Year's contrasts: 4G breakthrough and rollback, millionaires from Ukrposhta slums, and Ukrtelecom row
The outgoing 2018 is truly a year of contrasts in the telecommunications market. The long-awaited LTE (4G) format was introduced, while even the 2G connection was not solid at all times, and no promised abolition of “mobile slavery” happened; the team of business reformers who came to manage Ukrposhta increased the company’s losses and began closing company branches in rural areas; and the epic with the return of Ukrtelecom to state ownership went for the second round in Ukrainian courts.
The passing year can truly be called significant for the Ukrainian communications market. The main breakthrough was the long-awaited launch of 4G communications – a promising technology of data transfer at over 100 Mb/s for subscribers with high mobility. In practice, this means that if it takes approximately 11 seconds to install a Facebook mobile app on a smartphone with 3G, just 2 seconds should be enough for a similar move with 4G. At least, that’s what mobile operators told Ukrainians at the beginning of the year. After public and quite entertaining bargaining for “sweet” licenses held at the Ukrainian State Center of Radio Frequencies, two market players – Vodafone Ukraine and lifecell – at the end of March were the first to launch LTE, while Kyivstar did so a week later.
President Petro Poroshenko attended the auction, while not everyone appreciated his appearance there. In particular, former head of Kyivstar Petro Chernyshev said that Poroshenko, by interrupting the auction, violated Ukrainian legislation. Rumors have it that it is because of this public criticism, which was later confirmed in the Presidential Administration, that the telecom company soon saw a leadership change.
Immediately after the high-profile launch of LTE in several cities, Ukrainians began lining up in kilometer-long queues to install on their smartphones their 4G-enabled SIM cards, free of charge. Everyone was happy about the long-awaited transition to LTE, which was introduced in Europe several years ago. Of the advantages, besides the new level of data transfer speed, is network availability. It no longer depends on the number of simultaneously connected devices (when the internet connection could disappear during a gig or at a football game attended by tens of thousands of people. However, optimism disappeared a few months later, when in the summer, subscribers began noticing significant interruptions not only in connectivity but even in the 2G voice comms.
“The quality of communication is really super-poor. The biggest problem is not even the usual voice communication. Along the roads where there used to be stable connection, now people can’t even call an ambulance,” Oleksandr Danchenko, head of the Verkhovna Rada Committee on Informatization and Communication, said after analyzing the complaints.
This is confirmed by statistics. While in 2017, the market regulator – the National Communications and Informatization Commission – received 2,579 complaints from subscribers, in the first half of 2018 alone, there were already 1,804 of them. And this is considering the fact that not all subscribers are willing to waste their time on reaching out to call-centers and sending letters with complaints.
Toward the end of the year, users started seeing an improvement in the quality of data transfer compared to the situation in summer, when the internet connection could suddenly disappear at any point.
Market participants blame inadequate legislation in this regard. Indeed, the Verkhovna Rada has for about two years been putting on hold two progressive bills, “On Electronic Communications” and “On Radio Frequency Resource.” In particular, the latter introduces the principle of technological neutrality – this is where operators get the right to run any radio technology at frequencies that belong to them. This could speed up the launch of 3G and LTE at frequencies of 800-900 MHz, which would make it possible to provide remote villages with internet. But it so happened that in our case, the frequency spectrum is concentrated and distributed between the operators unevenly. Therefore, not everyone agrees with the implementation of the said practice. Now the operators insist that frequencies should first be redistributed so that everyone has equal conditions for the introduction of new technologies.
Meanwhile, in early October, the first 5G commercial network was launched by Verizon operator in four American cities at once – Houston, Indianapolis, Los Angeles, and Sacramento. However, it will take at least a few more years until the technology comes to Ukraine because of the high cost of licenses. Besides, operators still need to invest in the already existing infrastructure and technology. Also, after all, some subscribers still use push-button phones!
“Next year, 5G in Ukraine could only exist as a test site. According to rumors, Kyivstar is already trying to do something in this direction. But I don't believe 5G will come to Ukraine earlier than in the next five years. Even voice connection and 3G is not in all places. Therefore, Ukraine will definitely not be the flagship for the implementation of 5G,” media expert, advisor to the head of the National Council, Oleksandr Hlushchenko said at the end of 2018.
But it’s not worth worrying about it, because even in developed countries, the fifth generation will not become the main communication technology in the near future.
“I emphasize that 5G will not become the mainstream technology in the near future. It will not replace LTE. Moreover, it can be expected that 4G will remain the main technology that ordinary subscribers will use, at least until 2025,” says Oleksandr Serbin, director of business development at Huawei Ukraine.
