Dyelo Newspaper

By Stanislav Yablonskiy

 

The biggest private fixed line operator - Vega Group owned by Rinat Akhmetov - has agreed with Ukrtelecom on access tariffs to the cable conduit system

Following a six- to eight-fold rise in tariffs to rent and access to this infrastructure (ducts for telephone cables), made by Ukrtelecom last year, this issue remains the most disputed one in the fixed line market. Vega CEO Yuriy Chuikov spoke about the outlooks to settle the disputes between providers and the state monopolist in his interview for Dyelo Newspaper.

How did you reach a compromise with Ukrtelecom on access to the state provider infrastructure?

We have reached a principle agreement and fully solved all controversies. We have already signed an agreement to rent and access cable conduit system of Ukrtelecom for 2010. This is a big number of agreements, as today our Group comprises 14 legal entities, whereas in Ukrtelecom the agreement must be signed by each regional affiliate. The state company has signed over a half of all agreements and we have signed all of them.

Have you received better tariffs?

I can't unveil specific terms of the signed agreements. But we have reached a compromise - Ukrtelecom has made significant concessions. However, tariffs are a bit higher than we expected, as they are calculated based on actual expenses rather than on actual cost. In 2009 we paid the state provider around UAH 4m for rent. This year we're planning to pay around UAH 8m. But if we had agreed to accept conditions initially offered by the state provider, this sum would be much bigger.

How did you persuade Ukrtelecom to make concessions?

We actively sought discounts. Vega rents around 60% of the whole infrastructure of the state provider. The rise in Ukrtelecom access tariffs could have affected us much worse than other companies.

Ukrtelecom announced its plans to charge the providers for an illegally laid cable. Have you agreed on this issue?

Since this is our mutual problem we have agreed with Ukrtelecom to gradually make all our "shadow" cable official during this year. But it’s still a question how much extra money we will have to pay for it. Our estimates show it will be plus UAH 1-1.5m a year.

Why is access to cable pipelines so important and disputable for the market?

Communication workers have a saying: the one who owns the final line (a channel linking the provider's net with the end client - Dyelo note), owns the market. Installing equipment in the network is hardly a problem for any provider, but reaching a client is a far more challenging task. In our market getting from the provider's net to the client's house fully depends on the company access to the cable conduit system. The state provider owns 90% of this infrastructure. This means it can dominate the market. Monopolists all over the globe are subject to mandatory state regulation. And this is how it should be, as otherwise they will try to impose their own working conditions. In our case, Ukrtelecom is not a recognized monopolist in the market of access to the cable infrastructure, because this strategically important area is not deemed as a market. For some vague reasons AMCU wouldn't formally call the service of access to the strategic infrastructure a "market". It’s all happening, because, if this were done, antimonopolists would automatically have to recognize Ukrtelecom a monopolist. The state needs to develop and endorse clear rules for this market. And in this sense everything depends on AMCU, which has been trying to make some decision here to no avail though. Once this happens National Communications Regulatory Commission will be able to regulate Ukrtelecom tariffs for this service, which will play into the hands of private providers.

Will private fixed line providers agree with mobile providers on another strategic issue - mutual access to each other’s nets?

At their time mobile providers made a significant investment in construction of their own nets. They used this argument to create the settlement system, where the access tariff for the mobile net was twice as high as that for the fixed line - 50 kopecks against 25. Today the expenses to maintain mobile nets don't exceed those for fixed lines. Therefore, we advocate symmetrical rates just like it’s globally accepted. Of course, they should go down gradually. Ukrtelecom has recently reduced its access tariffs for mobile networks. This process should cover private fixed line providers as well. Here we expect to reach agreements with mobile providers, namely with Kievstar during one or two months. Hopefully, the tariff for us will be 40 kopecks lower.

 

Was the bygone year successful for the Group?

Notwithstanding the crisis, Vega performed pretty well last year. We overfulfilled our income plan, while our 2009 turnover exceeded UAH 850m. As we had been actively restructuring before the crisis, in 2008 this allowed us to reduce expenditures and improve operating efficiency.

Has the structure of your income changed due to the increased popularity of broadband internet access?

Just two years ago, we earned 90% through telephone services, while internet accounted for 10% of our income. In 2009, internet got a share of 25%. I believe, in two years the incomes from these two services will be equal. If you look at the fixed line market, you'll see it has remained practically unchanged since 2008 and amounts to UAH 9.5bn. However the share of telephony is shrinking, while that of the internet is growing. This growth makes up for the shrink, therefore in terms of money the market size is stable. This is a trend of all providers, as fixed line subscribers move to the mobile net, and you can't stop it, for this is how the market works. We are supporting our fixed line sector, but we clearly understand this market is going to shrink, therefore we should put a major focus on the BIA market (broadband internet access - note by Dyelo). In 2009 BIA raised 30% more income in the market. Last year we saw a rise of over 30% in BIA for individuals. This year we expect a growth of around 20%. Vega has around 800,000 final miles, 15% of which are used for internet. The rest is our potential for new connections.

How will the fixed line market develop in the next couple of years?

This year Ukrainian internet market is expected to grow by 20-22%, next year - by 15%, in 2012 - by 10%. This growth will be largely down to the development of broadband internet access for home users. It's a very good share of market. I think all providers have their eyes on it now. Fixed line telephony will see a further stagnation. Legal entities and individuals will not abandon the service, but they will spend less and this will reduce income from telephony. The providers will try to compensate this reduction through a more intensive work in the internet segment. Moreover, price dumping is a closed chapter for the market. I believe, retail internet prices will not shrink further and internet providers will compete rather in terms of speed, ie subscribers will receive faster and better internet plus additional content for the same money.