Telecom and Media — What’s New?
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Although 2013 was interesting for a number of large and notable M&A deals in Ukraine, there were very few transactions in 2014 in this industry.
Nevertheless, the industry was full of regulatory developments launched in 2014: announced tender for granting 3G license, setting up the National Public TV and Radio Broadcasting of Ukraine JSC, postponement of a mobile number porting service and some others.
3G in Ukraine: New Opportunities for End Users are Coming Soon
Sadly, Ukraine is yet to implement the 3G which keeps mobile users in slow-Internet reality. While South Korea is ready to launch 5G in several years, Ukraine is yet to get the 3G although the intrigue started back in 2005.
A huge step forward was made on 28 October 2014 when the National Commission for the State Regulation of Communications and Informatization (Commission) approved the tender conditions for obtaining the 3G license in Ukraine (Terms). They were subsequently approved by the Cabinet of Ministers of Ukraine on 5 November 2014.
According to the Terms, participants of a tender may bid for three lots — 15-year 3G license to use one of three different radio frequencies. The starting price of each is calculated based on the average price for 1 MHz in different countries (Latvia, Turkey, Slovakia, Romania, Czech Republic, Poland and Greece) and multiplied by the total size of the of Ukrainian population (excluding the territory of Crimea). After such calculation the starting price came to UAH 2.443 billion.
The winner of each lot shall implement the 3G technology in all Ukrainian regional centers within 18 months from the date of being granted the license. Within 2-6 years from that date the respective mobile operator shall ensure that 3G technology is implemented in all district towns and the towns with a population exceeding 10,000 people.
The tricky covenant for the license holder is that it shall arrange the radio frequencies conversion because those concerned are now used and operated by the Ministry of Defense of Ukraine. According to the Terms, the cost of conversion amounts to UAH 530 million (app. USD 20.4 million) for each lot.
Every major Ukrainian mobile operator (Kyivstar, MTS Ukraine and Life) bid for all 3 lots, complied with the procedural requirements and paid a guarantee fee in the sum of UAH 810 million (app. USD 31 million) each.
On 17 February 2015 the 3G tender commission announced the bids submitted by each major mobile operator to the Commission. MTS Ukraine offered the highest price for each of the three lots.
So, taking into account the submitted bids the initial price for the first lot will be UAH 2.708 billion. The starting price for the second lot will be determined based on the results of bidding for the first lot and the price for the third lot — based on the results of bidding for the first and the second lots respectively. Under the Terms one participant can get only one lot, and the winner of the first lot will not be able to bid for the second and the third slots, respectively.
Redistribution of Radio Frequencies Between Ukrainian Mobile Operators
As a result of the merger of the major mobile operators Kyivstar and Beeline in 2012, Kyivstar obtained 41.1% of the 1800 MHz frequency band and 58% of 900 MHz frequency band. Despite the fact that the said merger was cleared by the Antimonopoly Committee of Ukraine (AMCU), other mobile operators raised concerns about this outcome.
As of today Kyivstar is treated as the only operator able to implement 3G in 900 MHz and 1800 MHz frequency bands, which may lead to the distortion of competition on the respective market. Therefore, the only way out for Kyivstar seems to abandon the part of its frequencies for the benefit of other mobile operators. This position was presented in the recommendations of the AMCU to Kyivstar on 10 November 2014, which are “obligatory for Kyivstar’s consideration”.
According to the official position of Kyvstar, it is ready to compromise. The fair redistribution of radio frequencies for 3G and 4G implementation in Ukraine should be carried out on the basis of the “net neutrality principle”.
Number Porting Service: Never-Ending Story
Portability of mobile numbers allows the users to change their operator without the change of the user’s mobile number. This possibility seems an ordinary service in many countries, but yet not in Ukraine.
Although this service was launched in Ukraine back in 2009, it is not implemented yet. In April 2013 the Commission passed the Regulation on Providing the Subscriber Number Porting and Personal Number Use Services (Regulations) effective from 19 July 2013.
