Re-entering the Mobile Market

Economic News

22 Jul 2010
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This week, Ukrtelecom announced it would re-enter the mobile market in Ukraine following the signing of a three-year frame agreement for the supply of network equipment and operating services.



The deal, the value of which was not disclosed, followed President Viktor Yushchenko's visit to Nokia headquarters in Helsinki on October 27. Services will initially be available in Kiev and then subsequently rolled out to other major cities and regions. The introduction is planned for 2007.



Nokia will supply infrastructure including 3G radio solutions, base stations and network software. Service management, system billing solutions and training services also form part of a longer-term relationship. It will represent the first WCDMA 3G/HSDPA network in Ukraine, and will enable Ukrtelecom to provide services such as high speed data transfer for WAP, video calls and streaming for video and audio.



The government owned Ukrtelecom controls 80% of the fixed line telephony market in Ukraine with around 9.3m customers. The company has seen profits fall year on year as mobile networks steal customers away from fixed line services. New mobile companies who have more liberal regulations have been able to capture a large share of the telecommunications market. The company has attempted to diversify into data services and has invested in a high-capacity national data transmission network. Ukrtelecom was awarded a 3G licence by the government without a tender process. The company has set targets of more than 4m 3G subscribers by 2010, increasing to over 9m by 2013.



Meanwhile, the long awaited privatisation of Urktelecom has been put on hold. In a recent interview Prime Minister Victor Yanukovich noted ambiguously, "The privatisation of Ukrtelecom was regulated by a law suspended at the request of Yulia Tymoshenko's (the former prime minister) government. Its privatisation process could resume after the parliament and government make the relevant decisions."



GSM companies in Ukraine have continued to show rapid growth with the penetration rate reaching 40.4m subscribers by September 2006, representing 84.9%. Putting an exact figure on the number of users is not easy as many are thought to carry more than one SIM card. Mobile operator Kyivstar accounted for 43.8% of the total subscriber base in September, Ukrainian Mobile Communications (UMC) for 40.5% while Astelit and Ukrainian Radio Systems (URS) accounted for 12.7% and 2.3% respectively.



Operators continue their push to expand their network coverage, which represents a significant investment in the country. Astelit now covers 83% of the Ukrainian population and URS over 60%. URS recently announced that it plans to expand its network to cover around 90% of the Ukrainian population by the end of 2006.



Telenor, which owns 56.5% of Kyivstar, announced third quarter results on October 26 showing strong revenue growth of 48%. However, the bullish performance is overshadowed by a Supreme Court ruling on October 3 stipulating that despite their majority stake in Kyivstar, Telenor must share the management of the company with minority partner Storm, who own 43.5%.



The legal ruling has seen majority shareholders deprived of their ownership rights in Ukraine and gives Telenor and Storm equal seats in the Kyivstar board of directors.



Altimo, the telecoms arm of Russian banking group Alfa, is the owner of Storm. The group has been in dispute with Telenor following a decision to enter the Ukrainian market with the Vimpelcom brand, also partly owned by Telenor and Altimo. Vimpelcom launched the Beeline brand in April 2006 and it has registered very strong growth. On October 24 Vimpelcom announced that the subscriber base had quadrupled since the beginning of the year to 1m users.



Telenor Executive Vice President Jan Edvard Thygesen commented on the ruling, "the decision made by the Ukrainian Supreme Court risks striking down one of the basic principles of property ownership, the right of a company's majority owner to a majority of seats on the company's board. If this decision stands, it will set off alarm bells for many current and potential investors in Ukraine." He went on to say that he considered the case to amount to little more than corporate raiding.

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