|                                                                                                                                                             |  | TELECOMMUNICATIONS INFRASTRUCTURE IN UKRAINE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          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|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsPublicationsSourcesof FinanceLeadsand EventsExchangeRatesState ExportsOtherSources** |  | November 1997by Barbara RistauUkraine has taken important steps in recent years to improve basic telecommunications
infrastructure and introduce modern operating standards -- key fundamentals for the development
of modern telecommunications systems.  A number of foreign telecommunications companies are
active in Ukraine, although the country's restrictive regulatory regime still hinders full
development of this market.  Despite the obstacles, the low level of market penetration indicates a
powerful latent demand for telecommunications equipment and services in the second-largest NIS
market.Developments in Ukraine's wired and wireless communications since 1992 make possible more
sophisticated telecommunications services than ever before.  Significant advances include the
completion of a national wired network with 24 long-distance digital exchanges in 1996. 
Additional gateways are slated to open in Lviv and Kharkiv in the near future.    In the sphere of
mobile radio communications, services are currently available on both the 450i NMT and DCS
1800 standards.  The forthcoming launching of three GSM 900 national networks in late 1997 will
further modernize Ukraine's telecommunications infrastructure.  Vigorous plans for satellite
communications are also underway.Low Teledensity
Depite progress, Ukraine's teledensity--the number of telephones per 100 residents, expressed as a
percentage--remains at low levels.  For example, the percentage of market penetration of the total
population in mobile communications is just 0.1 percent, far lower than the current levels in
Poland, Hungary, and the Czech Republic (0.8, 4.7, and 2.6 percent, respectively)   In "wireline"
communications--those using land-based copper or fiber-optic cable--the comparisons are also
drastic.  The United States possesses roughly 65 lines per 100 persons, a level almost four times
higher than in Ukraine, where wireline teledensity hovers at approximately 18 percent.The Ukrainian Government hopes to raise wireline teledensity from 18 to 40 percent over the next
10 years.  This would require installation of 10 million new phone lines at a cost of $5-10 billion. 
The first phase of this ambitious project is envisioned in the Ukrainian Ministry of
Communications plan for 1997-2000, which calls for nearly 3.2 million new lines at an average
cost of $1,000 per line.  Meanwhile, due to high operating costs and frequency fees (especially for
mobile networks), mobile telecommunications is affordable only to a small percentage of
Ukraine's population.Major Local Companies
Two companies dominate the domestic and international wireline networks, the Ukrainian State
Telecommunications Corporation (Ukrtelecom) and Utel, respectively.  Ukrtelecom was
created in 1993, when the Ukrainian Ministry of Communications (MOC) reorganized the
national telecommunications structure by merging several MOC departments and regional
telephone operators.  Owning all transmission facilities, Ukrtelecom administers the national
wireline infrastructure.  Ukraine's hesitation to liberalize its telecommunications industry has
given Ukrtelecom a substantial degree of clout in both the political and business communities. 
Industry experts, however, have been discussing the likelihood that Ukrtelecom will privatize,
which would certainly reshuffle the structure of the telecommunications market in Ukraine.The long distance joint venture and international service provider Utel  was established in 1992. 
Utel has enjoyed considerable success -- in 1996, the company boasted profits exceeding $27
million.  The company has thus far reinvested all profits into infrastructure development, primarily
concentrating on achieving interregional and international connectivity.    At the end of 1996,
Utel's cumulative investments into the Ukrainian economy amounted to $138 million, which
represents 15 percent of all foreign direct investment in Ukraine.Ukraine's wireline networks, however, remain far from optimal.  First of all, fees for new line
installation can reach $1,000, and may require long periods of waiting.  Secondly, although
increasing amounts of digital equipment are in place, many regional telephone operators continue
to connect customers on old equipment, for which they can exact charges.  Therefore, quality of
connection cannot be guaranteed, except with Utel's premium lines (which bypass regional
operators).Regulatory Environment
Although the capital-intensive nature of telecommunications development has meant that foreign
firms have been, and will continue to be, signficant players in this market, foreign firms are
restricted in their degree of participation by stringent government regulations.  The Ukrainian
Law on Communications stipulates that the foreign share in a Ukrainian telecommunications
services provider cannot exceed 49 percent.  Consequently, only Ukrainian private or state
companies are entitled to apply for operational and frequency licenses.  Furthermore, mobile
service providers cannot obtain access to wireline networks and public switches without
establishing some type of cooperation with Ukrtelecom, which generally only happens in the form
of a nine percent ownership share.  Lack of transparency in the tendering process, erratic behavior
by government entities, and frequent changes in legislation pose additional difficulties.For
additional information on telecommunications in Ukraine, see BISNIS Online, at
http://www.mac.doc.gov/bisnis/isa/isa.htm#Aisa.Barbara Ristau served as a BISNIS representative in Kiev from May to August, 1997.This report is provided courtesy of the Business Information Service for the Newly
Independent States (BISNIS)