Communications Services Licences
The communications market in Ukraine is characterized by a significant degree of monopolization and governmental control. The monopoly-ridden wire connections area is dominated by two operators, Urktelecom and Utel. However, tough competition exists on the mobile communications market. The trunked, radial, search and satellite communications markets are as yet underdeveloped.
Numerous government agencies exercise state regulation of the telecommunications market. As a result of the administrative reform that is currently underway, their names and the scope of their authority change frequently. The telecommunications legal framework comprises several laws governing most general issues and a large number of regulatory acts adopted in pursuance of these laws by specific government agencies.
The provision of communications services is subject to licence. Where such services require the use of radio frequencies, a separate licence for the use of radio frequency resources must be obtained. The procedure for obtaining licences is complicated and necessitates the prior procurement of consent from several governmental agencies.
These factors restrict competition, hinder the entry of new operators into the market and slow down the development of new types of communications.
However, a series of measures was recently undertaken to reduce the degree of monopolization and attract foreign investment. On July 17 2000 the Law on Peculiarities of the Privatization of Ukrtelecom OJSC was passed. This law cancelled the 49% cap on foreign ownership of Ukrainian telecommunications services providers, and repealed the state's monopoly to own, maintain and exploit primary networks.
At present, networks as well as the means and facilities for public communication may be owned by any entity, either private or state owned. Maintenance and exploitation of public networks may be carried out by any legal entity residing in Ukraine. At the same time, Ukrtelecom is prohibited from transferring the ownership or management of primary networks to other entities. Thus, private owners may receive title to primary networks through the development of new networks only.
The Law of Ukraine on Communications, dated May 16 1995, is the basic law that provides a framework for the regulation of the telecommunications sector. It sets forth principal rules on the regulatory authority, customer protection, tariff regulation and terminal equipment.
Several other laws and sub-legislative acts approved in pursuance of the Communications Law develop its provisions. The most significant are as follows:
- the Law on Radiofrequency Resources, dated June 1 2000;
- the Law on Licensing Certain Types of Business Activity, dated June 1 2000;
- the Procedure for Granting Licences for Use of Radiofrequencies, approved by a resolution of the Cabinet of Ministers of Ukraine dated February 7 2001;
- the Licensing Conditions for Conducting Economic Activity for the Provision of Telephone Communications Services, approved by joint resolution of the State Committee on Regulatory Policy and Entrepreneurship and the State Committee on Communications and Information, dated February 13 2001; and
- the Licensing Conditions for Conducting Economic Activity for the Provision of Radio Communications Services, approved by joint resolution of the State Committee on Regulatory Policy and Entrepreneurship and the State Committee on Communications and Information, dated May 4 2001.
The telecommunications legislation is insufficient and contains numerous gaps. To address these problems, several draft laws were developed and passed to the Verkhovna Rada (Parliament). Among them are two alternative draft laws on telecommunications, prepared by the government and by a group of people's deputies and aimed at regulating legal relationships in the telecommunications sector.
Throughout 2001 the telecommunications legislation remained relatively stable. However, in January 2002 the Parliament passed at the first reading a revised draft law aimed at cancelling incoming call charges for all types of telephone services and introducing a new approach to time tracking. The law, if finally adopted, will be most detrimental to mobile operators, as in Ukraine current fixed-to-mobile/mobile-to-fixed call charges are approximately 80 times higher than those charged for fixed-to-fixed calls, and the customers of mobile operators pay for both incoming and outgoing calls. It is still unclear whether the Parliament will pass the draft law at all, but it has nonetheless captured public attention, especially considering that the number of mobile subscribers in Ukraine had increased to 2.4 million by the end of 2001. Some critics argue that cancelling incoming calls charges will have negative consequences for Ukraine's mobile communications market.
Several governmental agencies determine policy and exercise control over telecommunications. The Parliament passes the laws and thus establishes the rules of play in the sector. The Cabinet of Ministers exercises control over the national communications system and enjoys extensive powers in this area, of which the most important is frequency management (through approval of the State Frequency Allocation Chart).
The State Committee on Communications and Information (SCCI) is the main regulatory body and was established by a presidential decree dated June 3 1999. The SCCI superseded the State Communications Committee, the State Information Agency and the Cabinet of Ministers Main Directorate on Radio Frequency Management, and is now the executive government agency responsible for administration and regulation of the telecommunications industry. The SCCI has extensive powers, including powers relating to:
- granting licences and overseeing compliance with licensing conditions;
- frequency allocation;
- approval of industry rules and standards; and
- certification of terminal equipment.
