different tariff products on the other hand.”
But cell operators think to amend their preferential tariff products starting this April so as to balance a cut in premium tariff.  Both Magti and Geocell feel discriminated. They think that tariffs at Georgian market are quite liberal due to severe competition and no extra interference was needed. Moreover, they think that tariffs were reduced actually as they offered the market new very preferential tariff products last summer and subscribers have a big option. As Sandro Sadaghashvili, Head of Legal Department of Geocell, assures interconnection tariff reduction can’t cause retail tariff slump as it is based on sophisticated calculations and these two tariffs can’t be treated equally.
“In other countries interconnection tariff is zero by the way,” he complained to GJ. “It must be abolished if they really want to give an impetus to cell operators. Plus licenses are very expensive here.”
He never rules out to go to court as he believes that GNCC methodology was unfair and was based only on 11 month’s data instead of 12 months. Besides, GNCC did not discuss the issue with companies properly prior the official hearings and restricted them to present their argumentations during the hearing process on January 12, 2011.
Irakli Lobzhanidze, Deputy Director General of Magti, disagrees with the GNCC methodology too but obeys to the legal decision.
“Nonetheless Magti will be implementing regulations imposed by GNCC on the company,” he told GJ.

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