According to the forecasts of the GSMA trade association, which represents the interests of mobile operators around the world, as well as of Ericsson, by 2025, only 15% of all connections in the world will be 5G. Technology drivers will be the markets of China, Japan, Korea and the United States. With that, of the remaining 85%, LTE will make up the lion’s share, since 3G over time will begin to lose ground more and more.
Down with “mobile slavery”
Back in 2015, the Ukrainian State Center for Radio Frequencies announced the start of a procedure for public procurement of services to create a database necessary to launch MNP, a service that allows users to keep their phone number after a change of operator. It seemed that the opportunity to kill "mobile slavery" was close.
However, the struggle was so fierce that the tenders failed, while their results were challenged in courts. In the end, the market regulator in the person of the National Communications Commission in August of this year decided to launch the service from May 1, 2019. Let's hope that this time, everything happens on schedule.
Another question is whether there is any demand. As world practice shows, after the service launches, a no significant redistribution in the market follows with only 5% to 10% of subscribers migrating to another operator. Moreover, in the modern world of social networks, it is literally impossible to become lost after changing a mobile phone number.
It shouldn't be forgotten that a huge number of smartphones in Ukraine have two SIM cards in them. Subscribers actively use more than one number, consciously resorting to the services of two different operators.
Meanwhile, the introduction of MNP has an obvious advantage - maintaining healthy competition in the market. The launch of the service motivates mobile operators to improve the quality of communication, offer attractive promotions, and even reduce tariffs for existing subscribers to keep them.
“If subscribers have freedom of movement between different operators, securing a number, this gives a powerful incentive to operators to compete, and subscribers – to choose the operator whose services they consider more better. This is an additional incentive for operators to improve the quality of communication,” said Oleksandr Zhyvotovsky, head of the National Commission for the State Regulation of Communications and Informatization, told a press conference.
Mobile operators have officially announced on their corporate websites the launch of a practically revolutionary service from May 1, 2019.
According to experts, the cost of such a service could be about UAH 50-100. However, Vodafone Ukraine notes: “So far, the cost of the service has not been defined. The service is expected to be free.”
Market participants explained that subscribers who'd like to use MNP will need to register with the operator from which they are taking the number, providing an ID.
At the beginning of the outgoing year, it seemed that the monopoly of the fixed-line comms market, Ukrtelecom, was about to be returned to state ownership. On December 12, 2017, the Kyiv Economic Court of Appeal upheld the decision of the first instance court, according to which the Ukrtelecom sale and purchase agreement between the State Property Fund and the ESU company, which in 2013 had come under the control of Rinat Akhmetov, Ukraine's wealthiest Ukrainian, should be terminated . At the same time, the state was in no hurry to get back what it owns – the company's shares were frozen by the Prosecutor General’s Office, while the Fund decided to wait for the court’s decision on the respondent’s cassation appeal. Apparently, the SPF head has good “instincts” because six months later, in July, the Supreme Court satisfied the ESU complaint and forwarded the case for reconsideration. History is silent on why the state agency was in no rush to fulfill its obligations. However, according to the most popular version on the telecom market, the process of returning Ukrtelecom to the state harbor is taking place with the consent of Rinat Akhmetov himself. Perhaps in this way, the richest Ukrainian, who has already “redeemed” his expenses for buying a company by selling off its assets (real estate, land and equipment), also hopes to make some money, having received quite substantial compensation from the state.
The epic with the re-privatization of Ukrtelecom could have ended in November, when the Economic Court re-examined the case and decided not to return the company to the state. But where everything seemed to end, only the next judicial game of table tennis did. The press service of the State Property Fund told UNIAN that on December 13, they filed an appeal to dismiss the claim on the termination of the sales contract. In addition, by December 22, the Fund appealed against the decision to invalidate the results of the audit of the implementation of the ESU’s investment obligations in the amount of $450 million.
The SPF’s press service is not yet ready to predict how long the appeal will be heard in Ukrainian courts, suggesting that it is necessary to proceed from the timing of the previous hearings. Now it is unlikely that the case will “resolve” in 2019. The Ukrtelecom deal was once set to become a successful example of the privatization of state property, but it never did in the Ukrainian realities. Today it rather resembles a story of a “cash cow”, which will be returned to the state when there is no more "milk" left.
