You're reading: As nation readies digital TV switch, an obscure firm grabs monopoly

Same story, different industry: Officials bless murky company.

Once again, another mysterious monopoly has appeared to capitalize on a lucrative sector of the Ukrainian economy – this time in digital television.

Where the controversial RosUkrEnergo held sway for many years in the multibillion-dollar natural gas trade between Ukraine and Russia, and where most recently the opaque Khlib InvestBud horned in on multimillion-dollar grain exports, an inscrutable private company has suddenly appeared on the digital TV scene at a propitious time.

Zeonbud is the name of the company and, not surprisingly, speculation is running high that people close to President Viktor Yanukovych are behind the company.

Zeonbud arrives on the scene as Ukraine is readying for an October switch of basic access to television, especially important for rural citizens, from analog airwaves to digital.

When digital arrives, up to 10 million TV households will rely on Zeonbud as the sole operator and provider of 32 channels, 28 of them national. This comes despite the firm’s lack of any track record in the business.


This is the first time in Ukraine that contract conditions and tariffs were dictated to TV companies on non-negotiable terms.

Valentyn Koval, technical director of StarLightMedia.

Zeonbud’s monopoly position, including the way it received licenses to build a digital TV network from scratch, has raised more questions than answers.

Zeonbud stands to make close to $2 billion as a provider to national TV broadcasters over the next decade, the duration of its licenses, according to Oleksandr Pivnyuk, a technical consultant in the TV business.

Until March, Pivnyuk was vice president of the state-owned Broadcasting, Radio Communications and Television Concern.

The Organization for Security and Cooperation in Europe, TV broadcasters and media watchdogs have all questioned Zeonbud’s monopoly position.

Its privileged status appears to run counter to the goals of enhancing plurality of opinion, increasing access to information and loosening up the nation’s highly concentrated media market.

“Zeonbud will control the [TV] market with its prices,” said Mariana Zakusylo of media watchdog Telekritika. “The biggest risk…is the absolute non-transparency of what is happening…the National Television and Radio Broadcasting Council selected a company whose owners hide in offshore [zones]…”

At present, 20 TV channels belonging to three media groups rake in approximately 90 percent of Ukraine’s annual $350 million terrestrial TV advertising market. This market will be further diluted once additional channels are made available, since digital TV compresses to make room for more frequencies.

TV broadcasters and media watchdogs in particular are concerned about possible links between Zeonbud and high-level government officials, some of whom are media barons.

They also allege that the nation’s broadcasting regulatory body and anti-monopoly committee don’t have enough authority or will to hold Zeonbud accountable for its actions.

The Independent Association of Tele-Radio Broadcasters has already sent a notice to the government’s anti-trust body stating that Zeonbud is abusing its monopoly position.

In December, Zeonbud, which is cloaked behind Cyprus-based Planbridge Limited, bested another unknown company to obtain four licenses to develop a digital TV network from scratch.

The other bidding company, Kyiv-based Mobilnyi Kanal, didn’t bother to attend the Dec. 8 winning bid announcement by the National Television and Broadcasting Council.

Moreover, bidders had to provide proof they received a Hr 1 billion ($125 million) bank guarantee to build the digital network. Zeonbud secured its loan from state-owned Ukreximbank and paid nearly Hr 8 million – or Hr 1.9 million each – for the four licenses.

This has only fueled suspicions that Zeonbud has high-level connections in government.

“This is a way for people with heavy political influence to convert this project to money once the digital network is launched,” said Valentyn Koval, technical director of StarLightMedia, a media holding controlled by billionaire Viktor Pinchuk, son-in-law to former Ukrainian President Leonid Kuchma.

When asked to explain why a state bank gave such a big loan to a little-known company, an Ukreximbank spokesperson said in an emailed message: “Due to a number of internal banking nuances, we are unable to provide you with a response.”

Registered in 2008 in Kyiv, Zeonbud was until October owned by KPN, according to Interfax-Ukraine news agency.

The Kyiv-based limited liability company was, in turn, owned by Omni International Ventures Ltd., registered in the British Virgin Islands, notorious as an offshore tax haven. It is also a popular place for concealing links to companies.

This is a way for people with heavy political influence to convert this project to money once the digital network is launched.

– Valentyn Koval

Until 2006, Omni International Ventures had a 17 percent share in regional electricity supplier Donetskoblenergo and today still owns a 15 percent stake of coking coal producer Zaporizhkoks, according to Interfax-Ukraine.

The news agency also claims that Omni has also figured in the recent purchase of Kyiv’s centrally located Tsum shopping center by System Capital Management, the holding company of Rinat Akhmetov, Ukraine’s richest man and a backer of President Yanukovych.

