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Telecommunications: RegulatoryFramework and Recent Developments
Ukrainian Law Firms 2011
Oleksiy Didkovskiy, is the Managing Partner with Asters
Anna Novodvorska, is an Associate with Asters
The telecommunications market in Ukraine has enjoyed dynamic growth over the last few years. According to the National Communications Regulation Commission (the NCRC), the number of telecommunications operators and providers reached almost 1,900 in Ukraine in 2010. 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 of 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.
Basics of Legal Regulation
The principal statutes governing the Ukrainian telecommunications industry are the On Telecommunications Act of Ukraine of 18 November 2003, No.1280-IV (the Telecom Act) and On Radio Frequency Resource Act of Ukraine of 1 June 2000, No.1770-III (the Frequency Act). The Telecom Act sets out the general principles for regulation of the telecommunications sphere in Ukraine, including a description of the institutional framework for the government’s involvement in the regulation, administration and operation of the telecommunications industry. The Frequency Act regulates the allocation and use of the radio frequency spectrum in Ukraine.
According to the Telecom Act, the Cabinet of Ministers, the Ministry of Transportation and Communications, and the NCRC are the main government authorities in charge of the telecommunications industry. Competition issues are within the purview of the Antimonopoly Committee (the AMCU), the Ukrainian antitrust authority.
The NCRC is the main regulator for the telecommunications sphere in Ukraine. The NCRC inter alia issues licenses for the provision of licensed telecommunications services and the use of radio frequencies, maintains registries of telecommunications operators and providers, allocates numbering resources and controls telecommunications activities.
Only a company incorporated in Ukraine or an individual entrepreneur, registered and permanently residing in Ukraine, can render telecommunications services in Ukraine. Therefore, a foreign company can enter the Ukrainian telecommunications market only through a local subsidiary. Notably, Ukrainian law does not restrict foreign ownership of telecommunications companies.
The Telecom Act classifies the persons/entities providing telecommunications services into “operators” and “providers”. An operator renders its services under a license and has the right to maintain and operate telecommunications networks and lease communications channels. On the other hand, a provider operates under (i) an agreement with a certain operator, and (ii) a copy of the operator’s license issued by the NCRC. Unlike operators, providers have no right to maintain and operate telecommunications networks or lease communications channels.
Pursuant to the Telecom Act, a company/entrepreneur intending to carry out activities in the telecommunications sphere must submit a relevant notice to the NCRC at least one month prior to the start of operation. In addition, a license is required for any of the following activities: fixed or wireless telephone services, technical maintenance and operation of a telecommunications network, television or radio networks, and lease of telecommunications channels to third parties.
The use of radio frequencies for providing telecommunications services is also subject to licensing. A license to engage in a telecommunications activity that requires radio frequency spectrum is issued simultaneously with a relevant license to use radio frequencies. Apart from the frequency license, a radio frequency user should obtain a conclusion on electromagnetic compatibility and a permit for use of radio electronic and/or transmitting equipment for each piece of such equipment. In case the numbering resource is required, the operator should obtain a relevant NCRC decision on the allocation of numbering resource.
Telecommunications licenses and licenses to use radio frequencies are generally not transferable. Notably, amendments to the Frequency Act, enacted in late 2009, have enabled telecommunications operators to approach the NCRC with a joint application seeking to re-allocate the spectrum used by such operators.
Legal Trends in the
The most important recent amendments in the telecommunications law include the introduction of the IMEI base, number portability service (to become effective in early 2011) and national roaming.
A number of proposed legislative amendments seek to tighten regulatory control over the telecommunications market. Notably, the Ukrainian Parliament has approved in the first reading draft acts empowering the NCRC to set interconnect tariffs for telecommunications operators with significant market power, as well as to regulate tariffs for access to telecommunications cable ducts. Furthermore, the NCRC has come up with a legislative proposal vesting it with the authority to determine the percentage of radio frequency spectrum that may be granted to a frequency user for a specific radio technology, as well as the maximum number of frequency licenses that may be issued for a certain radio technology.
At the same time, a draft act 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 the setting up of a universal services fund, an idea largely opposed by the market. It is unclear at this point, whether such a fund will be established, since several proposals in this respect have failed.
Along with further development of the telecommunications market, competition and antitrust issues come to the forefront in Ukraine. For instance, this June the AMCU affirmed its earlier decision recognizing Ukrainian mobile communications operators and Ukrtelecom as monopolists with regard to provision of access to their own networks. This has allowed the NCRC to set binding interconnect tariffs for such operators. The matters recently considered by the AMCU also include the issue of fraudulent advertisement in the telecommunications market (in respect of the so-called “zero” tariffs), and formation of tariffs for access to electronic communications cable ducts.
The 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 3G licenses for late November 2009. However, the NCRC had to cancel this tender because of the inability to accomplish conversion of the required radio frequencies, as well as differences between the military, the government and the President as to the radio frequency conversion and the licensing procedure. Eventually, a working group was formed to finalize the draft conversion plan, and this process is still under way. Although Ukraine lags badly behind in the 3G technology sphere, it is still unclear when the NCRC will be in a position to announce the relevant license tenders.
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, the largest operator of fixed telephony in Ukraine, may become another landmark transaction in the telecommunications sphere, which will not only change the market balance, but also influence the regulatory process in future. The Cabinet of Ministers recently approved Ukrtelecom’s privatization, as well as the terms and conditions of the tender. It is expected that the tender will be held in late December 2010.