World Bank economists believe that the telecommunications sector, which has been a source of dynamic growth, is becoming less competitive and over-regulated due to the actions of the Communications Service.

The telecommunications sector is critical for promoting development, and competition policies are necessary to ensure the even distribution of the benefits of the digital economy. Tajikistan has declared its commitment to boost the expansion and performance of this sector.

There is consensus that strategies for achieving digital development must be broader than information and communication technology (ICT) and create the conditions and incentives for firms to compete and provide better telecom services. An increase in broadband subscriptions of 10 percentage points can lead to up to a 1.4 percentage point increase in GDP growth rates.117 Despite the government-declared interest in the performance of the sector, Tajikistan lags its peers in Central Asia and the Caucuses in competition, affordability, and individual usage.

Tajikistan performs relatively well for its ICT legal environment, business usage, and ICT sector economic impact, but falls behind for competition, affordability, and individual usage compared to its peers in the CIS region (Armenia, Azerbaijan, Georgia, Kazakhstan, and the Kyrgyz Republic) (Figure 65).

According to the World Economic Forum’s Networked Readiness Index, Tajikistan ranks 114 of 139 economies with a score of 3.3 on a scale from 1 (worst) to 7 (best).118 ICT has been one of the fastest growing sectors in Tajikistan in the first decade of 2000s, as reflected by increased penetration rates.

As the Communication Service (CS) reported in February 2015, sector revenue grew by about 15 percent annually until 2013 and gross revenue accounted for 6.5 percent of absolute nominal GDP. The ICT sector, which employs 20,000 people, has attracted $370 million in private investment since 2007. Tax contributions of ICT companies represent a significant source for the state budget, accounting for 4.8 percent of annual tax revenue in 2014.

Mobile penetration rose from 82 percent in 2012 to 113 percent in 2017, accompanied by a strong increase in mobile broadband penetration (from 6 percent in 2013 to 25 percent in 2017). However, Tajikistan’s broadband market is still in its infancy; penetration remains relatively low and prices high compared to neighboring Central Asian economies (Figure 65). Shifts in market shares across time and the adoption of different advanced technologies underscore the dynamism of Tajikistan’s mobile market (Figure 66). As of March 2018, there were five major operators in the Tajik mobile market: Tcell, Babilon-Mobile, MegaFon, Tacom/Beeline, and Tajik Telecom.

A smaller operator, TK Mobile, had limited operations. With 37.8 percent of customers, Babilon-Mobile has the largest overall market share, followed by Tcell (27.5 percent), Megafon (17.9 percent), Beeline (12.2 percent), and stateowned Tajik Telecom (4.1 percent). As measured by the Herfindahl-Hirschman Index of market concentration, progress has been made since the 2000s (Figure 67), although the withdrawal of international investors from the market in 2017 and 2018 could reverse this trend. All mobile operators have launched 3G services since 2005, and these are gradually expanding outside the capital, Dushanbe. Babilon-Mobile, Tcell, and Megafon offer 4G services, while Babilon-Mobile stands ready to introduce 5G. The situation is different in the data market, where international data transmission constraints negatively impact speed and prices.

Despite modest improvements to international bandwidth (to about 6–8 Gbps), Tajikistan’s data transmission speeds remain the slowest among regional peers and other small, landlocked countries. Data speeds are directly hindered by a lack of competition and Tajik Telecom’s monopoly over Internet traffic. Such slow international bandwidth speeds (Figure 68) cannot support significant increases in trade in services, the development of a knowledge economy, or eposition Tajikistan as a regional hub. International connectivity is limited, in part, as a result of  Tajikistan’s geography and topography; however, efforts to improve data connectivity with regional markets have been blocked by the CS.

Other landlocked countries such as Armenia and Moldova have overcome this constraint and have significantly increased their international connectivity levels by opening up their markets and allowing local networks to connect with global carriers. Restrictions on this market—together with to the mandatory local transit through the Unified Communication Transit Centre (UCTS)—have also affected the prices of broadband services paid by consumers (Figure 69). The price of unlimited monthly access to the Internet in Tajikistan is the second-highest in CIS countries.

The telecoms sector, which was a source of dynamic growth amid open competition in the early 2000s, has become overregulated and less competitive. In contrast to its declared official strategy to develop a more competitive and dynamic telecoms industry,119 through its regulator, the CS, the government has tightened the regulatory environment. There are concerns regarding conflicts of interest involving the sector regulator (which also manages SOEs in the sector) and the designation of Tajik Telecom as an unregulated monopoly for the transit of Internet traffic and international calls gateway. The CS—which functions as a hybrid ministry/policy maker, regulator, and operator of Tajik Telecom—has been stifling private investment and putting a hold on the development of Internet markets in the country. For years, the CS has prevented companies from connecting across the border into Afghanistan and has blocked a fiber-optic connection to China, which would have dramatically reduced connection costs and improved quality and speed.

The CS granted permission to one company to construct a fiber-optic network into Afghanistan but later canceled the permit. The CS has also prevented mobile network companies from jointly constructing a fiber-optic network in the east of the country to improve service quality and coverage. Furthermore, with the establishment of the Tajik Telecomoperated UCTC in January 2016—and the CS requirement that all ISP and mobile operators in Tajikistan pass all Internet traffic through the center—all other operators were put at a disadvantage; they were required to use a competitor’s facility. Other regulations tightened by the CS include those on SIM cards (a maximum of two cards are allowed when there are four mobile operators and no number portability), a ban on roviding international Voice over Internet Protocol (VoIP) communications, regulations governing card retailers, control of Wi-Fi access, and most recently, attempts to set a statutory high price for SIM cards.

