UKRAINE:
TRENDS IN THE ICT MARKET
February
2002
Source:
This report
was prepared by the U.S. and Foreign Commercial Service in Kiev (kiev.office.box@mail.doc).
INTERNATIONAL
COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE,
2002. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.
SUMMARY:
Strong economic growth of the Ukrainian economy in 2000-2001 generated
impressive growth in the I.T. and telecom markets. This growth took place
despite clear lack of progress toward the creation of a favorable legal and
regulatory environment in ICT sectors of economy; and under an increasing
international and domestic pressure for protection of copy rights,
liberalization and demonopolization of the telecom market, and simplification
of certification procedures and customs regulations.
Notable changes occurred in telecommunications. The long delayed and
controversial privatization of Ukrtelecom had a negative impact on the
modernization of wireline networks and services. Increased demand for modern
telecom services, however resulted in substantial and continuing growth in the
wireless mobile and wireless local loop segments of the market. After
demonstrating, for two consecutive years, -120%-140% in annual growth of
customer base, wireless communications has developed into the second largest
subsector of the Ukrainian telecom industry. Their strong growth exposed new
prospects for development of the national telecom market and created new
opportunities for U.S. exporters of GSM and CDMA technologies and products.
Operators of Internet services and IP telephony reported healthy growth of
sales and customer base throughout the year.
The renewal of local manufacturing and revitalization of the consumer market
generated substantial increases in demand for both computer hardware and
software for industrial needs. Sales of servers and notebook computers
surprised even industry insiders. Both local assemblers of computers and
suppliers of brand name products reported sales significantly higher than
projected during 2001.
Solid growth in mobile communications and wireless local loop network
development resulted in a substantial increase in demand for computer software
for industrial and office needs. Additionally, LANs and Internet resources are
becoming more and more popular, thus stimulating demand for new software for
networking, data storage and browsing.
Ukraine is slowly emerging as a low cost site for high quality software
development. These producers work mostly alone or in small groups on
outsourcing projects ordered from abroad. There is a growing interest within
Ukrainian computer companies to organize software production centers that
could participate in international software development projects.
A. MARKET HIGHLIGHTS & BEST PROSPECTS:
1. Computers & Peripherals
The exact size and structure of the Ukrainian computer hardware market is
difficult to measure, since official statistics ignore such key factors as
local production and shadow imports of components. Due to a higher rate of
taxation of imported finished PCs opposed to imported components, local
production using imported components is thriving and reshaping the market.
Based on data provided by market insiders, the rate of importation of finished
(assembled) "brand name" computer equipment is decreasing, although
at a slower rate than during previous years. At the same time, demand for
locally manufactured computer hardware (from imported components) is steadily
increasing. This segment accounted for 86 % of the total market in 2000. Of
the approximately 700 companies currently operating in the local computer
market, 10% are engaged in local assembly or manufacturing of PCs.
Solid growth in export-oriented heavy industries in 2000-2001, as well as a
resurgence of the local machine building sector in 2001, generated a
substantial increase in demand for computer hardware and software for
industrial needs. Ukrainian manufacturing industries (i.e. machine building,
food processing, textile, oil and gas, railroad transportation) have created
an increase in demand for automation control systems; corporate networks
design, development, and maintenance; servers; and main frames. Many of the
Ukrainian enterprises who barely survived over the last five years, reported
increased revenues and began investing in upgrades of their manufacturing
control and monitoring, corporate management, and bookkeeping systems.
Additionally, several educational programs announced by GOU and funded through
the national budget will further increase the market share of low cost,
locally assembled PCs. Home computers are becoming more and more common in
large cities.
The market trends are as follows:
· The market grew 20-30% in 2001.
· The corporate market accounted for 80% of the national market. Corporate
market sales increased 50%, while the non-corporate market grew 20%.
· Importers of brand name products applied a more flexible pricing policy. As
a result of this policy, the price differential between imported brand name
products and local brands did not exceed 10%. Historically this differential
reached 100%.
· There is an increasing competition between importers of brand name
computers.
