2011 Ukraine - Telecoms, IP Networks, Digital Media and Forecasts

Ukrtelecom’s sale implies overhaul of Ukraine’s mobile sector

BuddeComm’s quarterly publication, Ukraine - Telecoms, IP Networks, Digital Media and Forecasts, provides a comprehensive overview of the trends and developments in the telecommunications and digital media markets in one of Europe’s and key telecom markets.

One of Eastern Europe’s largest countries, Ukraine enjoyed strong economic growth in the early part of the century, though in common with its neighbours the country has been adversely impacted by the global economic turmoil. It was obliged to turn to the IMF for assistance in late 2008, and has since worked to restore economic health. The telecoms sector has not fared as badly as other areas, but since 2008 revenue growth has been minimal. This is likely to continue into 2012 at least though thereafter the prospects are likely to improve as liquidity issues lessen and the economy as a whole improves. Although Ukraine has important economic ties with Russia, reflected in Russian investment in the country’s telcos, it has sought an increasingly close relationship with the EU, and the government actively pursues a policy of EU integration. This would have significant implications for Ukraine’s telecom sector, not only in terms of tighter regulation but also in its capacity to cope with competitive pressure and market forces within the Union.

Ukraine’s large population supports a significant telecom market, worth an anticipated UAH48.5 billion in 2011. Market growth for 2012 is forecast reach only 4%, attributed to saturation in the mobile market and low growth in fixed line services.

The prison sentence handed to Yulia Tymoshenko, a heroine of the 2004 Orange Revolution and Prime Minister before losing to Yanukovych’s in the 2010 Presidential elections. The EU’s negative reactions to the sentence may have repercussions for the country’s EU membership: the recently granted visa-free travel for its citizens in the Union for short stays may be rescinded, while the free-trade agreement (which was expected to be in place by mid-2012, and is considered a further encouragement to the EU membership process) are also jeopardised.

As for telecoms, the sector desperately needs the regulatory clarity which the EC’s telecom framework can deliver. The influence of the EU, as well as the regulatory conditions which Ukraine must meet, would go far to promoting market competition. Until recently, the lack of an independent regulator and transparent regulatory system had discouraged investment from the major Western European telcos looking for opportunities beyond their highly competitive domestic markets, and thus contributed to market stagnation. The EU, as well as Western European and Russian telcos, will be looking for some political, judicial and regulatory certainties to encourage them to make further ties to the country.

Fixed broadband take up in Ukraine is growing quickly on the back of increased competition and the flexibility of cross-platform availability. FttB-based broadband services are increasingly available, though thus far restricted to the main towns. Kyivstar’s fibre network connects over 20,000 apartment buildings serving more than 2.2 million units. During 2011 the company planned to double its broadband coverage area by adding fibre in additional towns as well as those within its existing footprint.

Ukraine’s competitive mobile market is looking to develop mobile broadband services as the next growth opportunity in the wake of operator investment in newer technologies such as HSPA. Demand for content is expected to grow significantly in coming years as falling mobile data tariffs lead to increased numbers of mobile Internet users. However, thus far the major GSM operators have been hampered by lack of licences to offer 3G services. However, the sale of the incumbent Ukrtelecom has meant that the company’s unprofitable mobile unit will be offloaded, with its spectrum likely to be reassigned.

Key telecom parameters – 2010 – 2012

(Source: BuddeComm)

Key Highlights

• Broadcasting revenue looks set to broach UAH2 billion in 2011 as DTTV services reach national coverage. The sector continues to suffer from poor channel line-up, to the advantage of the CATV and satellite sectors.
• The number of satellite users in Ukraine is far in excess of the number of paying subscribers, such is the extent of piracy in the country. The lack of revenue contributed to the Poverkhost platform folding at the end of 2010. Nevertheless, with multichannel penetration in mid 2011 at only 25% of homes, the potential of the country’s pay TV market is large. The economic slowdown, which has affected customer spend, may favour the low-cost approach of Xtra TV and Lybid TV, due to launch at the end of 2011.
• In mid-2011 Kyivstar began selling excess base stations decommissioned as a result of its integration with Beeline Ukraine: Kyivstar planned to remove two-thirds of Beeline’s former base stations.
• Military and civilian government departments have agreed on a compromised version of a plan to convert a 100MHz block of spectrum in the 2.1GHz band, costing UAH2.5 billion, of which a third is to come from the private sector mobile network operators and two-thirds from government funds. The move will fast-track mobile broadband availability in remote areas in coming years.

This report is essential reading for those needing high level strategic information and objective analysis on the telecom sector in Ukraine. It provides further information on:

• Market liberalisation and regulatory issues;
• The impact of the global economic crisis;
• Telecoms operators – privatisation, acquisitions, new licences;
• Mobile data market developments in coming years in light of spectrum auctions and new license awards;
• 3G developments, regulatory issues and technologies including HSPA;
• Broadband migration to an FttH architecture;
• Historical and current subscriber statistics and forecasts;
• ARPU statistics and forecasts.

Data in this report is the latest available at the time of preparation and may not be for the current year.