Mobile broadband will gain momentum in Ukraine, offering significant growth opportunities

30 October 2015

The recently granted 3G spectrum bands and a 4G auction planned for 2017 will drive the development and adoption of mobile data services in Ukraine over the next five years.

In February 2015, the National Commission for the State Regulation of Communications and Informatization (NCCIR) issued 3G spectrum bands to MTS Ukraine, Kyivstar and life:). Prior to that, Ukrtelecom’s mobile division, TriMob, was the only operator with a UMTS license for commercial use in Ukraine, with Kyivstar and MTS Ukraine offering 3G services via roaming on TriMob’s network. NCCIR has obliged the awarded operators to offer 3G services in every regional center of Ukraine by the end of August 2016 and provide 3G connectivity to all villages with a population of more than 10,000 within six years.

Although the 3G auction just concluded, Ukrainian authorities are already considering a 4G auction. In July 2015, President Petro Poroshenko signed a decree obliging the regulator to design an action plan to introduce LTE in 2017. The implementation plan was approved by NCCIR a month later and it contains amendments to the existing acts, national frequency allocation table of releases of first (800MHz) and second (700MHz) digital dividend spectrum bands (used for broadcasting services before) and introduction of technology-neutral usage of spectrum for LTE.

The development of 3G/4G services will drive mobile data usage and corresponding revenue in Ukraine over the next five years. Mobile data revenue will grow at a 5.4% CAGR in local currency to reach UAH 8.1bn ($363.4m) in 2020 from an estimated UAH 6.2bn ($288.0m) in 2015. This will help to offset further erosion of traditional fixed and mobile voice revenue. Pyramid Research forecasts a total service revenue increase of 0.1% (CAGR 2015-2020) in local currency, slowed down due to challenging economic conditions, as reported in our recently published report, “Ukraine: Unstable Political and Macroeconomic Scenario Will Slow Telecom Revenue Growth Through 2020”. Revenue will peak in 2018 and decline slightly afterward to UAH 42.2bn ($1.9bn) in 2020.

 

Changes in the revenue mix

The revenue mix voice-data will change significantly through 2020, mostly thanks to the aforementioned large-scale launch of 3G services in 2015. 3G services are projected to reach 43.7% of mobile subscriptions in 2020 to 28.2m connections, compared to 4.5m in 2015. Pyramid Research expects 4G take-up to be slow as disposable incomes are low in Ukraine and the market of early adopters of new technologies is tiny.

Ukraine’s mobile service revenue is expected to grow from UAH 28.3bn ($1.31bn) in 2015 to UAH 28.5bn ($1.29bn) in 2018 and then decrease to UAH 28.0bn ($1.25bn) in 2020. Exhibit 1 below shows that, according to Pyramid Research forecasts, mobile data services offer the largest revenue growth opportunity through to 2020. Voice revenue will fall due to cheaper offers and growing popularity of OTT services among consumers, following 3G take-up. The contribution of mobile data services to the overall ARPS will increase from 22.1% in 2015 to 29.0% in 2020.

Kyivstar and life:) already offer 3G packages beginning at $2.50 (UAH 55) per month. Shortly after the 3G spectrum auction, both operators launched their 3G W-CDMA/HSPA+ services in main Ukrainian cities in H1 2015. MTS Ukraine is yet to launch its commercial HSPA+ services, but it intends to provide over 50 indoor 3G networks across Kiev, and 200 similar networks in additional major cities across the country.

Mobile will continue to be the largest contributor to overall telecoms and pay-TV service revenue segment in Ukraine and will account for 66.3% of total revenue in 2020. Increasing adoption of smartphones and operators’ focus on expansion of 3G coverage networks will help mobile to maintain its lead over the fixed segment.

Within the fixed segment, the contribution of Internet access to fixed services revenue will increase from an estimated 44.3% in 2015 to 54.5% in 2020 owing to focus on rural expansion, continuous fiber adoption and quality enhancement initiatives by operators to answer consumers’ growing demand. Increasing adoption of fixed broadband services will offset the fall of fixed voice revenue and will ensure fixed revenue growth at a CAGR of 1.0% in local currency over the next five years. For instance, to enhance digitization of rural areas, Ukrtelecom set up 150,000 new fixed broadband ports and 3,570km of optical fiber in small towns and villages, which resulted in over 20,000 new subscribers in 2014.

The overall impact of enhanced mobile and fixed infrastructure and growing appetite for Internet services is that data services’ contribution to total revenue will grow throughout the forecast period, and mobile data and fixed broadband revenue will account for a combined 35% of revenue by 2020.

 

EXHIBIT 1: CHANGE IN SERVICE REVENUES BETWEEN 2015 AND 2020, UKRAINE, UAH M

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Future strategies

Operators should focus on the expansion of their 3G networks to benefit from the growth of mobile data. In addition, they should offer a range of applications like mobile money, mobile health, music, games and entertainment to drive mobile data usage. Regulatory obligations as part of the 3G spectrum auction require Kyivstar, life:) and MTS Ukraine to continue with their respective 3G network expansion initiatives. Also, operators should ready themselves for 4G service launches, for which the government plans to auction spectrum in 2017. The operator focus on network expansion and quality enhancement will offer opportunities for vendors as well.

For more information on Ukraine’s telecom industry, please check the report published by Pyramid Research - “Ukraine: Unstable Political and Macroeconomic Scenario Will Slow Telecom Revenue Growth Through 2020”.

 

Robert Wyrzykowski – Analyst, Europe

 

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