But today Zeonbud is owned by Cyprus-based Planbridge Limited. Zeonbud company representatives have said that a “consortium of private investors” is behind Planbridge Limited.

The company’s former director in 2010 promised to disclose Zeonbud’s real owners if it won the digital licenses.

Its new director appointed in June, Viktor Halych, told the Kyiv Post that he doesn’t know who the real beneficiaries are. Halych spoke briefly with the Kyiv Post over the phone, but later cancelled an interview, citing health reasons.

Mykola Kniazhytsky, general director of TVi, one of the few television channels in Ukraine with hard-hitting news coverage, suspects that the Yanukovych administration has put Zeonbud under the control of trusted associates in order to further strengthen the already dominant grip loyal oligarchs have over Ukraine’s media airwaves.

Kniazhytsky said that he suspects Zeonbud to be linked with the interests of Ukraine’s top spy – Security Service of Ukraine chief Valeriy Khoroshkovsky. Khoroshkovsky is also a billionaire businessman who owns Ukraine’s largest television group, U.A. Inter Media.

His partner in the television business has reportedly been billionaire Dmytro Firtash.

Close to Yanukovych’s inner circle, Firtash is co-owner along with Russia’s Gazprom of RosUkrEnergo, the controversial Swiss-registered natural gas trader which monopolized the supply of Russian and Central Asian gas to Ukraine in prior years.

Experts and foreign governments have long questioned the transparency of such murky middlemen companies, including the activity this year on Ukraine’s grain market of Khlib Investbud, a partially state-owned company whose private shareholders remain a mystery.

Critics say decisions by government officials to dole out monopolistic and lucrative roles to such obscure companies smacks of corruption.

Kniazhytsky also raised suspicions that Akhmetov could be involved in Zeonbud.

Kniazhytsky asked why Zeonbud has been granted monopoly control over the terrestrial television business, who its owners are and if they are “linked with the RosUkrEnergo and [Akhmetov] SCM groups, and the president’s family?”

A spokesperson for Akhmetov’s holding company denied any links to Zeonbud. Khoroshkovsky’s U.A. Inter Media has also denied any links to Zeonbud.

Ukraine is a signatory of Geneva 2006, which compels it to upgrade to digital broadcasting along with 103 other countries by 2015. According to Zeonbud’s latest plans, the upgrade should be completed by October of this year.

This is strange that a state agency forces TV companies to sign a contract with a private company as a prerequisite to receive a broadcasting license.

– Mykola Kniazhytsky, general director of TVi

The countries that have already finished or are upgrading usually have done so through multiple public-private partnerships or by hiring a company to make the switchover under transparent conditions.

In Zeonbud’s case, it has a 10-year concession before its licenses expire. The company has set non-negotiable rates to TV broadcasters regardless of their channels’ audience size.

And Zeonbud has eschewed face-to-face contact with TV companies, opting instead to communicate via electronic and postal mail through a post office box when concluding agreements or contracts.

“This is the first time in Ukraine that contract conditions and tariffs were dictated to TV companies on non-negotiable terms,” said Koval, of StarLightMedia, Viktor Pinchuk’s media holding.

Koval added that neither he nor anybody in the TV broadcasting industry have ever heard of Zeonbud prior to it winning the digital upgrade bid.

Zeonbud has yet to disclose its pricing policy and formula to TV companies.

Moreover, broadcasters with existing nationwide analogue TV networks had to competitively reapply for digital licenses with Ukraine’s broadcasting regulatory body, another practice that contradicts European practice.

“This contradicts recommendations of the OSCE-led guidebook,” said Andrey Rikhter, who co-authored OSCE’s Guide to the Digital Switchover.

“If carried out properly, the digital switchover can safeguard human rights, including freedom of the media and the right to access information…Governments must believe that providing their citizens with pluralistic information can only strengthen their democracies,” reads an excerpt of the guidebook.

Mysteriously, the government’s broadcasting regulatory body forced digital TV bidders to sign legally binding agreements with Zeonbud as a precondition before applying for digital broadcasting licenses.

“This is strange that a state agency forces TV companies to sign a contract with a private company as a prerequisite to receive a broadcasting license,” said TVi’s Kniazhytsky.

Zeonbud estimates that 1.5 million households will purchase digital TV sets this year and an additional 1.5 million in 2012. This leaves 6.5 million households that will have to purchase decoders or digital receivers, which cost some $40 per unit.

Zeonbud estimates that 3.5 million households will purchase the decoders while 2 million will receive government subsidized decoders and the remaining 1 million on preferential terms.

Neither the broadcasting regulator nor Zeonbud have outlined clear plans for how this will be carried out.

Kyiv Post staff writer Mark Rachkevych can be reached at [email protected].