The Ukrainian telecommunications market has enjoyed dynamic growth over the last five years, with an increasing number of telecommunications operators. According to the National Communications Regulation Commission (the NCRC), the Ukrainian telecommunications regulator, the number of licensed telecommunications operators reached almost 1,500 in Ukraine in 2009. The NCRC reports stable development of the industry despite the global economic crisis.
The prospects of the Ukrainian telecommunications sphere depend on a range of factors, the regulatory framework being one of the most important among them. Further growth of the industry will in many respects be contingent on whether the regulator will be prompt and effective in addressing the challenges facing the telecommunications market. A number of amendments to the telecommunications law, which have recently been adopted or are being considered by the Ukrainian Parliament, may contribute to the development of telecommunications services in Ukraine. For instance, the changes in the radiofrequency licensing procedure made in late 2009 permitted mobile operators to reallocate frequencies, an opportunity not available before. This regulatory development may be important for the effective use of the frequency spectrum as a whole. Specifically, it is likely to optimize the use of the spectrum, which is currently highly fragmented requiring more bordering channels, by providing the possibility to minimize the number of bordering channels through reallocation of frequencies.
The NCRC approved new licensing rules for fixed telecommunications services in late 2009. The new rules, unlike the previous ones, do not provide for separate IP telephony licensing and, therefore, are more technologically neutral. Another development is the introduction of IMEI base and such services as number portability (to become effective in early 2011) and national roaming. Speaking about the proposed legislative amendments, a draft law recently submitted to the Ukrainian Parliament seeks to simplify market access by removing the requirement to obtain a license for certain types of telecommunications activities. Also, there are ongoing discussions regarding setting up of a universal services fund, an idea met with lukewarm support by the market. It is unclear at this point whether such a fund will be established since several recent proposals in this respect have failed.
Lack of agreement and coordination between various state authorities often stands in the way of introduction of new technologies and solutions in Ukraine. A striking example of this is the situation, which arose around the third generation mobile telecommunications services with the use of UMTS technology (3G). At present, only one operator in Ukraine (Ukrtelecom, a state-owned telecom monopoly) has a license to render such services. A plan to issue four new 3G licenses was announced in September 2009. The NCRC scheduled the tender for the first of the four licenses for 27 November 2009 despite the fact that the conversion of the relevant radiofrequencies was still underway. The tender was cancelled by the NCRC itself on 27 November 2009.
The main reason behind the cancelation was inability to accomplish conversion of the required radiofrequencies following a motion by the President of Ukraine to the Constitutional Court, as "M&A activity involving top telecommunications market players continues to shape the market" well as differences between the military, the government and the President as to the radiofrequency conversion and the licensing procedure. The Constitutional Court dismissed the President's motion on 27 January 2010.
Eventually, a working group was formed to finalize the draft conversion plan. Although Ukraine still lags badly behind in the 3G technology sphere, the relevant license tenders are expected to take place no sooner than late 2010. Along with further development of the telecommunications market, fair competition issues come to the forefront in Ukraine. For instance, the matters recently considered by the Antimonopoly Committee of Ukraine (the AMC) include the following: the case regarding recognition of Ukrainian mobile communications operators as monopolists in the market of provision of access to their own networks; the issue of fraudulent advertisement in the telecommunications market (in respect of the so-called "zero" tariffs); and formation of the tariffs for access to the electronic communications cable ducts. Notably, three telecommunications companies are on the top-ten list of undertakings subject to the largest fines imposed by the AMC in 2009.
The above is indicative of increasing attention on the part of the antitrust authority to the telecommunications industry, which may significantly influence development of the latter. M&A activity involving top telecommunications market players continues to shape the market. A major deal in this sphere is the transaction between Telenor Group, a leading provider of telecommunications services worldwide, and Altimo, the telecom arm of the Alfa Group, completed in April this year, where Asters acted as a Ukrainian counsel to Telenor. As a result of this transaction, Telenor and Altimo combined their common assets in OJSC VimpelCom, a major telecommunications operator providing services in Russia, the CIS and Southeast Asia, and Kyivstar, a leading Ukrainian telecommunications operator, under a single holding structure, VimpelCom Ltd. The contemplated sale of the state-owned shareholding in Ukrtelecom may become another landmark transaction in telecommunications sphere, which will not only change the market balance, but also influence further regulatory process.