Ukraine’s EU hopes and telecom market stability threatened by political interference in the judiciary

Ukraine’s substantial telecoms market is supported by one of the largest populations in Eastern Europe. Competition is improving as alternative operators engage in infrastructure-based competition made necessary as a result of an ineffective last mile network access regime. DSL dominates the broadband sector though cable access is widely available and investment in FttB in recent quarters has been impressive. The recent sale of the incumbent Ukrtelecom will have major repercussions for the mobile sector since the new owner, Epic, is selling the mobile division Utel while the entire company is expected to be resold within five years. The updated Ukraine – Key Statistics, Telecom Market and Regulatory Overviews report provides statistics and analysis on recent developments in this key market.

Recent political developments in Ukraine may have serious repercussions for the telecoms market and for future investment from players. Following a turbulent period in the transition from independence Ukraine enjoyed strong economic growth culminating in accession to the WTO in 2008. The country’s economy was one of the hardest hit in the region following the global financial turmoil, with GDP falling 15% in 2009. The country turned to the IMF for assistance, and has since worked to restore economic health. As a result, GDP rose 4.2% in 2010 and will grow by an estimated 4.5% in 2011.

Despite Ukraine’s historical and economic ties with Russia, in recent years it has sought an increasingly close relationship with the EU; its aspirations to join the EU have led to some economic integration and political cooperation, particularly since the Orange Revolution of 2004. Since then, Ukraine has been part of the European Neighbourhood Policy, and through the EU–Ukraine Action Plan (updated in 2009 as the EU-Ukraine Association Agenda) it has developed a framework to promote reform affecting all key areas of the political and economic landscape. This has been closely watched by EC mandarins given the turmoil of recent months, with President Yanukovych’s Party of Regions having been accused of fraud during the 2010 regional elections, as well as perpetrating a general crack-down on press freedom. The adoption of the 1996 constitution following the 2010 elections, which annulled the 2004 constitution, reduced the political powers of Parliament to the advantage of the President.

The recent trial and seven-year sentence of Yulia Tymoshenko, a heroine of the Orange Revolution and Prime Minister before losing to Yanukovych in the 2010 elections, has tarnished Ukraine’s candidacy for the EU: the trial has widely been seen as the result of politically-motivated interference in the Ukrainian judiciary. Tymoshenko was found guilty of abuse of office over a natural gas deal with Russia in 2009 which had lost the Ukrainian treasury about €138 million. She was also barred from holding office for three years, while her prison sentence – unless overturned or commuted – has removed her from the presidential poll in 2015.

The EU’s negative reactions to Tymoshenko’s sentence may also have repercussions for the country’s EU membership: the recently granted visa-free travel for its citizens in the Union for short stays may be rescinded, while the free-trade agreement (which was expected to be in place by mid-2012, and is considered a further encouragement to the EU membership process) are also jeopardised

As for telecoms, market growth has been stymied by the global financial turmoil, and the sector desperately needs the regulatory clarity which the EC’s telecom framework can deliver. The influence of the EU, as well as the regulatory conditions which Ukraine must meet, would go far to promoting market competition. Until recently, the lack of an independent regulator and transparent regulatory system had discouraged investment from the major Western European telcos looking for opportunities beyond their highly competitive domestic markets. This contributed to market stagnation. The EU, as well as Western European and Russian telcos, will be looking for some political, judicial and regulatory certainties to encourage them to make further ties to the country.

Key developments:

Ukrtelecom sold to Epic Services Ukraine for UAH10.57 billion; telecom revenue expected to grow 5% for 2011; EU concerns over judicial partiality risks Ukraine’s EU membership; regulator market data to August 2011; operator data to June 2011.

Companies covered in this report include:

Ukrtelecom, Datagroup, Eurotranstelecom, Beeline, Vega, Velton Telecom, Intertelecom, ITC, Telesystems.

For more information on Ukraine’s telecom market, see the following updated reports:
Ukraine – Key Statistics, Telecom Market and Regulatory Overviews;
Ukraine – Mobile Market Insights, Statistics and Forecasts;
Ukraine – Broadband and Digital Media Markets – Insights, Statistics and Forecasts.

 

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