The SCCI comprises the Ukrainian State Centre of Radio Frequencies and Communications Supervision (Ukrchastotnaglyad) and the Interdepartmental Commission on Licensing the Use of Radio Frequencies. The Ukrchastotnaglyad is a specialized agency in charge of the allocation of radio frequencies. The Interdepartmental Commission on Licensing the Use of Radio Frequencies reviews applications for licences to use radio frequencies. and provides the SCCI with its conclusions as to whether a licence should be issued or denied. It also makes proposals on the allocation of radio frequencies, and the renewal and cancellation of licences.
Communications Services Licences
Ukrainian law provides for two types of licence: (i) for the provision of radio communications services and (ii) for the provision of telephony services. Both are granted by the SCCI.
Telephony services comprise the following:
- international telephony services (licence is issued for operation within Ukraine);
- long-distance telephony services (including lease of transmission lines and network routes);
- cellular mobile services (based on NMT-450, GSM-900, GSM-1800 and code division multiple access (CDMA) standards, and Global Star system);
- local telephony services (including private networks); and
- audiotext services.
Radio communications services comprise trunked, radial, search and satellite services.
Licensing conditions approved jointly by the SCCI and the State Committee on Regulatory Policy and Entrepreneurship set out a standard set of conditions which apply to providers of both radio communications and telephony services.
One of the most important licensing conditions for telecommunications companies is the utilization of certificated telecommunications equipment. Communications equipment must be certified in accordance with UKRSEPRO Certification System (the national certification system) standards; otherwise the SCCI's prior approval of its use must be obtained.
In addition, no less than 30% of a licensee's employees must have a higher or specialized secondary education and at least one year's work experience in the industry. Licensees must comply with the tariff regulation requirements and ensure a sufficient level of communications confidentiality. Over and above these standard obligations, additional licence conditions apply to specific services.
The Communications Law also sets out the following supplementary conditions which apply to all communications services providers:
- They must comply with the generally accepted rules and regulations governing the creation of the uniform national communications system in Ukraine;
- They must utilize advanced technical means and technologies; and
- They must commit to developing socially important communications through reinvesting revenues from other highly profitable communications services.
The communications services licence fee varies depending on the communications type. A radio communications services licence costs $630. A long-distance telephony/cellular services licence costs roughly $63,000, while local telephony/audiotext licences cost approximately $630. The approximate cost of international telephony licences is $1.66 million, although companies providing Internet Protocol (IP) telephony services need only pay a licence fee of 10% of this amount.
A telephony services licence is issued for a term of 15 years, while a licence for radio communications services remains valid for 10 years. Licences for the use of radio frequencies are issued for at least five years.
Notification upon commencement of services
The licensee must notify the SCCI of the commencement of services within one month of the date of such commencement. It must also notify the State Committee on Telecommunications and Informatics of any network modernization that might affect telephony service consumers.
All terminal telecommunications equipment is subject to mandatory certification. All other telecommunications equipment is subject to voluntary certification, unless it is designated for use in public networks, in which case certification is also mandatory.
Certificates issued by foreign certification authorities are recognized in Ukraine only to the extent provided in international treaties to which Ukraine is a party. As a matter of practice, all such determinations are made strictly on a case-by-case basis. In most cases a foreign certificate will not be honoured without first testing the product.
Equipment that qualifies under the UKRSEPRO Certification System will be issued a certificate of conformance by the Authority for the Certification of Communication Equipment, which is affiliated with the SCCI. Its use in public networks is thus approved.
The state regulates communications tariffs by setting threshold tariffs. These are established by the SCCI and are subject to agreement with the Ministry of Economy.
The existing threshold tariffs for basic communications services were approved by an order of the SCCI dated February 7 2000 and amended on October 18 2001.
Communications operators may not exceed the threshold tariffs, irrespective of their affiliation and form of ownership. By joint agreement, telecommunications providers may reduce their tariffs by 20% at the most, but the tariffs may not be less than operation costs.
Frequency management is aimed at ensuring the efficient use of radio frequencies, and is carried out through the distribution, allocation, licensing and assignment of radio frequencies by competent governmental agencies.
The right to use radio frequencies for the provision of radio communications services involves (i) the allocation of radio frequencies and (ii) obtaining a license to use radio frequencies.
Allocation of frequencies
Radio frequencies are allocated by the SCCI upon review of a respective application for the allocation of radio frequencies.
Once an application has been filed, the SCCI has one month in which to review it and determine whether the designated use of frequencies complies with the State Frequency Allocation Chart, the Plan for the Use of Radio Frequencies (approved by the SCCI), and other regulatory and technical documents. Upon reviewing an application, the SCCI will forward the file to the Ukrchastotnaglyad, which will carry out a technical examination and formulate an opinion on the application. The Ukrchastotnaglyad then has a one-month period in which to submit to the SCCI for its approval substantiated conclusions as to the feasibility of the requested allocation.
