Georgia’s Internet Market – Low Quality, High Prices
18 April, 2015
Georgia’s Internet Market – Low Quality, High Prices
Georgian internet users have recently witnessed another round of price hikes, while the quality of the internet service remains questionable. Sector pundits believe the reason for growing prices and decreasing connection quality is a cartel agreement between two monopolist internet providers. To prevent price hikes in the future, they call upon the regulatory body to research the price-making policy and introduce cap retail tariffs.

The global tendency is to make high-quality internet available at a cheaper price. Georgia seems to be
moving in the opposite direction, unfortunately. Internet tariffs grow on an almost yearly basis. Every price hike is initiated either by Silknet or Caucasus Online, the two major internet providers.
There are up to 10 internet providers in Georgia (including Silknet and Caucasus) but in reality the consumer has to choose between companies that dominate the internet market. So the remaining internet providers buy internet at either Caucasus or Silknet and thus cannot offer cheaper prices. Every time the two companies increase prices almost simultaneously and justify each price hike with improved speed and quality. But nobody can check their service quality, as Georgian law envisages no quality standards.
In March, these two jacked their consumer tariffs up again, from 5 to 30 percent. And consumers had only two options: either move to a slower package or pay more. Neither of these options fit the consumers’ interests, say sector pundits and consumer rights’ watchdogs.
The last price hike was initiated by Silknet. It increased its prices on March 4th by an average of 6-10 GEL [20-30 percent] for both internet and TV services. The company explained that the reason was the doubled quality and speed of the internet. Caucasus followed suit on March 23. It increased tariffs by 2-5 GEL [5-11 percent]. However, unlike Silknet, Caucasus increased neither the quality nor the speed. According to its official statement, the price hike was a result of the difficult economic situation at both international and local markets.
The Association of Young Financiers and Businessmen of Georgia has researched the price-hike. The organization came to the conclusion that it was completely unfair and that the regulatory body must interfere. The study has reviewed the expenses of the two internet providers and found that their outlays in 2014 have decreased significantly compared to 2013. Therefore, they believe the recent price hike is baseless and indicates a cartel agreement.
“Caucasus Online and Silknet take more than 60 percent of the market. Therefore, they set the game’s rules, and their price policy is under a big question mark. There exists a very reasonable suspicion that a cartel agreement may have taken place. I think that they are taking advantage of their market position. The recent price hike seems unfair, and consumers have no choice in the matter,” said Shota Gubani, Vice President of AYFB, in an interview with Georgian Journal.
AYFB analysts also indicate that internet prices in Georgia are the most expensive in Europe and CIS [except Armenia and Azerbaijan, due to these two countries receiving their internet connection through Georgia]. This may deal a negative blow to the Georgian economy. For comparison, the average price for a 100-megabit per second connection is 100 GEL in Georgia. The same connection costs 12 GEL in Ukraine, 33 GEL in Latvia, 22 GEL in Lithuania and 12 GEL in Romania.
“Internet is not a luxury any more. It is an important source and medium of education and business operations. High prices will deal an indirect blow to the Georgian economy. So it is vital that the Georgian National Communication Commission [that regulates the market] research the price-making policy. GNCC must find out why prices are so high and why these two monopolist companies keep increasing them further,” Gulbani said.
AYFB analysts believe that the introduction of cap tariffs on consumer packages can be a way out. Therefore, they appealed to GNCC on April 7th to research the market and introduce cap tariffs if necessary.
Tamta Tepnadze, the Communication Ombudsman at GNCC, also questions the recent price hike, particularly on the part of Caucasus Online. She asks GNCC to demand detailed information about the reasons that led Caucasus to increase tariffs. In addition, the Ombudsman’s office questions whether or not the service quality corresponds to the prices and asks the GNCC to work quality standards out as well.
“There is no regulation in Georgia that prohibits companies from increasing prices,” Tepnadze explained to GJ. “Georgian consumers today cannot get the quality that would be adequate for the price. It is necessary to work out quality criteria and standards and to carry out future monitoring and research work based on them.”
According to Khatia Kurashvili, a spokesperson of GNCC, the regulatory body tries to insure fair prices through indirect means. For example, the regulatory body has just recently set a 32 GEL megabit per second cap limit on wholesale prices. This tariff took effect on March 1st, 2015, and is almost four times less than the price, that the companies demand – 120 GEL on average.
“GNCC will be closely monitoring the market reaction to indirect factors. If the problems continue, GNCC will undertake administrative measures and discuss the necessity of cap tariffs for retail prices as well,” she said.
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