You're reading: YEAR IN REVIEW: Telecommunications in Ukraine

2012 for the Ukrainian telecommunications sector could be named a year of the stable lull: a slight rise in incomes was seen, although due to various reasons there was no splash in development, which had had all chances for happening.

According to the State Statistics Service of Ukraine, in 11 months ending November 30, 2012, incomes of the sector grew by 2.8% (or 1% taking into account inflation) year-over-year, to Hr 47.6 billion. 

MOBILE COMMUNICATIONS IS A DRIVER OF THE SECTOR.

The mobile communications market still brings the largest income for the sector. In January-November 2012 mobile operators earned UAH 28.888 billion. The ratio of market shares among GSM operators did not change. The leader in the number of subscribers and the size of income is Kyivstar, which jointly with Ukrainian Radio Systems and Golden Telecom is part of the Ukrainian business unit of VimpelCom Ltd. According to analysts from iKS Consulting, as of November 1, 2012, the operator’s market share was 44.8% (the share narrowed from 45.9% from a year ago), servicing 25.34 million subscribers. The market share of MTS Ukraine, which fully belongs to Russia’s Mobile TeleSystems, is 35.2% (36% a year ago). The company services almost 20 million subscribers. The third player of the market – Astelit LLC, which provides services under the life:) brand (its shareholders are Turkey’s Turkcell and Rinat Akhmetov’s SCM holding) – was the only operator which boosted the market share from 13.1% to 14.4%. Its clientele base as of late October 2012 stood at 8.2 million subscribers.

CDMA IN 2012: ONE OPERATOR LEAVES MARKET

In 2012, the forces on the Ukrainian CDMA market were redistributed. The share of the CDMA segment of the mobile communications market is 4%. By the end of the year, one player left the market – International Telecommunication Company LLC (ITC, the CDMA Ukraine brand). In November, the regulator of the sector – National Commission for Communications Regulation (NCCR) – canceled some licenses of the operator and re-registered the phone number resource of 500,000 numbers to Odesa’s Intertelecom, the leader of the CDMA market. Earlier the radio frequency bands used by the operator were redistributed between Intertelecom and Astelit. As of early November 2012, the ITC’s share of the mobile communications market was only 0.7%.

The shareholders of the operator – Continium Group – do not plan to fully liquidate the company and they intend to focus on the data transfer services.

“The CDMA voice communications cannot compete with GSM operators. Data transfer is a promising segment for us. We’ll develop this direction, as we believe in Internet,” the group’s director general Serhiy Koretsky recently said in an interview with the Investgazeta Ukrainian publication.

Thus, two players left on the CDMA voice communications market – Intertelecom, which subscribers’ base exceeded 1 million in November 2012 and CJSC Telesystems of Ukraine (the PEOPLEnet brand), which serviced around 900,000 subscribers as of late 2012.

Among factors, which hinder the development of the Ukrainian mobile communications market is the absence of a possibility to introduce next generation communications networks – UMTS (3G) and LTE (4G). They are new only for Ukraine, as many countries have 3G networks and they start launching 4G networks.

Each of three GSM operators are ready to invest funds in the building of 3G and 4G networks (this is at least $1 billion to cover the whole country), although the companies do not have the required licenses and frequency bands. The situation with the conversion of frequency bands has come to the deadlock – the Defense Ministry does not obtain funds from the national budget for the conversion, while Ukrainian law does not foresee the use of off-budget funds for the said purposes, the NCCR said. The regulator promises to settle the issue year in and out…

FIXED COMMUNICATIONS: IT IS HARD TO CONTINUE AND IMPOSSIBLE TO GIVE UP

Over the past several years, the global trend has been seen in Ukraine – mobile communications replaces fixed communications. The largest Ukrainian telecommunications operator – Ukrtelecom – which share of the fixed communications market exceeds 70% – only in nine months of 2012 cut the number of its subscribers by almost 4%, to 9.4 million. The operator this year initiated the increase of fixed communications tariffs by the commission to increase incomes from fixed communications services, which jointly with local, intercity and international calls amount to over 70% of all incomes of the operator. The tariffs were increased in two stages – from July 1, 2012 by 10% for city, town and rural area subscribers and from November 1, 2012 – by another 10% for rural residents. This allowed have profits for the operator and on the other hand, this increased the outflow of subscribers.

In the country, where the mobile communications saturation exceeds 120%, there is no sense to fight for the retaining of fixed communications. However, the state does not think so. The NCCR presented statistics, according to which 390,000 people were waiting for the installation of fixed communications phones, including 180,000 in rural areas. The commission again raised the issue of the creation of the Fund of Universal Services to support the fixed communications segment. The new proposal compared to the previous draft law on the creation of the fund (the parliament did not pass it in 2009) was the reduction of pension fund fees paid by mobile operators from their income to 4% (today it is 7.5%) and the introduction of an obligatory extra fee of 3.5% to the telecommunications tariff.

Ukrtelecom is actively lobbying for the creation of the fund. The operator wants to compensate losses from the provision of fixed communications services, especially in rural areas and regions difficult of access, with the help of the fund. Other operators oppose the creation of the fund. They believe that first, the introduction of additional fees will affect end consumers and secondly, the draft law does not have a clear mechanism for redistribution of the funds. As of late 2012, the fate of the fund had not been settled.

INTERNET: PROMISING SEGMENT

The Internet access segment showed the largest growth in incomes in 2012. In 11 month ending November 30, 2012, incomes of the segment grew by 9.3% (taking into account inflation), although the segment’s share of the sector’s income is small: in January-November 2012 Internet services brought UAH 4.2 billion of income, according to the State Statistics Service. According to analysts from iKS-Consulting, as of late Q3, 2012, saturation of the broadband Internet access segment in Ukraine reached 34%.

Ukrtelecom was the leader, which serviced around 1.5 million subscribers as of late 2012.

In 2012, according to studies prepared by analysts of iKS-Consulting, Kyivstar, which earlier was third, left the largest cable provider – Volia – behind in the number of subscribers. Entering the broadband Internet access segment in early 2010, especially after merging its assets with Beeline Ukraine, Kyivstar had a goal to become a first alternative (after Ukrtelecom) operator on the market. In 2012, the company hit its goal. However, at the end of 2012, Volia, which interpedently builds its network, announced a new acquisition. Volia bought Lviv’s Odeko provider, boosting the territory of its presence from 20 to 29 cities and towns of Ukraine.

Thus, competition in the most dynamic segment of the telecommunications market continues. The state added to the segment in 2012. In March 2012, Ukrainian President Viktor Yanukovych ordered the government and NCCR to draw up and define requirements of the creation of technological infrastructure of the Internet network in settlements. An idea of putting the Internet access service to public services could be realized in the future.

Summarizing the returns of the year, one can say that the Ukrainian telecommunications sector is rather alive than… However, the sector has a larger potential for growth and development than it showed in 2012. In the future the development of the sector will depend on many factors, and the main is the state factor.