Only a pro-government player with old ties can get a 3G license

Photo: Reuters

Today, after additional consultations with various ministries and government agencies the Cabinet will once again review the draft resolution allowing the National Commission for the State Regulation of Communications and Informatization (NCSRCI) to hold tenders for third generation communication (3G).

Sharp turn

Those present at the previous meeting of the Cabinet of Ministers were quite passionate. Capital learned that government officials are having are hard time making a final decision as there are two strong camps of lobbyists interested in the domestic telecommunications market. Capital already mentioned one of them in previous articles.

This summer President Poroshenko signed a decree ordering to issue three 3G licenses to collect approximately UAH 3 bn for the state budget and close to UAH 2 bn for rearmament of the military, whose frequencies will have to use alternative communication ranges, by October 30. The NCSRCI appointed by the president and the country’s most powerful mobile operators supported this idea. Everyone expected that the Cabinet would sign a decree for the issuance of licenses and conversion of military frequencies at the expense of mobile providers. But the situation was replayed last week Minister of the Cabinet of Ministers Ostap Semerak introduced a new draft resolution envisaging issuance of only one license. The remainder will be issued only after conversion at the expense of the state budget over the next three years until 2018.

Major operators naturally rang the alarm and provided strong arguments confirming that such a decision would have a negative impact on the telecom industry on the whole: a 3G monopolist would appear, price wars would break out and the market would go into decline. The military was also upset about this. After all, it is far from certain that it will receive funding from the state budget for rearmament in 2015.

Who advises the Cabinet?

The Cabinet of Ministers did not publicly explain its logic, but it became clear that somebody advised the chosen course to Premier Arseniy Yatsenyuk and Semerak. Several independent sources on the telecommunications market said in conversations with Capital that Andriy Burhomistrenko is the adviser to the Minister of the Cabinet of Ministers and Semerak listens to his opinion not only regarding 3G affairs, but also with respect to the introduction of e-government, for example. Burhomistrenko said in an interview with Capital that he is an industry expert. He neither denied nor confirmed the official position of the advisor.

Burhomistrenko has been working on the telecom market for many years. For nearly 10 years he was a manager at Proicom founded by Heorhiy Dzekon — ex-Chairman of the Board of Ukrtelecom (currently it belongs to SCM), which prepared the operator for privatization. In 2011 — 2012 Burhomistrenko was in charge of Ukrtelecom’s marketing and since the end of 2013 he has been serving as an advisor to the company’s supervisory board. His status on Linkedin says: «Just Advisor;)»

Having learned that Burhomistrenko, in fact, is an advisor to Ukrtelecom and successfully influences Semerak’s views, many market players said the issuing of one license will only play into the hands of Ukrtelecom. «Such an approach will preserve the value of the only 3G license, which is at Ukrtelecom’s exclusive disposal (Trimob) and will make it possible to preserve the demand for it among the players deprived of new growth opportunities,» says Director of the Regulatory and Legal Relations Department at Kyivstar Andriy Osadchuk.

«Yes. I advise to the supervisory board on management affairs, as I have many years of experience in operations management, including at Ukrtelecom. Strategic issues are not within my capacity,» says Burhomistrenko on Facebook. He strongly denies speculations of his colleagues about his involvement in the representation of Ukrtelecom’s interests on the eve of the 3G tender.

Why can only one license be issued?

In this case, the expert has a well-grounded explanation for the issuance of only one license. The first frequency band (30 MHz), he says, may be prepared for bidding within one or two months. «When we released frequencies for Ukrtelecom in 2005, we released paired bands,» he says. Burhomistrenko assures it will be impossible to tender more. Otherwise, this will pose a risk for the military forces.

This information is confirmed by ex-member of the NCSRCI Volodymyr Oliynyk. He recalls that on the eve of the failed 3G tender in 2009, the frequency of the bands next to Trimob’s bands was organized in advance. Operators have a different logic. «Of the nine military airports, where the military use radar stations with 3G-frequency, only five or six are operational. They are far away from large cities and have a maximum range of 40 km. Therefore, at first we can issue licenses and then agree on the problem areas with the military,» says Director of the Public Relations Department at MTS Ukraine Viktoria Ruban.

Burhomistrenko also gave a number of reasons why licenses should not be issued prior to conversion. One of them is: «We cannot rule out that among the initiators of conversion there will be operators controlled by Russian capital. And such a state of affairs will obviously not strengthen the country’s defense». It is generally known that both Kyivstar and MTS-Ukraine have major shares of Russian capital. It was mentioned on the sidelines of the NCSRCI that the Cabinet of Ministers did not want to allow them to compete. Burhomistrenko evades a direct answer to this question. He advises to wait for the Law On Sanctions to come into effect, which he believes will be adopted before the first tender.

The new power on the market

There is a possibility that SCM or Ukrtelecom have not so much influence on this 3G tender affair as a certain new player on in the market arising among the skilled and experienced telecom managers. In an interview to Forbes this August the former president of Kyivstar Ihor Lytovchenko predicted that only one license will be issued. He also recalled the Russian roots of the two largest mobile companies. «Therefore, either the government or the regulator — those who will be responsible for licensing — should consider whether it makes sense to issue new licenses to existing players or would it be better to create a national operator. This may also be quite logical,» Lytovchenko stressed.

Burhomistrenko’s statements were in harmony with the words of Lytovchenko. «Two operators with Russian capital control the market. It is useless to try to find out who, why and how this was done in the past, because the real issue is the lack of a national operator, which is controlled by the state...» he said. In conversations with Capital market players have recently mentioned some pro-government player, the idea of which various people have been trying to convey to the country’s top managers close to influential inner circles. «Now, the country has Heorhiy Dzekon and he holds a lot of meetings,» says one of them.

Burhomistrenko says that taking into account the experience of the ATO and the situation with Crimea, both the government agencies and the law enforcement bodies have an unfulfilled need for confidential mobile communications, information storage and efficient protection of state information resources. Therefore, he does not rule out that one of the 3G licenses will be used for the needs of the state. One of Capital’s interlocutors believes that a government/business partnership project could be developed. Kyivstar and MTS-Ukraine held a joint press conference last night during which their corporate executives promised that they will file a lawsuit if only one license is offered.