· Substantial growth in sales of servers. Annual sales of imported servers
increased 15-20%, while total annual growth on this segment of the market is
no less than 60% in number of units sold and up to 150% in sales revenues.
Some companies reported server sales doubling in 2001. Customers show
increasing interest towards multiprocessor and cluster solutions. Share of
imported brand name servers reached 100% among RISC-systems and 50% of
Intel-servers. Local manufacturers increased production of local brand servers.
· Substantial annual growth (from 20% to 150% depending on company) in sales
of portable PCs. Portable PCs that cost $1,500 or less accounted for 25% of
sales, while laptops that cost $1,500-2,500 accounted for 50-60% of sales .
Although, the market of portable PCs is still dominated by importers (90% of
the market), at least 2 local companies are successfully manufacturing local
brand portable PCs.
· Prices for the most popular desktop models decreased 30% during 2001.
· The most popular PCs sold are work stations based on the Pentium III
processor. While sales of systems based on the Pentium IV processor are
limited due to its high price, experts anticipate a sharp growth in sales as
the price for the Pentium IV based PC approaches $600 (monitor included).
· Decreasing share of desktop systems, and increasing sales of portable
systems and servers.
· Focus by local computer manufacturers on computer solutions, rather than on
hardware sales.
(Source: Kompanyon No. 49, Dec. 10-14, 2001)
Brand-name recognition of major U.S. computer manufacturers is strong, but
pricing is still the key consideration for the Ukrainian purchaser. U.S.
companies can access the Ukrainian market by tapping into an increasingly
sophisticated network of agents and distributors throughout Ukraine who are
able to reach a wide range of clients.
Market Size Data 1998 1999 2000 2001
Total Market Size (USD Millions) 119 160 168 N/A
(1,000 units) 102 142 167 N/A
(Source: IDC, Compyuternoye Obozrenye, No. 4, 2000 and No. 49, 2000; IDC,
Kompanyon No. 49, Dec. 10-14, 2001)
Notes: Final figures for year 2001 were not available when this report was
prepared
2. Computer Software & Services
Steady growth of the Ukrainian economy in 2000-2001, resurrection of local
manufacturing industries in 2001, solid growth in mobile communications and
wireless local loop network development has generated a substantial increase
in demand for computer software for industrial and business needs.
Additionally, LANs and internet resources are becoming more and more popular,
thus stimulating demand for new software for networking, data storage and
browsing.
Microsoft's Office and Windows programs are currently the most widely used
office software in Ukraine. This software is installed on approximately 98% of
all PCs operating in the country. The presence of many talented programmers,
in an environment with weak International Property Rights (IPR) legislation
and enforcement, has encouraged piracy and the flagrant misuse of software. It
is estimated that illegal software may comprise 10-40% of the software used by
the government, 10-30% used by corporate customers, and 50-100% used by small
and medium businesses, and home users of PCs. Foreign software dominates the
market for legitimate software for corporate customers reaching 95%. Although,
the share of local products in corporate networks doesn't exceed 5%, it has
good growth potential if the economic recovery continues.
A more legitimate and transparent market for computer software is quickly
taking shape, which is largely attributable to growing pressure from the USG
and international bodies aimed at enforcing copyright protection in Ukraine.
There was a marked effort by the Ukrainian authorities to fight software
piracy at the end of 2001. An immediate and huge increase in demand for
legitimate software at the end of 2001 literally paralyzed the market.
Customers were not able to operate without legitimate software and
distributors couldn't increase imports of their software products because
Ukrainian customs and licensing regulation authorities were not able to
service the sharply increased demand for imported software.
Increasing demand for specialized financial, statistical, management, and
manufacturing software in Ukraine presents major opportunities for U.S.
companies. For maximum market exposure and penetration, U.S. companies are
advised to develop bilingual (Ukrainian/Russian and English) software, as well
as to provide the necessary bilingual written instructions and after-sales
service. The existing legal environment in Ukraine does not include many
important standards that would regulate the localization of software products.
Legitimate localization of foreign software products is almost non-existent,
which is partially due to competition from products localized in Russia.
