Kyivstar is turning VIP clients into ordinary subscribers

Photo: Konstantin Melnitskiy

President of Kyivstar Petro Chernyshov is undertaking reforms in the company. One of them touched upon the highly sensitive issue of free communication. In conversations with Capital, several independent sources operating on the Ukrainian telecommunications market said representatives of the mobile operator called VIP officials and big shots to whom Kyivstar was loyal in the past for whatever reasons and suggested that they switch to commercial rates. “Chernyshov called some subscribers personally,” said one of the sources. “Perhaps this is how he would like to get acquainted with the company’s most valuable customers,” suggested another source.

The reforms concern not only VIPs, but also employees of the company. “Not all of them – mainly the staff in the marketing department – were transferred to commercial rates and only UAH 130 of their monthly expenses are compensated. The initiative is called “Become a customer”,” says a source of Capital inside the company’s marketing department, adding that the company’s staff sees this as a crackdown.

Old-fashioned practice

Capital’s reporter got through to Chernyshov via Facebook and asked a few questions about the company’s innovations. “I transfer all privileged subscribers to commercial rates both inside the company and outside. Information about specific subscribers is secure,” confirmed Chernyshov. The president of the company says that the number of premium subscribers is incredibly low compared to the total client base. “The numbers are absolutely insignificant and are not even worth mentioning,” Chernyshov assured.

“In the past Kyivstar used to have approximately 4,000–5,000 free phones distributed to all categories of users, while 90% of them had limitations to the free calls,” says one of the old-timers of the Ukrainian mobile market B2B. Another source of Capital says there were close to 1,000 such phone numbers. “All operators had such clients,” the source emphasized.

“It all started with UMC. Investors showed how to use such a system – all you have to do is give away free communication to clients and a base station to fix the operators,” said one of the sources in reference to the old days.

Another top manager said that when companies call the owners of free phones or holders of exclusive phone numbers it often turns out that VIPs do not use them. “Usually, such phone calls are picked up by some young lasses,” said the source, adding that his company carried out such experiments.

Vibes for bribes

Representatives of MTS Ukraine (former UMC) say the company has no such subscribers, “seeing as we have become a member of the international telecom group, whose securities are listed on the New York Stock Exchange,” adds spokeswoman Viktoria Pavlova. She explains, “Our company is subject to U.S. laws, in particular the FCPA (Foreign Corrupt Practices Act) and the U.S. Federal Anti-corruption Law on International Activities. Any hints or attempts to earn the loyalty of public officials by providing them (or even promising them) any goods or benefits is subject to huge fines (up to US $5 mn) and 20 years imprisonment of all company executives.

However, free communication can be easily veiled. Phones can be registered as service devices and, of course, not in the names of VIPs, but in the operators. “Each department had its own limit for the number of devices providing free communication with a limited or unlimited time,” says the source. Over time, according to the interlocutor, the scale of distribution decreased, but it has not completely disappeared.

Saving on traffic

Sources of Capital agree that most likely the commercial effect from such reform will not have a major impact on the business. “Kyivstar will simply once again show an increase in the number of commercial subscribers by the end of the year,” says a manager of one of the companies.

Noteworthy is that based on the results of Q3 2014, Kyivstar showed a decline in its main financial indicators. The company’s revenues have decreased by 6% compared with the same period last year. Subscribers are spending less due to the devaluation of the hryvnia, despite the increase in prices of all other goods and services.

Although, another interviewee adds that the disconnection of free subscribers can affect the expenditure side of the company’s balance sheet, because usually they are heavy users of calls to other networks, which jacks up the costs of interconnection (the rate of access to other networks, 36 kopecks per minute). “In addition, such reform may reduce the risk of refile (fraud with traffic) on Kyivstar’s network through the use of privileged SIM cards,” the expert added.

Does this apply to all users?

Capital’s interlocutors doubt that the reform will have an impact on absolutely all VIP clients. “Most likely the phone numbers were taken away from the former government officials that have become useless for Kyivstar. Most likely they were the ones who started the rumors,” said the source. “Does this mean that Leonid Kuchma and Viktor Pinchuk will also have to use commercial rates?” asked the source.

There is no reliable information about these people being among Kyivstar’s subscribers, although they played a significant role in the fate of the company. Capital asked Chernyshov about them, though it did not get a response.

Another source says some influential clients affected by the reform are clearly expressing their dissatisfaction and are stirring up troubles in government institutions. Apparently, they managed not only to agree with the company on old terms, but also receive new smart phones free-of-charge. Chernyshov says there are no troublemakers among VIPs.