When the results of the examination are approved, the SCCI decides on whether to allocate the radio frequencies. This decision must be adopted within three months of the date on which the application was filed. A decision to allocate radio frequencies is one of the grounds for obtaining a licence to use radio frequencies and one of the preconditions for running certification tests of telecommunications equipment.
Obtaining a licence
Licences to use radio frequencies are granted by the SCCI on a parity basis. Where the number of available licences is limited or where several applications have been filed for the same frequencies, the licence is granted on a competitive or tender basis. The procedure and terms of bids and tenders are determined by the SCCI.
The licensing procedure is as follows:
- An application is filed with the SCCI;
- The SCCI examines and registers the application;
- The application is reviewed by the Interdepartmental Commission on Licensing the Use of Radio Frequencies;
- The Interdepartmental Commission on Licensing the Use of Radio Frequencies submits to the SCCI its conclusions as to whether the licence should be granted or denied; and
- The SCCI decides whether to issue the licence.
The SCCI must adopt its final decision within 60 calendar days of the date on which the application was filed. If the request for a licence is refused, the SCCI is obliged to provide reasons for its refusal.
An application for a licence may be denied for any of the following reasons:
- The documents filed do not conform to the set requirements;
- The information provided is incomplete or inaccurate;
- No radio frequency resource is available for the respective type of radio communications;
- The radiotechnology which the applicant has selected for use is not earmarked in the Plan of Use of Radiofrequencies for introduction into Ukraine;
- The equipment does not comply with the relevant rules and standards;
- The Interdepartmental Commission on Licensing the Use of Radio Frequencies provided negative conclusions; or
- A bid or tender is necessary.
The licence term is determined by the SCCI and may not be less than five years.
The licence fee for radiofrequency use is floating and depends on the radio frequency range. Fee rates are set per 1 megahertz (MHz) of the radio frequency bandwidth. The fees for trunked, search and radial communications amount to $6,300, $12,700, and $3,200 per 1 MHz respectively.
The range of fees for cellular services varies depending on the licensed region (rates for Kyiv and the Kyiv region being the highest), and are as follows:
- 300-470 MHz - $16,000 to $48,000;
- 800-890 MHz - $16,000 to $96,000;
- 890-960 MHz - $32,000 to $256,000; and
- 1.7-2.2 gigahertz - $16,000 to $64,000.
Where the right to use radiofrequencies is granted on a competitive basis or through auction, the fee is determined on the basis of the results of such bids or tender. In such cases the above rates are used to open the bidding, and each subsequent bid must exceed the previous bid by at least 10% of the initial price.
With respect to network interconnection issues, Ukrainian telecommunications legislation sets out:
- general guidelines;
- interconnection procedures;
- the interconnection price calculation method;
- a procedure for settlements between the providers; and
- interconnection technical standards.
General interconnection principles include equal partnership, fair competition and compliance with the fixed network standards. According to the specified interconnection price calculation method, pricing is indirectly based on the SCCI-established tariffs and is dependent on the connection type and length, the quantity of switching centres, and whether calls are incoming or outgoing.
The following technical and operational requirements also apply in the case of interconnection of privately owned networks to public networks:
- Technical facilities used in such networks must be certified under the UKRCEPRO Certification System;
- Network control centres must be located in Ukraine and managed by Ukrainian citizens;
- Use of particular communications equipment must be approved by the SCCI; and
- Technical conditions and coordination of project documentation for network interconnection must be observed.
A telecommunications operator seeking interconnection must make a written inquiry to the relevant network operator in order to obtain its consent to such connection. The switching network operator must respond to the inquiry with (i) a consent to the connection and a list of the technical requirements for such connection, or (ii) a well-grounded refusal of such connection.
Specific interoperator relationships are regulated by interconnection agreements between those operators, subject to compliance with the SCCI regulations regarding interconnection procedures, contract terms and interconnection technical requirements.
Ukrainian law prohibits dominant and monopoly operators from hindering other operators' interconnection, and sets out the following exhaustive list of grounds for refusal:
- Interconnection would violate the licence conditions;
- The technical facilities of the operator requesting interconnection do not meet mandatory technical requirements; or
- The services of the operator requesting interconnection jeopardize state security and public health.
Ukrtelecom, the main public switched telephone network operator in Ukraine, enjoys a near-monopolistic position due to its monopoly over the national wire networks. It has entered into one agreement with all mobile phone operators for the provision of its interconnection services. The agreement sets forth technical and operational standards, as well as criteria relating to how interconnection is achieved and billing procedures, among other things.
