Improving Services

Voice Services

Revenue from voice services reached KZT 146.7 billion in 2012, an increase of 0.4% from 2011. Revenue from outgoing voice services decreased by 3.1% to KZT 114.8 billion. However, an increase in incoming calls from subscribers of other operators had a positive effect on interconnection services and influenced revenue growth in this market segment. Revenues from interconnection charges increased by 20.2%, reaching KZT 26.9 billion in 2012.

Voice services made up an 80.6% share of the Company's revenue in 2012, a decrease of 1.1% compared with 2011. The volume of voice traffic increased by 70% due to an increase in subscriber base and minutes of use per subscriber per month (MOU). MOU rose from 122 to 168 minutes due to increased accessibility of voice services. However, increased traffic and number of subscribers were offset by lower tariffs due to price competition between operators. As a result, ARMU declined from KZT 9.5 to 5.2 in 2012.

Kcell provides outgoing calls in roaming for subscribers outside of Kazakhstan and incoming calls in roaming for visitors in the country as part of its mobile services. As of December 31, 2012, the Company entered into commercial roaming agreements with 348 operators in more than 149 countries, guided by standard agreements of the GSM Association. In addition, Kcell subscribers enjoy preferential roaming tariffs within the TeliaSonera international roaming network.

Data Services

Kcell provides data transmission services, which are primarily Internet access services. Data services have significant growth potential and are an increasingly important source of revenues. Their share of Kcell’s total revenue for 2012 increased from 7.9 to 10.3%.

Revenue from data services increased by 33.4% in 2012 compared to the previous year, reaching KZT 18.8 billion. Data volume increased by 471.1%. The Company facilitated this growth by deploying its own 3G network, thereby increasing the data rate and making related services more attractive for users. Prevalence of smartphones, USB-modems and other Internet-enabled devices also led to an increase in data traffic.

Growth in volume of data transmission was partially offset by declines in tariffs. Subscribers were offered a variety of packages at attractive prices in order to increase the use of this service, for example bundled packages with reduced rates per MB of data transferred. This led to an increase in ARPU for data services to KZT 131.

The Company sees potential for growth in demand for data services. Despite rapid growth in 2009-2012, the penetration rate for mobile data services in Kazakhstan remains well below that in more developed countries. Notably, smartphone penetration in the Kcell network is currently 11%. Growing use of Internet-enabled mobile devices and the relatively young population of Kazakhstan will facilitate growth in the number of mobile data users.

Kcell owns the most extensive 3G network in Kazakhstan. Launching a 3G network allowed the Company to increase its subscribers’ data growth rate and offer new data services, like mapping services, access to social networks and media consumption services, and other services. Kcell will continue to invest in 3G network development in order to extend its range of coverage.

Value Added Services

Kcell offers a wide range of additional services, including short message services (SMS), multimedia messages services (MMS), and information and entertainment services. Value added services encourage users to use Company services more often and increase customer satisfaction, and are thus an important part of Kcell’s business.

Revenues from value added services in 2012 increased by 4.6% from KZT 14.5 billion to KZT 15.2 billion. Most of this increase is due to higher revenues from content services such as ring back tones and other information and entertainment. Kcell is expanding its selection of services and provides its subscribers with access to some services offering third-party applications, including SMS-notifications on a variety subjects, information and entertainment portals, entertainment voice services, virtual services through mobile social networks, and many other entertainment services. The Company also provides other text and interactive services, such as news reports, sports scores, traffic reports, and weather forecasts. Some of these services are provided using MMS or video technologies developed by Kcell.

Revenue from value added services was offset by a drop in SMS revenue from KZT 8 billion in 2011 to KZT 6.8 billion in 2012. The reduction in SMS traffic can be explained first by the increased availability of voice and data services, including communication through social networks and the use of specialized applications such as iMessage and WhatsApp for instant messaging. Kcell offers SMS packages, including SMS bundling with other services, in order to minimize the decrease in SMS revenues.