Ukrposhta reform: richer managers, and poorer postmen
Against the background of constant scandals in Ukrzaliznytsia, another large state company, Ukrposhta, always remained in the shadows. But not this year... Something went wrong when, in the summer, the company CEO, Ihor Smelyansky, formerly a businessman from the private sector, began shutting down company branches in rural areas and cut postmen's jobs under the auspices of a network optimization project. In October, he went as far as delivering an ultimatum to the Ukrainian authorities, saying the company would stop delivering pensions and close down 5,000-7,000 branches in rural areas from January 1 in case of non-increase in delivery rates. All this was served “under the sauce” of the need to make the company profitable because in the first half of the year, Ukrposhta increased its net loss by 48.4%. Actually, Smiliansky decided to start unpopular reforms precisely to have the company reach profits.
His pragmatism in reducing costs can be understood. But then, why the salaries of top managers continue growing? In August 2018, after a new contract was signed with the Ministry of Infrastructure, the guaranteed monthly salary of Ukrposhta CEO increased 2.6 times, amounting to UAH 856,290, taking into account all bonuses and premiums.
Ultimately, several conflicts surfaced in the public plane at once: with the Pension Fund due to low rates for delivering pensions and with publishing houses because of unprofitable delivery of newspapers. Meanwhile, Smiliansky himself gained a significant number of detractors, not only among Ukrainian pensioners, but also among ordinary farmers.
Everything was decided at the highest level, when President Petro Poroshenko intervened. During a meeting with Infrastructure Minister Volodymyr Omelyan and Ukrposhta CEO Ihor Smiliansky, Poroshenko ordered to ensure a continued delivery of pensions, termination of postmen’s dismissals, as well as prohibited to shut down Ukrposhta branches in rural areas. The head of state called on Omelyan to control the execution of tasks set. "I will not back down from my demands," the president stressed.
Following this, the company quickly managed to resolve the “tariff conflict” with the Pension Fund and sign agreements with the Fund's regional offices on the delivery of pensions in 2019. And all thanks to the fact that the state has pledged UAH 500 million into the next year’s budget for the additional financing of the unprofitable delivery of social benefits (this amount, according to the operator, will last only six months – exactly until the completion of the second round of elections).
In addition, Ukrposhta announced it would suspend the reduction of branches in villages and even re-open fifty of the previously closed ones. What is funny, while the national operator narrowed the network in remote regions, its competitor, Nova Poshta, managed to open almost four hundred new spots, expanding its network by 20%. Some of them have opened in small cities and rural areas.
But the president had another personal “recommendation request” to the Ukrposhta CEO – to revise the latter's salary. At UNIAN's inquiry, the company press service said that it would be the new Supervisory Board's committee that would consider the issue of salary accrual.
Internet everywhere: Mission impossible?
According to the latest forecast of the Chinese company Huawei, in 2025, digital economy will account for almost a quarter of world GDP. It is also expected that in the new 2019, the number of households connected to the internet worldwide will for the first time exceed the number of homes without such connection. Meanwhile, access to the World Wide Web is already recognized by the United Nations as an inalienable human right.
Trying to keep up with the requirements of the modern high-tech world, back in January, the Ukrainian government approved a strategically important document - the concept of the development of the digital economy and society of Ukraine for 2018-2020. The document defines the priority areas, initiatives and projects of digitalization for the next three years, based on the provision of broadband Internet access (BBA) throughout the country.
As the largest fixed-line operator Ukrtelecom states, there are 21,700 villages in Ukraine, with 8.2 million people living without internet. It turns out that 56% of all residents of rural areas have no access to the global web, although 98% of urban residents have it. Needless to say, the lack of internet primarily affects the quality of education and health care in remote regions. At the same time, officials are now offering such solutions as "health care by phone."
So, after the concept was approved, telecom operators and internet providers submitted to the Cabinet several ready-made projects on connecting Ukrainian villages to the internet. One of the most famous was the initiative by the largest fixed-line operator, Ukrtelecom. Renat Akhmetov’s company offered to connect 8,000 villages to the internet for UAH 3.2 billion of public funds and another UAH 2.8 billion of own funds through the conditions of a private-state partnership. However, the fate of the project, like all others, remained on paper and nice exhibits in corporate presentations. In 2018, the state showed its unwillingness to solve one of the key problems in the development of the Ukrainian economy. At the same time, Ukrtelecom's idea, which intends to put the global project in the hands of a single company, may seem discriminatory towards other market participants.
"For Ukrtelecom itself, this is an attempt to cover with state budget money the existing problems with personnel, networks, and cables. If a landline phone breaks, it is easier for household owners to just turn it off than to wait for a repair team. Any issues on the Ukrtelecom network are solved very slowly. The company should address this problem," said media expert Hlushchenko.
So far, many factors suggest that, Ukraine is struggling with overcoming the digital lag, which, obviously, will not be resolved in 2019 either. Indeed, from concept to action, there always lies a difficult path through the Ukrainian bureaucracy.