Ukraine IT Landscape:
Privatization & Deregulation

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The Ukrainian government has failed, thus far, to liberalize the national telecommunications industry.  It currently remains controlled by governmental entities and interest groups.  The financial aspects of the industry lack transparency and consistency and are influenced by political and personal considerations. Because of these factors, the Ukrainian telecommunications industry cannot be viewed as a freely competitive industry.  In particular, the telecom situation would improve dramatically if privatization of the national telecommunications monopoly, Ukrtelekom, were to occur.   Parliamentary resistance to this action has delayed privatization for years. None-the-less, the quality of telecommunications services available in the Ukraine has improved over the past few years as private, independent providers with their own networks aggressively challenge the traditional dominance of Ukrtelecom.  Ukrtelecom owns the entire old national network and the city and inter-city networking.  It also controls 98% of the country's fixed lines. To prepare for eventual privatization, the state telecommunications monopoly has been restructured and today includes 30 branches that provide basic telecommunications services to more than 9 million subscribers.  Ukrainian Mobile Communications (UMC) is Ukraine’s largest mobile operator with about 600,000 customers.  It is a joint venture between Ukrtelecom and three foreign firms that have a 16.3% stake each: Deutsche Telekom (Germany), Tele Danmark (Denmark) and KPN (Netherlands).  Ukrtelecom offers telecommunications services to businesses through Utel, which was formed in 1992 and handles inter-city and international traffic.  Until recently, Utel was a joint venture between Ukrtelecom (51%); while AT&T (U.S.), Deutsche Telekom (Germany) each owned 19.5%; and Brokbiznesbank (Ukraine) owned 10%. Public concern has been expressed that this realignment under Ukrtelecom will inhibit further development of Ukraine's long-distance market and slow the privatization of Ukrtelecom.  Although the long-distance market was liberalized in 1994, it is not possible to choose a long-distance provider separately: a Utel line comes with Utel long-distance service, and a GT line comes with GT long-distance service.  As evidenced above, none of the mobile communications service providers are 100% Ukrainian.  Each has a foreign partner(s) that contributes to the joint venture's financial capital, and frequently technology, equipment and knowledge.  The Ukrainian Law on Communications established a provision under which the foreign share in a company that provides telecom services in Ukraine cannot exceed 49%. For this reason, despite the investment a foreign partner makes, only the Ukrainian private or state company is entitled to apply for operational and frequency licenses and to hold a 51% share of the joint venture. The above provision does not regulate the distribution of profits which can reflect the actual investment made by other parties. Ukraine is a country where a business needs political backing to succeed.  Although the Ministry of Communications is an entity that issues licenses, they are seen as having mostly a consultative voice. The real decision-makers, controlling most aspects of telecommunications in Ukraine, are: Presidential Administration National Security Council Office of Prime Minister Interagency Commission for Use of Radio Frequencies under the Cabinet of Ministers Ukrchastotnaglyad (Ukrainian State Center for Frequencies and Control over Telecommunications) GURCH (Main Department for Radio Frequencies at the Cabinet of Ministers).  Cable TV The development of cable TV in Ukraine is limited for a variety of reasons.  There is a lack of purchasing power, control over user fees is determined by city authorities, and there is a lack of relevant legislation. Yet, cable TV in Ukraine, say industry experts, is ahead of other comparable countries. Existing towers, which service the national TV and radio broadcasting networks, are not today capable of distributing all Ukrainian channels that wish to broadcast nationally. Since satellite equipment is not available or affordable for most Ukrainians, cable TV is the only option available to meet the demand for channel choice and signal quality. According to industry specialists, the number of cable TV operators in Ukraine is unknown, but the potential for cable TV customers is assessed at 10 percent of the population. There are six operators of cable TV networks in the Kyiv alone. The largest services 260,000 residences but has the capacity to service 300,000. Existing cable TV networks in Kyiv are growing at 10,000-15,000 residences per month. The total number of cable TV customers in Kyiv (a city of 3 million people) is 650,000. Many operators utilize fiber optic cables with a wider band wide capacity which allows them to offer more than fifty channels and Internet access. TV & Radio Broadcasting The TV broadcasting industry is a dynamic and active industry in Ukraine. Revenues for the television market are estimated between US$40 and 140 million. A system of 240 radio relay stations used for TV and radio broadcasting covers Ukraine. The capacity of this outdated and technically dilapidated network is hardly sufficient to support the transmission of four national TV channels. To date, Ukrainian authorities have granted more than 600 licenses for radio and TV broadcasting in Ukraine. However, only six TV broadcasting companies can claim to be broadcasting nationally.  State-owned regional TV broadcasting companies (25) and a number of smaller companies operate within the limits of one city or one region.  The reconstruction plan for the industry, as conceived by the Ukrainian Government in 1997, provides for the 240 existing radio relay stations to be equipped with equipment for satellite TV/radio/telephone communications.  Reorganization of the transmission network would create additional openings for nation wide broadcasting for approximately 10 new channels.  This is still under development. It is very important to note that administration of the Ukrainian TV broadcasting industry is by government entities and is heavily influenced by financial and political groups. Many licenses for TV broadcasting expired in 2000 and the National Council for TV and Radio Broadcasting doesn't renew expired licenses automatically, particularly to those that have fallen out of governmental favor.

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