Kyivstar

Kyivstar GSM (Kyivstar) in Ukraine was established in 1997, and is the largest mobile operator in Ukraine. As at 31 March 2009, Telenor had a 56.5% ownership interest in Kyivstar. The remaining share capital is owned by Storm LLC (Storm). Storm is indirectly owned by Alfa Group. Through its subsidiaries Storm and Alpren, Alfa Group initiated legal proceedings in Ukraine in 2006. As a result of a court injunction, Kyivstar was prevented from submitting financial information to its owners and international auditors, which led to Telenor’s Board of Directors deciding to deconsolidate Kyivstar with effect from 29 December 2006. After the last remaining injunction was lifted in November 2007, Kyivstar resumed its financial reporting to Telenor.

To re-establish Kyivstar’s full compliance with corporate governance obligations, on 23 January 2008 Telenor filed a contempt motion with the federal court in New York against Storm, its two direct shareholders Alpren Ltd. and Hardlake Ltd., and Altimo Holdings & Investments Ltd (Altimo). The court found for Telenor on all counts on 19 November 2008, and ordered Storm to take all steps necessary to restore corporate governance in Kyivstar, with a threat of heavy fines for non-compliance.

On 16 December 2008 the shareholders met at two Extraordinary General Meetings of Shareholders (EGMS) to bring Kyivstar’s charter into line with Ukrainian law. Furthermore, the EGMSs elected a new company board, appointed an audit commission and have now declared dividends for the years 2004 and 2008. The company board met and elected Ernst & Young as the company’s external auditor.

Services

In addition to voice telephony, Kyivstar provides a full range of value added services, including messaging: SMS, MMS and voicemail, mobile Internet based on its own nationwide EDGE network, 3G national roaming provided through a national roaming agreement with Ukrtelecom, (the only company in the country currently possessing a 3G licence), mobile e-mail and other Internet services, money transfer, LBS, WPBX (Mobile Manager), a wide range of mobile multimedia services, and international roaming in 365 networks in 194 countries. As at 30 September 2009, Kyivstar had 22.3 million mobile subscriptions. As at 30 September 2009, the mobile penetration and number of inhabitants in Ukraine were 121% and 46 million, respectively.

Network and licences

Kyivstar owns several telecommunications licences, including a GSM 900 MHz and GSM 1800 MHz licence. Kyivstar’s GSM network had approximately 97% population coverage as of 31 December 2008. Kyivstar’s network is fully EDGE upgraded and the company has its own fibre backbone all over Ukraine.

Competition

Kyivstar is Ukraine’s largest mobile operator, with a market share at 30 September 2009 of 40.2%. The second largest mobile operator is Ukrainian Mobile Telecommunication JSC, which is fully owned by the Russian group Mobile TeleSystems OJSC (MTS Russia) and is operating under the MTS brand. As at 30 September 2009, Ukrainian Mobile Telecommunication JSC had a market share of approximately 32% Astelit (a company owned and controlled by System Capital Management Holdings and Türkcell, and operating under the brand Life) had a market share of 21.4% at the end of September 2009. Astelit holds GSM 900 MHz /1800 MHz licences and launched services in January 2005. Beeline, a brand operated by Ukrainian Radio Systems (URS) is 100% owned by the Russian company VimpelCom. URS had a market share of 4% at the end of September 2009. Telenor’s indirect subsidiary (held through Telenor Mobile Holding AS), Telenor East Invest AS holds a 29.9% voting and a 33.6% economic ownership share in VimpelCom. URS holds a GSM 900 MHz licence for the whole territory of Ukraine and a GSM 1800 MHz licence for 23 out of 27 administrative regions. There are several smaller mobile operators in Ukraine, which together had a market share of 2.3% as at the end of September 2009.

On 29 September 2009 the Ukrainian regulator, NCCR, published their 3G tender conditions for auction of one 3G licence in the 2100 MHz band consisting of 2x10 + 5 MHz spectrum. The auction is planned to be held by the end of November 2009, but there is uncertainty related to the spectrum that has to be transferred from the military. In December 2005, the incumbent fixed operator, Ukrtelecom received a 3G (UMTS) licence and the necessary spectrum without any auction or tender procedure.

Regulatory matters

Under the Law on Telecommunication from September 2003, a National Commission for Communications Regulation (the NCCR) was established from 1 January 2005. In September 2008, NCCR activities were renewed after a series of appointments and dismissals of Commissioners. The Ukrainian president cancelled his previous decree that suspended Government Resolution on NCCR members’ appointment by decree number 814 as of 8 September 2008. The NCCR is currently headed by Mr. Kolobov. Due to the prevailing political conflict in the Ukrainian parliament, the legal status of the NCCR remains unclear. The Antimonopoly Committee of Ukraine has announced that it intends to recognise all mobile operators as monopolists (dominant operators) for terminating calls on their own networks and to initiate regulation for this interconnection service, however the details of future regulation are not currently clear.

Mobile termination rates (MTR) have so far not been regulated in Ukraine. There are initiatives from NCCR to regulate dominant operators down from the current level of UAH 0.50 to UAH 0.40 from 2010, however so far no formal decision has been made.

Kyivstar and Ukrtelecom do not have a valid interconnection agreement for 2009. The parties will have to agree the tariffs for fixed to mobile and mobile to fixed.

The Ukrainian parliament has received a bill from the NCCR that would impose, if approved by the Parliament, a 3% tax on mobile telecommunication operators. The proceeds would go to a universal telecommunication services fund which would ensure the extension of telephone service to the most remote settlements of Ukraine.

Note: The business descriptions have been updated November 2009.