Ukraine is slowly emerging as a low cost site for high quality software
development. The producers work mostly alone or in small groups on outsourced
projects ordered from abroad. These activities are usually not reflected in
official statistics. There is a growing interest among Ukrainian computer
companies to organize software production centers that could participate in
international software development projects. Unfortunately, high levels of
emigration among qualified programmers as well as controversial Ukrainian
legislation have delayed development of legitimate software technoparks in
Ukraine. Unofficially, this business is growing rapidly and its share of the
market has already outpaced the market share of imported software.
Market Size Data (in $ Millions)
2000* 2001** 2002**
A. Total Market Size 99 -108 115 165
B. Total Local Production 57- 66 55 90
C. Total Exports 53- 63 50 70
D. Total Imports (legal) 13 50 70
E. Total Imports (illegal). 29 10 5
*Unofficial estimates by the Ukrainian Association of Software Developers
** Unofficial estimates by CS Kiev.
3. Telecommunications
3.1 Regulatory environment
The Ukrainian regulatory environment in telecommunications is far from optimal.
In 2000, in preparation for the long expected privatization of Ukrtelecom, the
Ukrainian national telecom operator, the Government of Ukraine made
substantial improvements in Ukrainian telecommunications legislation. Although
these legislative changes allowed foreign companies to operate in the
Ukrainian telecom market on an equal footing with Ukrainian companies, there
has been no further progress in this area. Ukrainian telecom authorities don't
encourage further liberalization of the regulatory environment, because in
their opinion, this would undermine the existing monopoly of Ukrtelecom and
decrease the company's attractiveness before privatization. Furthermore, the
outdated regulatory environment delays the introduction and development of new
technologies and services. While there are currently a number of telecom
related legislative and regulatory documents under preparation, experts warn
that none of them address foreign investors' concerns on competition,
deregulation and liberalization.
3.2 Telecom industry performance in 2000-2001
The telecommunication industry's share in the Ukrainian GDP has reached 5%.
Long distance and international calls account for 43% of total industry
revenues. Two leading wireline operators Utel and Ukrtelecom process 95% of
long distance and international calls. Local loop generates only 25% of
industry revenues, although this sector of the telecom market is serviced by
more than 500 companies (Source: Zerkalo Nedely, August 11, 2001). These
statistics illustrate the extreme monopolization of the national market,
especially in its most lucrative segments.
New technologies such as IP telephony, ATM, Frame Relay, etc., complicate
monitoring and control of telecom traffic by Ukrtelecom, and allow for the
illegal use of network resources. Experts estimate that 10% of international
communication services are provided illegally (Source: Zerkalo Nedely, August
11, 2001).
In 2000, the Ukrainian telecom industry procured $ 175 million worth of
equipment and software for network development. Domestic manufacturers
supplied 43% of these products, while imports accounted for the remaining 57%.
Investments into network development grow 30% annually, and the share of
private investors exceeds 50% (Source: Zerkalo Nedely, August 11, 2001). There
is no domestic manufacture of equipment for backbone SDH networks, or mobile
communications (MC) networks in Ukraine. Procurements in MC are serviced by 12
foreign importers.
Analysis of industry revenues in 1999 and 2000 revealed that the industry
subsectors with the best performance were transfer of data (mostly Internet)
and cellular communications. Although the revenue share of data transfer in
the total telecommunications industry was insignificant (2%), this subsector
had shown an astounding growth throughout 2000. MC was also very successful
and demonstrated solid growth, both in revenues and the number of customers.
In 2000 MC became the third industry subsector in terms of revenue generation.
The substantial decrease (10%) in long-distance and international
communications showed that despite the monopoly of Ukrtelecom and its
subsidiary Utel, this subsector is losing its position as the most lucrative
telecom industry segment.
Telecommunication industry revenues for 2001 released by the Ukrainian State
Committee for Statistics confirmed developmental trends that became evident in
2000. The statistical data for 2001 shows that providers of cellular
communications and internet service are growing far faster than companies in
other subsectors of the telecommunications industry.
