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.

On 5 October the Issuer and Altimo (the telecom arm of the Alfa Group) announced an agreement to combine their holdings in Open Joint Stock Company “Vimpel-Communications” (OJSC VimpelCom) and Closed Joint Stock Company “Kyivstar G.S.M.” (Kyivstar) into a new jointly owned mobile telecoms operator, VimpelCom Ltd. The transaction was completed on 21 April 2010. The Telenor Group now holds 39.6% of the economic interests and 36.0% of the voting rights in VimpelCom Ltd., which began trading on the New York Stock Exchange on 22 April 2010. For more information, please refer to section “Telenor and Altimo to create a leading emerging markets mobile operator” under TELENOR’S OPERATIONS above.

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, and appointed an audit commission. The company board met and elected Ernst & Young as the company’s external auditors.

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 31 March 2010, Kyivstar had 21.9 million mobile subscriptions. As at 31 March 2010, the mobile penetration and number of inhabitants in Ukraine were 120% 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 31 March 2010 of 39.9% when measured in number of subscriptions and approximately 49% when measured in revenues. 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 31 March 2010, Ukrainian Mobile Telecommunication JSC had a market share of approximately 31.6%. Astelit (a company owned and controlled by System Capital Management Holdings and Türkcell, and operating under the brand Life) had a market share of 22.1% at the end of March 2010. 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 3.6% at the end of March 2010. Telenor’s indirect subsidiary (held through Telenor Mobile Holding AS), Telenor East Invest AS held a 29.9% voting and a 33.6% economic ownership share in VimpelCom as at 31 March 2010. 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 2.9% as at the end of March 2010.

On 29 September 2009 the Ukrainian regulator (the 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, which was planned to be held on 27 November 2009, was cancelled. The President of Ukraine vetoed the planned frequency transfers 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. In May 2010 the NCCR announced that 3G tender will be held in the fall 2010.

Regulatory matters

Under the Law on Telecommunication from September 2003, a National Commission for Communications Regulation 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. Oliynyk. Despite the fact that the independence of the regulator is guaranteed by the Law on Telecommunications, the NCCR is still very dependent on the Government. In 2009, the Antimonopoly Committee of Ukraine 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 properly 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.

In the beginning of May 2010 the Cabinet of Ministers of Ukraine decided on a five fold increase to the radio frequency fee. This decision has already come into force.

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.