Chart 2 outlines these and other measures taken by the CS that have had adverse consequences for competition in the telecoms sector. In addition to those measures, the government attempted to increase SIM card prices in August 2018, tightened controls on access to SIM cards and requirements for SIM card selling points in February 2019, and ttempted to establish high minimum prices for data and voice services in March 2019. Across all indicators for regulatory conditions in the telecoms sector, Tajikistan ranks as one of the lowest globally. The country ranks lowest (with a score of 0) for its telecom’s competition framework.

Tajikistan’s rank further deteriorated from 177 in 2007 to 187 in  2016, putting the country at the bottom of the list of 190 economies globally.120 The Law of ElectronicCommunications (drafted in 2002 and subsequently amended in 2006, 2008, and 2016) governs the sector. Articles 9 and 10 outline the functions and powers of the regulator—to provide for fair competition between telecommunication operators, high-quality telecommunication services, equal access of all users to telecommunications services, licenses for the use of radio frequencies, and to prevent anticompetitive activities (in cooperation with the AMS). The regulatory principles and main regulatory framework included in the law are generally in line with international standards. However the law does not provide sufficient separation between the roles of the CS as policy maker, regulator, and telecoms operator. As a result, the CS lacks independence and accountability. The AMS also has a role in the regulation of the telecoms sector: controlling prices and sanctioning  nticompetitive practices.

Antitrust rules apply to all sectors, including telecoms, and the law of natural monopolies gives AMS the mandate to regulate prices for both final and access services provided by Tajik Telecom. In practice, the CS forwards the suggested prices for AMS review and approval. Furthermore, the AMS has included all five mobile operators in the registry of dominant firms. Therefore, these operators have to submit prices for AMS approval and provide the AMS with an explanation of the source of any price variation. Given the dynamism of the sector and the structure of the market, price controls on competitively provided services should be abolished. In other countries, a detailed analysis of whether an operator has significant market power is necessary before deciding to regulate operator prices, but in Tajikistan, the AMS relies on market share formulas.

This creates an additional regulatory burden on firms that would not qualify as dominant under international standards and creates a risk of potential fines for con-compliance. Applicable taxes and tax administration can constitute significant barriers to expansion, thereby dampening network investment and potentially discouraging elecommunications operators from upgrading or expanding their networks. According to the 2016 Networked Readiness Index, Tajikistan is ranked second from the bottom (137 out of 139 countries), in terms of tax burden (Figure 70).121 As reported by the Association of Mobile Operators of Tajikistan, the overall share of taxes in gross profit of mobile companies increased from 26 to 45 percent between 2011 and 2018. This jump followed the introduction of excise (3 percent), UCTC interconnection costs, and VAT (18 percent) for all incoming calls.

Total taxes and fees constitute about 87 percent of mobile company gross profit, of which 26.5 percent are direct and 60 percent are indirect taxes.122 As major taxpayers, recent decisions by the Tax Committee have had direct consequences for the main mobile and Internet providers in Tajikistan. The latest series of decisions include the imposition of tax penalties on the foregone revenues of private mobile companies providing services free of charge. These changes led to the exit of a shareholder of the largest player in the market (Telesonera sold its shares in Tcell), a reduction in the profits of all mobile operators, and the cancellation of planned investments into the expansion and improvement of services (Figure 71).

A dispute with the tax authorities delayed and almost led to the cancellation of a deal to transfer control of Tcell to a new owner,123 and Veon and MegaFon have publicly considered withdrawing from Tajikistan over similar disputes with the tax authority.124 Eventually, VEON (the main Russian shareholder of Beeline) sold its shares to local investors (ZET Mobile) as a result of incurred losses due to the inability to settle tax fine liabilities of TJS 45 million imposed by the Tax Committee.125 Taxes are estimated to add 33 percent to the cost of Internet connections in Tajikistan,  ndermining access to the Internet in a country where affordability is already challenging. Urgent measures are needed to restore confidence in the telecoms sector, reduce regulatory risks, and take advantage of international connectivity initiatives such as the Belt and Road Initiative. Doing so will require a more predictable regulatory environment to attract investment to the sector.

The current Electronic Communications Law (2010) is technically sound on the principles and regulatory areas needed to promote competition and boost sector performance. However, implementation is lacking. The government needs to commit to implementing the law with a view to allowing for private participation and boosting competition to deliver the best deals for Tajik consumers. Alternatives to address security concerns, for example, could be evaluated to phase out the operation of the UCTC, and access pricing and rules could be updated under the natural monopoly law to minimize distortions to competition. Amending the law to create a clear separation between the mandates of policy making and regulation—as well as separating the commercial and regulatory functions of the CS—would be a next step.

Doing so would help Tajikistan comply with its World Trade Organization commitments on telecommunications. The Communication Service Regulations (2011) could also be amended to adjust the institutional setup, include a collegiate body as the decision maker (instead of vesting all power to the Chief), define maximum terms for board members, and clarify the selection process of board members. Improved corporate governance and results-based monitoring of Tajik Telecom could help improve its performance and reduce the need to rely on regulatory instruments to maintain the company’s market position. Other complementary measures include reviewing the tax policy and administration of telecommunications services and improving the monitoring and evaluation of market dynamics in the sector.