TELECOM
INDUSTRY REVENUES IN 2000-2001
($1 equals UHA 5.44)
|
TYPE
OF COMMUNICATIONS
|
ANNUAL
REVENUES IN 2000
UHA million
|
ANNUAL
GROWTH
IN 2000
%
|
ANNUAL
REVENUES
IN 2001
UHA million
|
ANNUAL
GROWTH IN 2001
%
|
|
LONG
– DISTANCE & INTERNATIONAL
|
3,230
|
-10.1
|
3,790
|
17.3
|
|
LOCAL
LOOP
|
1,832
|
8
|
1,950
|
6.6
|
|
TRANSFER
OF DATA*
|
151
|
76
|
220
|
46
|
|
CELLULAR
MOBILE
|
1,230
|
46.2
|
2,020
|
64
|
|
TRUNKING
|
10
|
38.4
|
9.2
|
-8
|
|
PAGING
|
34
|
4.3
|
26
|
-25
|
|
OTHER
|
N/A
|
N/A
|
N/A
|
N/A
|
|
TOTAL
BY INDUSTRY
|
7,360
|
5.3
|
8.980
|
22
|
* Transfer of data includes Internet
(Source: "Byznes" No. 6 2001 and No. 4, 2002)
Analysis of performance data and a comparison with industry revenues in 2000
reveals that growth in the data transfer subsector has slowed. This is most
likely due to the fact that even though the number of Ukrainians that use the
internet on a case-by-case basis has steadily increased, growth in the number
of active internet users which generates most of the traffic has almost
stopped after reaching approximately 400,000 – 600,000. Further increase of
the Internet customer base is limited by several factors, including the
availability of PCs that can support Internet technology.
MC continued to be very successful and demonstrated solid growth. Statistics
show that this subsector became the second largest industry segment in
revenues by the end of 2001, second only to long distance international wire
line communications.
3.3 Wireline communications:
The Ukrainian national backbone network includes 45 long-distance exchanges
(27 are digital and located in regional centers; the other 18 regional
exchanges are analog), and 3 digital international gateways. Ukraine's
national fiber optic network is connected to international fiber optic systems:
ITUR, TEL, TAE, BSFOCS, FLAG Telecom. The fiber optic network consists of
4,200 km of fiber and digital microwave communication lines. Ukrainian users
have the availability of international telephone connections with more than
200 countries.
Two companies dominate the national and long-distance wire line networks,
Ukrtelecom and Utel. Ukrtelecom owns all of the transmission facilities and
administers the national wire line infrastructure. The company employs 130,000
people and services 8-10 million customers. Plans to privatize Ukrtelecom have
been repeatedly announced since 1997, but fierce opposition has continued to
delay the privatization. The law on privatization of Ukrtelecom was adopted on
July 13th, 2000. The GOU went so far as to include Ukrtelecom privatization
revenues into their FY2001 budget. In May of 2001, the GOU announced a
consortium of three foreign companies: Squire, Sanders & Dempsey, Millen
Financial Services, and BNP Paribas as the selected advisers in the
privatization of Ukrtelecom. Despite this positive step, industry specialists
speculate that privatizing Ukrtelecom by the end of 2002 will be impossible,
as amendments to the legislation needed to conduct privatization have not yet
been adopted by the Ukrainian Parliament.
Utel is the leading long-distance and international provider. Utel was
established in 1992 as a Joint venture between Ukrtelecom, AT&T, Deutsche
Telecom and KPN. In 2001-2002, Ukrtelecom bought out its Western partners.
There are a number of small regional providers of wireline services but their
share of the local market is not significant. Due to Ukrtelecom's
privatization and Utel's restructuring, the local market of telecom equipment
procurements estimated at $100 million per year two years ago, has decreased
dramatically, thus negatively impacting the international suppliers of telecom
equipment and software.
Ukraine's wire line network remains far from optimal. Fees for line
installation are high and installation requires a long wait. Although an
increasing amount of digital equipment is in place, many regional stations
continue to utilize outdated equipment to connect customers. Out of the 10
million phone lines, only 10% are serviced by digital exchanges, another 10%
are supported by electronic and quasielectronic exchanges. The remainders are
serviced by obsolete relay and mechanical equipment. The use of outdated
equipment limits the introduction of new electronic billing systems. Nearly
all rural local loops are unprofitable. Ukrtelecom subsidizes local loops with
revenues from fees for international calls, line installation and registration.
