The government plans to earn UAH 5 bn from 3G communications by this autumn

Photo: Ukrainian photo

Ukrainian operators may obtain a third generation communication (UMTS, 3G) license as early as this autumn. Yesterday, President Petro Poroshenko issued a decree envisaging the conversion of radio frequencies required for launching 3G by August 15. At the moment, these frequencies are assigned to the army.

The tenders for issuing the licenses under the decree will be held before October 30. The price the operators will have to pay for the possibility of introduction of the new technologies, however, may turn out to be too high for them. In addition, the tenders may be disrupted due to disagreements between the president and the Cabinet of Ministers.

Quick billions

The government expects to earn around UAH 5 bn from the introduction of 3G, reads the statement of Director of the Executive Committee of the National Council of Reforms Dmytro Shymkiv. “On condition of proper organization and holding of an open tender, the budget will receive around UAH 3 bn in 4-6 months from the sale of licenses and the Defense Ministry is expected to receive around UAH 2 bn under the conversion agreement for development of the communications system,” informed Shymkiv. In addition to that, a foundation will be created for additional investments of the operators into the sector in the amount of at least UAH 5 bn over 2014-2015, he said.

Deputy Presidential Chief-of-Staff noted that the specified steps will facilitate growth of the country’s GDP. He said that the world practice of such modernization confirms that a 10% increase of investments into broadband communication increases annual GDP growth rates by 0.7%. “A thousand users of broadband Internet create 88 new jobs, while a 10% increase of broadband Internet penetration fosters a GDP growth of 1%. Meanwhile, a double increase of the speed of broadband Internet increases GDP by 0.3%,” summed up Shymkiv.

The army is expecting money and operators – discounts

The price of conversion announced by the Presidential Administration correlated with the calculations, which the General Staff submitted to the National Communication Regulation and Informatization Commission (NCRIC) last week. This money should be enough for re-equipping the army with modern means of radio-relay communication and radar detection, envisaged by the presidential decree.

Noteworthy, yesterday the Cabinet also considered a resolution that would allow for issuing the licenses to operators before conversion is complete. However, the resolution was not passed.

Capital has in possession a copy of the conclusion of the Ministry of Justice, which proposes to exclude the correction on the transfer of funds from conversion directly to the accounts of the army. The Ministry of Justice expressed its reservations also on alteration of the conditions of licenses (joint use of frequencies with the army). Experts of the ministry believe that this issue should not be resolved by the Cabinet, rather at the legislative level.

Though the amount of UAH 2 bn seemed high for operators they say they are ready to pay it. “In this case, however, one should not expect high proceeds from licenses,” Director for Corporate Management and Control at MTS Ukraine Oleh Prozhyvalskiy said last week at the NCRIC. Head of the company’s PR Department Viktoria Ruban says the operator at the moment is ready to spend significant amounts, but that could influence the cost of services for subscribers.

“These amounts must be economically justified for us. Otherwise, mobile Internet will be too expensive for the subscribers and not many will buy it,” she noted.

The expectations of the Presidential Administration to earn UAH 3 bn on issuing licenses are overstated, believes Director of the Regulatory and Legal Department at Kyivstar Andriy Osadchuk. “They do not correspond to the conditions on the market. The government must receive the money not just once from issuing a permit, but also as a result of the development of networks and formation of the so-called 3G ecosystem,” he said.

Prozhyvalskiy believes that the operators may simply not be able to afford the multi-billion expenses and in the end the 3G introduction process may again be delayed.

Reforms of the new regulator

The new regulator will be in charge of introduction of new technologies in Ukraine. As Capital wrote earlier, on Tuesday the members and chairman of the NCRIC tendered their resignations to the president. “Andriy Semenchenko (Chairman of the NCRIC – Capital) asked us to tender our resignations after he returned from the meeting with the president,” informed a member of the commission. He reminded that the commission members were appointed in May by then Acting President Oleksandr Turchynov. After winning the presidential race Poroshenko planned to form the commission independently, which, as Capital’s interlocutor believes, is fully logical.

The decree on dissolution of the current staff of the NCRIC and appointment of the new staff should appear on Friday, claims another interlocutor from the commission. He says that everything has been discussed with the regulator’s members and that the decision is not spontaneous as it was in the case with Turchynov’s appointments the last time around.

Market players linked every new staff of the NCRIC with the lobby of one of the competitors – the previous one with Ukrtelecom and the current one with MTS Ukraine. A senior manager of one of the major telecom operators says that the president is likely to make new appointments for political reasons. “I am not seeing a clear operator’s lobby this time,” he emphasized.

New faces

Presidential press secretary Svyatoslav Tseholko told Capital that Shymkiv is now in charge of the reforms in the PA. He assumed that the management of NCRIC, a body responsible also for informatization, will now fall under his competence. Yesterday, Capital was unable to reach Shymkiv.

One of the sources of Capital familiar with the situation says the PA has prepared a list of 10-15 candidates, but it will be up to Poroshenko to make the final decision. Market players believe that among the candidates there may be representatives of the communications industry, who have previously worked for the regulator, in particular member of the board of Internet Association of Ukraine Viktor Mazur. “I was on different lists of potential new members of the NCRIC, which is why such a possibility still exists,” he told Capital. However, he confirmed that he has so far not received any proposals.

Also, people working in the Internet sector, startups and software developers, who are members of the initiative group Reanimation Reform Package, may also become members of the commission. Among them are CEO of the Internet Association of Ukraine Tetiana Popova, founder of Jellastic startup Oleksiy Anikin, former head of Freshtel Olena Minich, head of the shopping club Modna Kasta Andriy Lohvin, entrepreneur Ilya Keningstein and Dmytro Shymkiv.

Anikin and Popova told Capital that they knew nothing about the new appointments to the NCRIC. “The presidential decree on reforms, however, has been signed and we will see that it is reinforced,” said Anikin.

Minich earlier told Capital that she was leaving Freshtel, because she was more interested in making reforms in the telecommunications industry. “My personal opinion is that it will be good if market professionals, even without experience in public administration, came to manage the industry. Several individuals in the communications sector and several from innovational companies would be an optimal solution,” believes Managing Partner at the AVentures Capital investment fund Yevhen Sysoyev.