Significant advances in wire communications include the completion of a national telecommunications network with 27 digital, long-distance exchanges located in regional centres (the other 19 regional exchanges are analogue) and three digital international gateways, as well as the installation of a national fibre-optic basic network connected to main international fibre-optic networks (ITUR, TEL, TAE and BSFOCS). This network consists of 3,500 kilometres of fibre-optic and digital microwave communication lines. Ukrainian users are offered international telephone communication with more than 200 countries. Integrated services digital network service has been available in Ukraine since late 1996.
However, the Ukrainian wire communications market is nonetheless rather underdeveloped. Almost all local loops remain analogue, with obsolete and worn-out equipment, which prevents the introduction of new billing systems. Users pay a symbolic fee of $2 to $3 per month. Only in large cities have new systems based on per-minute billing been introduced. Almost all local loops are unprofitable. Ukrtelecom subsidizes local loops with revenues received from unrealistically high rates for international calls, line installation and registration.
Two companies dominate the national and long-distance wire networks: Ukrtelecom and Utel, respectively. Ukrtelecom was created in 1993 by merging several state owned telecommunications departments. Due to the state monopoly for ownership of transmission facilities which existed until 2000, Ukrtelecom now holds an actual monopoly over the local loop and administers the national wireline infrastructure. In addition, Ukrtelekom usually either gets a share in any private or public telecommunications company operating in Ukraine, or signs a memorandum of cooperation with such firm.
In the past, a number of local telecommunications operators brought cases against Ukrtelecom before the Anti-monopoly Committee, claiming Ukrtelecom's abuse of its dominant position. However, Ukrtelecom's position not likely to weaken in the near future, due to the strong support it receives from powerful government and political groups.
Although wireless communications is the most active subsector of the telecommunications industry in Ukraine, it is rather poorly regulated. There is no legislative act that comprehensively regulates this sphere of the Ukrainian economy. However, this legislative gap is set to be filled by the new draft Telecommunications Law.
Mobile services remain the main focus of foreign investors in the Ukrainian telecommunications sector. Having taken advantage of the abolition of the 49% cap on foreign ownership in Ukrainian telecommunications services providers, international investors have made large-scale investments in the Ukrainian mobile sector. Therefore, all of the Ukrainian mobile operators have a percentage of foreign investment in their share capital. Another peculiarity of the local mobile market is that, typically, every operator has one manufacturer relationship which either provides an open equipment credit line or is a shareholder of the operating firm.
There are five active mobile telecommunications operators in Ukraine: UMC, Kyivstar GSM, Golden Telecom, DCC and WellCom/Ukrainian Radio Systems. While two of these - UMC and Kyivstar GSM - are major market players, the remaining three hold insignificant market shares. As of March 31 2002 UMC was reported to have approximately 1.18 million subscribers and Kyivstar 1.29 million.
Turkcell, Turkey's largest mobile operator, is expected to enter the Ukrainian mobile market soon. Turkcell is reported to have registered a 100%-owned subsidiary in Ukraine and obtained approval for the allocation of radiofrequencies in the 1800 MHz range.
Code division multiple access
In Ukraine, CDMA may be used to provide fixed telephone and data transmission services only. The provision of mobile services using CDMA technology is prohibited and this ban is unlikely to be lifted soon. According to the head of the SCCI, the international instruments to which Ukraine has acceded prevent the use of CDMA for such purposes. Thus, CDMA use is recommended in fixed standard only.
The powerful local mobile services providers are believed to support such strict compliance with international instruments, since use of CDMA technologies for mobile communications threatens their interests, due to the low cost of CDMA services.
The Ukrpack Ukrainian National Data Transmission Network is based on frame relay technology and provides direct connections to synchronous and asynchronous data terminals through dedicated lines.
Unlike other telecommunications service providers, companies that act as internet service providers (ISPs) do not need a licence to commence operating. Whether the provision of a particular communications service in Ukraine must be licensed depends on whether voice transmissions are made as part of that service. Therefore, if an ISP company intends to provide voice transmission (eg, IP telephony) as one of a number of data transmission services, this will be considered provision of telephony services for regulatory purposes and will thus be subject to licence (either local, long-distance or international, depending on the type of voice transmission service offered).
IP telephony was not regulated in Ukraine and consequently was not subject to licence until May 16 2001, when the Cabinet of Ministers approved a resolution that introduced a licensing requirement for the provision of these services. Although IP telephony is now licensed as an international telephony service, the licence fee is 10 times less than the fee for a standard international telephony license (or approximately $160,000).
For further information on this topic please contact Igor Svechkar or Olena Repkina at Shevchenko, Didkovskiy & Partners by telephone (+380 44 230 6000) or by fax (+380 44 230 6001) or by email ([email protected]).