Consumers Suffer As Ukrtelecom Lags

KIEV, Ukraine -- Millions of people around the world are using their cell phones to hold video conferences, surf the internet at fast speeds and to watch TV using the latest and greatest technology, so-called third generation (3G) communication.

Apple's upcoming 3G iPhone will not have a bright future in Ukraine.

But in Ukraine, such conveniences appear to be distant or expensive realities due to the lack of competition caused by the state’s go-slow strategy. That means consumers appear destined to suffer from low quality and a lack of choices.

Government officials have their reasons for taking this tack. They are trying to beef up the market value of state-owned Ukrtelecom, the only 3G license holder and one of the nation’s most valuable enterprises not yet privatized.

On July 16, a court stripped Ukraine’s largest mobile phone company, Kyivstar, of the right to attain a license offering third-generation telecommunications, leaving the state’s fixed-line telephone company, Ukrtelecom, with a monopoly. Experts say the decision will put off Kyivstar’s plans to kick start 3G mobile phone, internet and data communication service to thousands of subscribers this year.

The monopoly held by Ukrtelecom will limit competition and, therefore quality, of this hi-tech service that has grown in popularity in other countries. The company officially launched its 3G service late last year under the Utel brand, and claims its network is available in Ukraine’s largest cities.

But Ukrtelecom officials claim their 3G business is growing steadily, 20 percent each month, and currently has some 20,000 end subscribers of its own for 3G services.

Other companies that market 3G service in Ukraine use a less advanced CDMA technology, but Kyivstar and other leading privately-owned telecoms have pushed for regulators to open up the market so that Ukrainians could get a taste of real 3G, which includes video calling, mobile television services and high-speed internet connections in the 3.6-megabit range.

Their most recent effort in the two-year battle against Ukrtelecom’s monopoly license rights hit another snag this month.

Last December, Kyiv’s District Administrative Court ruled in favor of a Kyivstar appeal, arguing in its decision that the company should have the right to acquire a 3G license. But no license has since been granted and an appeal from Ukraine’s telecoms market regulator, the National Communications Regulatory Commission, was upheld on July 16. The Kyiv Administrative Appeal Court has ruled in favor of the national regulatory commission, reversing the previous court ruling that argued that Kyivstar should have a right to a license.

Meanwhile, it is unclear when Ukrtelecom will be sold by the government.

The sale of the telecommunications giant was first approved in 2000. But it has been mired in political squabbles.

The government’s most recent attempt to sell Ukrtelecom came in April this year, when it approved a $2.4 billion starting bid to privatize a 68 percent stake of the company.

The privatization, scheduled for this year, attracted a handful of big potential buyers, including Rinat Akhmetov’s System Capital Management, Russia's Sistema (MTS) and Alfa Group, Turkcell, Magyar Telecom, Telecom Austria and Transtelecom.

Ukrtelecom has almost 80 percent of Ukraine’s fixed line market with subscriber base of 10 million people. More than 92 percent of the company’s stock is owned by the government, while another 7 percent belongs to the company’s employees.

Since 2005, Ukrtelecom exclusively owns third generation connection license in UMTS standard.

After repeated protests from privately-owned telecom competitors, officials last year approved tender procedures to sell additional 3G licenses, but the process was again hung up in bureaucratic delays.

Serhiy Konnov, senior partner at Konnov & Sozanovsky law firm, believes that the state’s tactics of blocking 3G licenses are simply designed to maximize the value of Ukrtelecom ahead of privatization.

“The situation definitely has a political motive. Government wants to increase Ukrtelecom’s capitalization by means of such non-material assets for its further privatization. Its [Ukrtelecom’s] position of the monopoly 3G license holder raises its market value,” Konnov said.

Officials at Kyivstar, Ukraine’s largest mobile communication provider in terms of subscribers, said their company will now face more uphill court battles to defend its rights for a 3G license. Yulia Shilina, the head of Kyivstar’s public relations office, said that the company plans to appeal to a higher court.

Until it wins a license, Kyivstar and other operators will need to offer 3G services to customers via Ukrtelelcom’s network, paying a fee for access.

Maksym Blahonravin, a telecoms expert, said Ukrtelecom's monopoly hampers development.

Today third generation connection is provided by several operators in Ukraine. With service cost ranging from $5 to $60, the companies provide 3G connection based on CDMA technology. Kyivstar and Beeline provide this service through the only available UMTS 3G network operated by Ukrtelecom.

“We currently provide our 3G services through Utel's network. As a result, our 3G service development is limited by Utel's resources, which as you know, are quite limited," Shilina said. If we would have our own license, we would be able to cover about 99 percent of the country, because our network is very well developed,” Shilina said.

According to a report by Advanced Communications & Media (AC&M), a research and consulting agency, the mobile telecommunication market has reached saturation and requires massive investment into new technologies, such as 3G.

Mobile phone subscribers have now reached 55 million. Future revenue growth is dependent on operators’ ability to offer new services. In two years, estimates are that 30 percent of the world's mobile subscribers will be 3G users.

For now, consumers in Ukraine are wanting for competitive and quality 3G services to be made available in Ukraine. Dariya Polishchuk, a 3G subscriber for almost a year, said "the connectivity is not very good, the price is quite high. [Western European] 3G services are...much better,’” she added.

Source: Kyiv Post