Ukraine IT Landscape:
Computing & Internet Diffusion

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The Ukrainian market for Internet services is young and limited. Economic factors, the business environment for small and medium size companies, and reduced incomes of Ukrainian citizens will determine the pace of the Internet market growth. Another factor to consider is the level of integration into Western markets. Differing from the U.S. and Western Europe, the Ukrainian market for Internet services depends more on availability of telecom and computer infrastructure than on demand for ISP services. This dependence is due to the monopoly of Ukrtelecom in the public telephone system and the high charges for access to international channels. Identified obstacles to the development of Internet services are; the lack of a local loop development, and legislation that would determine the legal status of Internet-related businesses (e.g. Internet telephony, e-commerce, information security, etc.) None-the-less, the number of people online in Ukraine has been increasing steadily. In 1995 there were only 10,000 people using the Internet, according to Economist Intelligence Unit estimates. The numbers online in 2000 reached 528,000, up from 189,000 in 1999.4 At the end of 1999, less than 2% of the population had a personal computer. Estimates from IDC and Compyuternoye Obozrenye show that sales of PCs in 2001 may reach 196,000 units, up from an estimated 155,000 sold in 2000. As PCs proliferate and the telecommunications infrastructure improves, even more people can be expected to come online in the next year.  According to the US and Foreign Commercial Service in Kyiv, a typical Internet user in Ukraine is male between the ages of 21 and 27. The majority of people online are government or corporate employees. About 30% of Internet users are online for personal use. 5 The ISP sector is viewed as low in profitability.  However, this sector performs better than other ICT industries. To expand the local market for Internet services, ISPs have created the Ukrainian backbone network.  ISP companies that operate outside of Kyiv are at a disadvantage, because they have to pay both for access to international channel and for a dedicated digital or fiber optic line from their town to the capital, comparable to the cost of international access. To lower these costs, regional providers use radio relay channels that are outdated and unreliable, or voice band frequencies of Ukrtelecom. In the near future regional ISPs may opt for satellite channels. It should be noted that many of the larger ISP providers feel the demand for additional Internet connectivity. The increasing Internet traffic and expensive international channels have forced ISPs to look for affordable Internet over satellite solutions.  Connectivity  Telecom infrastructure in Ukraine needs a massive upgrade before it can support widespread e-commerce and sophisticated e-business applications.  At the end of 2000, 19% of the population had a fixed telephone line, according to Pyramid Research. This is on par with nearby Russia and Romania but is lower than Eastern European neighbors to the west. Penetration of fixed lines is forecast to increase steadily through 2005. Pyramid predicts that about 200,000 lines will be added every year through 2005, increasing teledensity of fixed lines to 25 per 100 people.  The current mobile market in Ukraine is even smaller, but will continue to notch up. Mobile penetration is 1.7%, according to Pyramid, but will reach 9% in five years.  Dial-up service is the most common way to access the Internet. Internet dial-up accounts are forecast to increase significantly over the next five years. Today there are 200,000 users with dial-up accounts, says Pyramid. More than 100,000 users will come online each year through 2005.  Pre-paid Internet access cards are also increasing in popularity. ISP Adamant issued 10,000 last year, and intends to discontinue the provision of contractual dial-up service in favor of the cards.  Those with cable television access will also continue to increase, from 703,500 today to 1.2bn by 2005. This growth in cable television subscribers may channel users towards using cable Internet access services in the years ahead.  ISP market The incumbent telecom, UkrTelecom, has not capitalized on its presence within Ukraine and has consequently allowed newcomers to dominate the Internet market. It remains to be seen whether the company will manage to establish an Internet strategy, go after new users and perhaps reclaim some of those using alternative Internet providers.  According to the State Committee on Communication and Information, there are now about 260 Internet providers in Ukraine. There are 41,660 Internet hosts, 23,549 sites in the .ua domain and 11,498 web servers. 6

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