Our Q409 report on Ukraine’s telecommunications market has seen our five-year forecasts for the mobile, fixed-line and broadband sectors revised as well as updates to our market data analysis sections. All in all, Ukraine’s telecoms markets are faring relatively well given the extent of the economic contraction currently underway in the country. Broadband saw strong growth, the fixed-line sector is still expanding and the demand for advanced services in the mobile market is holding up.

The mobile sector stagnated in 2008, with growth coming in at just 0.3%. This was largely due to MTS Ukraine, which discounted close to 1.9mn inactive SIMs from its subscriber base. The first half of 2009 has seen market leader Kyivstar heavily discounting subscribers and the mobile market has shrunk in both the first and the second quarters of 2009. Astelit continues to be the growth driver in the Ukrainian market although the operator has a significant proportion of inactive SIMs. Going forward, further discounting of inactive SIMs will limit the sector’s growth, but there will be a concurrent improvement in subscriber quality as the market matures.

With a lack of W-CDMA 3G services, owing to the regulator having only awarded a licence to incumbent Ukrtelecom, Ukraine’s value-added services (VAS) market is not as advanced as it could be. However, demand still appears to be growing at a rapid rate and the mobile operators have introduced advanced services such as location-based services (LBS) launched by Kyivstar and MTS and a mobile payment service launched by MTS, which will help to drive up revenues.

The fixed-line sector is dominated by state-owned fixed-line incumbent Ukrtelecom, which had over 10mn subscribers at the end of 2008. That said, competition from alternative operators such as Vega is increasing, helping to drive the sector forward. Both the incumbent and the alternative operators are expanding their network infrastructure, which is helping to drive growth. The fixed-line sector expanded by 2.5% in 2008, which, although significantly less than the 4.2% seen in 2007, still illustrates that demand for fixed-line services remains. That said, BMI has forecast 2009 to be the last year of growth in the sector as fixed-to-mobile substitution and the growing popularity of VoIP services begin to outweigh fixed-line network expansion. This is pushing the country’s fixed-line operators to increasingly turn their focus towards the latent broadband market as well as other advanced services such as VoIP and IPTV.

In contrast to Ukraine’s slowing fixed-line sector, the broadband market grew by a whopping 74.9% during 2008 and penetration has still only reached 3.5%. The sector has suffered from years of underinvestment from Ukrtelecom which has resulted in the incumbent having less than 30% market share at the end of 2008. Competition is growing from alternative operators such as VimpelCom’s Golden Telecom, Vega, Comstar Ukraine and Volia Cable. Competition is also increasing between alternative technologies such as cable, ADSL, WiMAX and CDMA as operators look to exploit the huge potential of a country with such low broadband penetration and a population in excess of 46mn. In August 2009, Icon Private Equity signed a contract with ZTE Corporation to expand the WiMAX network of its subsidiary, Ukrainian High Technology (UHT). Network deployments are still being concentrated on major urban centres such as Kiev and Odessa, with the rural areas being largely neglected and this is expected to continue in the near future, given the under-developed nature of broadband in the country. A number of advanced service such as high-speed broadband over ADSL2+ networks and IPTV have been launched and demand for high-value services is expected to grow, although it will be held back, owing to the country’s economic situation. One of the highlights in the broadband sector has been Kyivstar’s announcement that it is deploying a fibre-optic network in Kyiv and Odessa and plans to conduct fibre-to-the-home (FTTH) trials.

The privatisation of incumbent Ukrtelecom continues to be delayed. There had been suggestions that the tender process would be launched in March 2009 but this never materialised. The latest development appears to suggest that the privatisation will be launched in December 2009. However, this could again be delayed due to political infighting, highlighted by Prime Minster Tymoshenko’s desire to push the privatisation through and President Yushchenko allegedly attempting to stall the move. Presidential elections are due to be held in January 2010, and current opinion polls suggest Yushchenko will be forced out, which could pave the way for this very protracted privatisation to finally take place. BMI does not anticipate the privatisation occurring before the presidential elections.