The number of phone lines may vary throughout a region. Kiev has the highest
number (43.6 percent), followed by the industrial regions in the east (19
percent). There are few telephone lines in the agricultural regions of
Transcarpathia and Carpathia, located in the western part of the country.
Purportedly, Ukrtelecom has requested that the Ukrainian Government (Ukrtelecom's
tariffs are approved by the government) increase tariffs for local calls and
decrease international tariffs. This step would definitely streamline market
development and increase industry attractiveness for investors.
3.4 Wireless mobile communications:
Wireless mobile communications is the most active subsector of the telecom
industry in Ukraine, in terms of user growth (market penetration for MC is
only 4%, but the number of users has doubled every year). A noticeable feature
of the market is the large number of MC operators. Five operators UMC, Kiev
Star, Golden Telecom GSM, DCC, and Welcom offer wireless mobile services in
the following standards: GSM900/1800 (UMC, Kiev Star, Welcom), DCS 1800 (Golden
Telecom GSM), and D-AMPS (DCC).
There is no domestic manufacture of equipment for MC networks in Ukraine.
Procurement needs are serviced by 12 foreign importers.
In 2000, the market started to consolidate around two leading operators: UMC (Ukrainian
Mobile Communications) and Kiev Star. Aggressive marketing and promotions,
along with significant discounts in fees and the introduction of flexible
payment schedules, have increased the number of users dramatically. By end of
year 2001 the number of MC customers in Ukraine exceeded 2 million which
represents140% annual growth. More than 90% of MC customers are accounted for
by just two operators: UMC and Kiev Star. The first provider to reach the 1
million customer mark was Kiev Star in October-November 2001. UMC reached this
target in December of 2001. The remaining providers (DCC, Golden Telecom, and
Welcom) are far behind. Although MC industry demonstrated strong growth in
1999 and 2000, the number of MC users in Ukraine (320,000 in 1999 and 854,000
in 2000) represented a small percent of the potential market (Ukraine is a
country with 50 million citizen), and did not change the profile of the
national telecom market. The figures for 2001 reflect the growing value of
this market segment. Although MC users account for only 20% of the national
customer base for telecom services (the other 8-10 million customers use
wireline services) they represent the most affluent part of the population,
and generate higher profits not only for MC providers, but also for a number
of peripheral businesses servicing the MC industry. It took only three years
for this new service industry to develop in Ukraine. This rapid growth
represents new business opportunities for U.S. companies specializing in
products and services for MC users.
The rapid increase in the number of MC users, has revealed some hidden
problems:
(A). Slow Spectrum Expansion: The leaders in the MC operators race did
not anticipate such rapid growth in the number of customers. Their share of
the GSM900 spectrum did not provide room for increased traffic. Spectrum
expansion into GSM1800, which was conducted in 2001, required additional
financing.
(B). Not Enough Profit to Support Upgrades: Approximately 70% of MC
customers use prepaid card packages, which impacts network capacity but does
not generate sufficient revenue growth. Additional investments, however, are
needed to upgrade network capacity. To continue at this rate of market
development, MC operators will need to find new investors and reduce the
number of low profit clients.
(C).Unlikely to maintain current customer base growth rate. It is
unlikely that the customer base will keep growing at the same rate in 2002
without a decrease in tariffs, which is questionable under the existing
taxation levels.
3.5 Local loop wireless.
In 1994, Ukrainian telecom providers and U.S. suppliers of telecom equipment
began a vigorous, two year advocacy campaign , before the Ukrainian Government,
to adopt Code Division Multiple Access (CDMA) telecommunications technology as
the national standard for wireless local loop development and for allocation
of frequency spectrum for CDMA operators. In 2001, ITC, a Ukrainian-American
joint venture, launched the first CDMA wireless local loop network in Kiev.