Pursuant to the said Regulations,starting from 1 July 2014 the end users of mobile telecom services should have enjoyed the number porting possibility from any current operator’s (donor operator’s) telecom network to any new one (recipient operator’s) network.
However, the administrator of the central base of portable numbers failed to start providing such service within the said term. As a result, on 1 August 2014 the Commission just cancelled its decision regarding the number porting service.
Mobile operators had a lot of objections regarding the unlimited scope of powers of the administrator with respect to fixing tariffs for number porting service.
The Commission currently wants to bring this service back to life, in particular, by way of changing the Administrator and amending relevant legislation.
The entire story gives the strong feeling that the number porting service will not be implemented in 2015.
Transition from Analog to Digital Terrestrial Broadcasting in Ukraine: Close and still Closer
The tripping of analog TV in Ukraine and full transition to digital TV comes from 2006 when Ukraine, along with other countries of the International Telecommunication Union, signed the ITU GE06 Agreement for Digital Broadcasting. The said provided for full transition to digital broadcasting by 2015 (known as the GE06).
The transition to digital terrestrial TV broadcasting is a complex integrated process which requires the key regulator, broadcasting companies and network operators to be fully involved.
The main reason for the delay with switching off the analog signal in Ukraine is that digital recorders are not used in Ukrainian households as much as required. Earlier, Ukraine itself committed to provide low-income households with digital recorders free of charge, but due to the state budget deficit this plan failed.
Thus, now statistics shows that only 50% of Ukrainian households use digital receivers enabling smooth transition from analog broadcasting to the digital one.
On 12 December 2014 the National Television and Radio Broadcasting Council of Ukraine announced the digital broadcasting transition plan. According to it the digital terrestrial TV broadcasting is expected to be fully operational by 2017 as follows: (i) by 15 June 2015 — Kiev, Chernigov, Zhitomir, Rovno, Volyn, Lvov, Zakarpatie, Kharkov and Sumy Regions and Crimea; (ii) by 31 December 2015 — Ivano-Frankovsk, Khmelnitsky, Vinnitsa, Chernovtsy and Odessa Regions; (iii) by 30 June 2016 — Poltava, Ternopol, Cherkasy, Kirovograd, Nikolayev, Kherson, Dnepropetrovsk and Zaporozhya Regions; and by 2017 — Lugansk and Donetsk Regions.
However, it seems that it will very much depend on the Ukrainian economy’s development.
Public TV and Radio Broadcasting: Ukrainian Fata Morgana?
On 17 April 2014 the Ukrainian Parliament adopted the On Public Television and Radio Broadcasting of Ukraine Act (Public Broadcasting Act).
Attempts to set up public broadcasting in Ukraine took place since 2005 but failed due to various reasons (lack of available funds, commercial broadcasters’ lobby, etc.).
The Public Broadcasting Act contemplates that the National Public Broadcasting Company should be incorporated as a successor of the National Television Company of Ukraine, National Radio Company of Ukraine, 26 state regional state TV and radio broadcasting companies (Public Broadcasting Company). The Public Broadcasting Company was established as a state-owned joint stock company on 7 Novem- ber 2014 by the Cabinet of Ministers of Ukraine.
The Public Broadcasting Act set out the corporate structure of the National Public Broadcasting Company, requirements to the members of its board, supervisory board, licensing and advertising requirements, etc.
The primary mission of public broadcasting is to ensure the broadcasting of objective and complete information about socially important events in Ukraine and abroad free from commercial pressures or political influence as well as broadcasting those products which are not broadcasted by commercial channels.
Until 2018 the Public Broadcasting Company will be financed solely from the state budget. After 2018 the Public Broadcasting Company is expected to be financed from state and local budgets, by donations, as well as a result of royalties and other funds received. Despite the fact that generally license fees are the key source for financing public broadcasting in Europe, this source is not specifically mentioned by the Public Broadcasting Act.