Government wants to earn UAH 9 bn on 3G

Next fall these students may have not only an umbrella over their heads, but also 3G communications underneath it

Photo: Fotobank.ua

Yesterday’s meeting of the National Commission for State Regulation of Communications and Informatization (NCSRCI) was a full house. Even students interested in the law on telecommunications attended the meeting. Their lecturer agreed with the agency’s managers in advance. Needless to say, a huge turnout of participants was anticipated as members of the NCSRCI voted unanimously for the terms of 3G (third generation mobile telecommunications technology) tenders. 3 licenses at a starting price of UAH 2.443 bn are at stake. In addition, operators will have to pay for re-equipment of means of military communication, which will cost another UAH 1.6 bn.

Yet, according to Head of the NCSRCI Oleksandr Zhyvotovskiy, who was ushered out to an informal media briefing at the end of the meeting by Head of the Internet Association of Ukraine Tetyana Popova, a bit more time is needed to conduct these tenders. First their conditions should be approved by the Cabinet of Ministers. After that, the regulator has the right to declare that the tender will be held in 2 months, which means, at best, that the agency will set the tender for January 2015 after the winter holidays, provided that the government gives the green light this week.

More subtleties than wanted

Zhyvotovskiy assures there should be no disagreements between the NCSRCI and the Cabinet and everything should go smoothly. But, according to Capital’s information, last Monday officials in the “bowels of government” made several substantive remarks. First of all, as rumor has it the three most likely contenders for the three licenses, specifically, the largest players on the mobile services market in Ukraine agreed to collusion.

According to the published terms of the tender, each of the lots will be considered valid provided that at least one of the participants places a bid. This means that the practice of “trading by voice” will not be consequential if the number of applicants is the same as the number of lots.

Secondly, the Cabinet may be unsatisfied by money transfers for conversion directly to accounts of the Defense Ministry. It will be difficult for the government to control this process and understand military purchases and their conditions. In addition, Capital’s sources in the Cabinet mention the proposal on reduction of time limits for coverage of populated areas with a 3G network on the first license. It is specified in the terms of tenders that the winners of the tender will be required to cover all regional centers within 1.5 years from the date the license is issued and regional centers and towns with a population of more than 10,000 – in 6 years.

This could be done much faster as the frequencies of the first lot are special. “They are almost free. Available equipment of special users in this range can be simply reconfigured,” says the source. Therefore, in his opinion, it is necessary to obligate the winner of the lot to cover all regional centers within a maximum of 6–8 months and the remaining settlements – within a year.

Notable is that that the representatives of operators previously said in conversations with Capital that in the absence of technical and bureaucratic difficulties, it will be possible to launch 3G in major cities within 6–9 months. Member of the NCSRCI Oleksandr Sklyarov confirmed that he was familiar with some of the aforementioned remarks of members of the Cabinet. But so far they have only been voiced informally.

Given this, it is for the Cabinet to decide and the intrigue remains. The forecast of Capital’s source in the government is not comforting: “When the document is officially submitted to the Cabinet, it will be reviewed and assessed. But, I believe nothing will happen until there is a new coalition, a new premier and a new Cabinet,” said the source.

Can operators afford such a deal?

Perhaps, the more serious risks of frustration of the 3G tender may not be the potential conflict between the Cabinet and the NCSRCI, rather the tension between the participants of the tenders. It is possible that in the last days before the opening of envelopes it may turn out that there are not five companies wishing to obtain licenses (Kyivstar, MTS Ukraine, life :), Ukrtelecom, Intertelekom), as it was this past summer during the examination of the prior demand, and not even three companies, as it was expected by the NCSRCI and the Cabinet at the beginning of autumn, but even less.

The question is whether the shareholders of mobile operators will consider spending UAH 3 bn on permits and licenses alone to be economically justified. “We will conduct an assessment of investment attractiveness, calculate whether we will be able to propose financial indicators acceptable for shareholders and make a final decision as to participation in the tender,” says Head of the Public Relations Department at MTS Ukraine Viktoria Ruban. There is a level of costs at which business is meaningless, she adds.

MTS points out that in calculating the cost of a license and the investment return period the population of 45.5 mn of Ukraine should not be taken into account, rather the population of 35 mn. In addition, according to the company it is not correct to take the average monthly incomes of users into account for making such calculations based on the experience of certain European countries. For MTS Ukraine the figure is only EUR 2 based on the results of the Q2 2014, while in Turkey, which was taken into account, this figure is EUR 7.7, in Romania – EUR 5 – 6.5, in Slovakia – EUR 12 – 16.1, and so on. Given these and other factors, MTS believes that the fair price of the license is close to UAH 1 bn.

Kyivstar also mentioned the figure not higher than UAH 1 bn in the past. “We examine the terms of the tender for 3G frequency and consider our ability to participate in it,” Director of Regulatory and Legal Support at Kyivstar Andriy Osadchuk humbly stated. Also, Director of Ukretecom Yuriy Kurmaz said that the company would analyze the possibility of participation in the tender and follow the development of events. Still, nobody exclaimed: “Hurrah! Now all the terms are clear and we will definitely participate in the tender”.