Telecommunications equipment for this network was supplied in 2000-2001 by
Lucent Technologies. In 2001 Lucent also concluded contracts with Velton
Telecom and Intertelecom who launched CDMA IS95 wireless local loop networks
respectively in Kiev and Odessa. CST Invest Ltd., a Ukrainian company, started
deploying the first CDMA20001X wireless local loop network in Dnypropetrovsk
in September of 2001. The company has scheduled the commercial launch of this
network for April-June of 2002. U.S. Motorola is the primary supplier of
telecommunications equipment and software for this network.
These successes represent the opening of an important market that previously
had been effectively sealed off to U.S. suppliers of CDMA technology,
equipment and software. The growing success of CDMA technology in Ukraine is
due to the fact that this U.S. born technology is a real solution for
Ukraine's outdated local loop infrastructure. (There are currently an
estimated 3.3 million people on the waiting list for individual phone lines).
3.6 IP telephony
On May 16, 2001 the Ukrainian Government introduced licensing of IP- telephony
with 15-year operational licenses at a cost of up to UAH 899,300 (approx. USD
160,000). However, contrary to expectations, an official document required to
formalize the licensing process is yet to be published by the State Committee
for Communications of Ukraine. Reportedly, the market responded to the new
licensing regime with growth in sales of IP telephony services, an increase in
the number of operators, a decrease in tariffs, and an improvement in the
quality of services (Source: Delovaya Stolitsa 01/10/2001). Growth in this
market has been limited by the uncertain legal status of IP telephony, which
discourages operators from developing long term business plans and investing
in infrastructure.
Based on industry reports IP telephony serviced from 4% to 20% of all outgoing
international traffic at the end of 2001, while its share didn't exceed 1% at
the beginning of year 2001 (Source: Delovaya Stolitsa Dec. 10, 2001). The
number of customers of this service grew by more than 300% in 2001. Although
annual sales originated by IP-telephony in Ukraine reportedly do not currently
exceed $ 6-10 million or less than 1% of the total revenues from international
voice communications, wireline operators view this business as a threat to
their de facto monopoly and high tariffs. Currently, there is no information
available on the number of ISPs who provide IP-telephony services.
3.7 Satellite Communications
Ukraine has joined the Inmarsat, Intelsat, Global Star, Thuraya and Orbcomm
satellite networks. Satellite telecommunications in Ukraine may be limited due
to low-income levels. The GOU, however, is deploying a system of digital
satellite TV and radio broadcasting, which will also be used for Internet via
satellite.
3.8 Internet
Based on official statistics, as of June 2000, there were approximately 260
ISPs in Ukraine, seventy of them were located in Kiev. (Source: Kompanyon No.
24, June 2000). Other sources indicate that the number has increased to
approximately 400 ISPs in Ukraine. Industry experts believe that 30 to 40 of
these ISPs, have the experience, size and financial means to lead the
development of the national market. The remaining ISPs are either small
peripheral operators or operating in a short-term business capacity. Since
1997 ISPs are no longer subject to licensing requirements. Law enforcement
agencies and some major ISPs, however are currently advocating for
reinstatement of licensing to protect their business from small, aggressive
and often short term competitors.
Analysis of revenues received by ISPs, indicate that 99% of the revenues are
generated by payments for Internet access, while web design and hosting,
account for less than 1% of industry revenues. ISP still remains the core
business in this industry. Businesses such as e-commerce, web design and
hosting are in most cases developed by successful ISPs as a side business in
anticipation of future demand.
There are no official statistics on the number of Internet users in Ukraine.
By unofficial count there are approximately 400,000-600,000 active Internet
users in Ukraine, approximately 1.1 percent of the population. Some experts
believe, however, that this number is much higher and reaches 2 million. Most
Ukrainian users of the Internet live in Kiev. Although the number of Internet
customers increased by 25% in 2000 there is a limit to this growth, imposed by
the number of PCs available in Ukraine. There are approximately 1 million PCs
in Ukraine and only 40% of them are adaptable for Internet access. As a result,
many ISPs invest in creating collective Internet centers at universities,
colleges and Internet cafes.
To expand the local market for Internet services and reduce the demand on
international connections, ISPs have created the "Ukrainian backbone
network". ISP companies that operate outside of Kiev are at a
disadvantage, because they have to pay for access to an international channel
and lease fiber optic lines from their region to the capital (similar in cost
to international access). To reduce these costs, regional providers use radio
relay channels that are outdated and unreliable, or voice lines of Ukrtelecom.
Substantial growth in Internet traffic and expensive international channels
have forced some ISPs to look for affordable Internet satellite connections.
The ISPs that seriously focused on young Ukrainians, as a future customer base,
launched a prepaid web card in 2000. Currently, 10 ISPs offer a prepaid web
card. Managers of these firms expect that the reduced cost of the service will
expand their customer base. The cards allow customers to save on monthly and
registration fees by offering lower rates. This service offer is expected to
attract customers who cannot afford or do not need regular Internet access.
Identified obstacles for the development of additional Internet services are:
a) insufficient local loop development (i.e. last mile problem); b) lack of
relevant legislation for Internet-related businesses (.i.e. IP- telephony,
e-commerce, digital signature and information security.); c) limited number of
computer users; d) expensive international channels; e) Ukrtelecom's monopoly
on backbone network and local loop. Cost of broadband communications and their
quality, as well as limited number of digital channels and exchanges
especially at the local loop level, limit demand for new communication
technologies such as broadband Internet and ASP.
Ukrtelecom management announced in the fall of 2001 that the company was
considering offering free dial-up Internet access for local loop users. This
project, if implemented, will bankrupt many ISPs and will substantially
increase Ukrtelecom's revenues if accompanied by an increase in tariffs for
local calls. Industry experts believe, however, that Ukrtelecom's network will
not be able to support this service on a massive scale (Source: "E"
November 2001). In the meantime, Ukrtelecom is working on upgrading the
Internet connectivity of its channels. Late in 2001 Ukrtelecom signed a
contract with FLAG Telecom for connection to a first level ISP provider in the
USA through DS-3 channel (45 Mbit/sec). This channel will be servicing
Ukrainian ISPs and other customers (Source: Seti y Kommunikatsyy N0. 3, 2001).
3.9 TV Broadcasting
The television broadcasting industry could be one of the most dynamic and
active industries in Ukraine. Current Ukrainian legislation, however, has no
provisions that would allow TV broadcasting companies to charge customers for
receiving their information products. When commercial channels first started
operating, they had plans for closed caption broadcasting and some of them
offered customers the chance to subscribe to their programming. These early
attempts failed. In many cities cable TV companies took over the distribution
of TV signals and started charging a fee for the use of the cable. These
companies typically increase the number of channels to 10-20 and improve the
quality of reception. Monthly fees for cable TV hava basically remained at the
level of $ 1-2 per residence. Given this low payment structure, TV advertising
is the main source of revenue for Ukrainian TV broadcasting companies.
The Ukrainian market for TV advertising remained stagnate throughout the last
five years with annual sales fluctuating between $40 and $120 million. With
the substantial improvement of the Ukrainian economy in the last two years as
well as parliamentary elections scheduled for early 2002 the market, this year,
has realized a sharp increase in revenues received by leading TV broadcasters.
Reportedly, TV advertising revenues during the first eight months of 2001
totaled $195.5 million, which is a 60 percent increase from 2000. (Source:
Halytsky Kontracty No. 42, 2001). Experts anticipate that annual TV
advertising revenues in 2001 may reach $300 million.
There are three nationwide channels in Ukraine: "National TV Company of
Ukraine", "1+1 Channel", and "Inter". Several
channels cover more than one region (STB, Noviy Kanal, ICTV) while the number
of channels broadcasting for one region or one city amounts to dozens.
Commercial channel "Inter" leads among other channels with
advertising revenues of $93.7 million for the first eight months of 2001. It
is followed by "1+1 Channel" with $78 million in revenues over the
same period, and "STB" with $12.9 (Source: Halytsky Kontracty No.
42, 2001).
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