How Ukrainian operators were making their way towards 4G and how much they pay for it
Progress is as slow as molasses
“Why is it (3G and 4G technology – editorial team) still not introduced? The answer is simple: corruption. But I am convinced that 4G is not just a communication technology. This is the impetus for economy, which fills budget, reforms public procurement and so on,” President Poroshenko stated in the summer of 2014. There was no 3G in Ukraine yet.
The head of state himself launched the introduction of 4G a year after this announcement. In late July 2015, he signed the decree by which he requested the National Commission for the State Regulation of Communications and Informatization to develop a plan for the introduction of the fourth generation of mobile communication.
In the case of 3G, the difficulty was that the military used the fraction of frequencies appropriate for this standard. It was necessary to conduct a conversion to clear the required bands. In view of this, there were delays in the launch of 3G in such regional centers as Zhytomyr, where the third-generation communication appeared only in July 2017.
In the case of frequencies for 4G, the suitable bands were unevenly distributed between military, analogue television and current operators. The working group of 7 operators (Kyivstar, Vodafone, lifecell, International Telecommunications, Datagroup, Intellectual Communications (Giraffe) and First Investment Union) invited Analysys Mason (Britain) in order to make head or tail of Ukrainian radio frequency spectrum.
The most popular band for LTE is 1800 MHz. In Ukraine, the Big Three operators – Kyivstar, Vodafone Ukraine and lifecell – use these frequencies for GSM mobile communication, GPRS and EDGE voice and mobile traffic. At the same time, the frequencies are unevenly distributed between the operators. More than half of the spectrum in these bands was controlled by Kyivstar due to Beeline and Golden Telecom takeover. However, according to the provisions of the effective Law “On Telecommunications”, the largest operator could not just set 4G on these frequencies. For this purpose, it would be necessary to obtain an appropriate license.
One way to redistribute the spectrum between the telecommunication competitors and enable them to launch LTE on it was to amend the legislation. In August 2016, the Verkhovna Rada submitted a new draft law “On Radio Frequency Resource”. Among other things, it was intended for introduction of technological neutrality. It is the principle, pursuant to which operators can use their frequencies for the communication standard regardless of what is stated in the license. “If we do not adopt these draft laws, then we will create a setback in the introduction of 4G in Ukraine at least for a year and a half,” Oleksandr Danchenko, head of the Verkhovna Rada Committee on Informatization and IT, said in the interview with AIN.UA.
But things, as often happens, didn’t go as planned. The draft law of Danchenko eventually went no further than the relevant committee and was first withdrawn, then introduced again. The last record on its status is dated May 16, 2017.
Frequencies in the morning, money in the evening
The mobile operators, to whom the emergence of 3G gave a serious impetus to development, decided not to idle their time away. At the end of September 2016, it became known that the Big Three independently intends to make an arrangement and redistribute the available frequencies among themselves.
However, the state regulation could not be dispensed with in this matter. Even in case of a successful exchange, the operators could not launch the standard in 1800 MHz band as the license did not allow it. They would have either to wait for the adoption of a new law on RFR stuck in the Rada or to transfer the frequencies to the state represented by the National Commission for the State Regulation of Communications and Informatization and obtain new 4G licenses for these frequencies.
Nevertheless, the Big Three was not the first to take this step. In November 2016, another operator joined the game. This operator is hardly known to an ordinary Ukrainian. MMDS Ukraine, owned by SCM of Rinat Akhmetov, had a license for frequencies in 2600 MHz band.
These are not such popular frequencies for LTE in the world. In addition, the base stations in this band have a three times smaller radius of action. Therefore, Ukrainian mobile operators are likely to use frequencies as auxiliary ones and only in large cities like Kyiv, Dnipro, Odesa.
Akhmetov’s company agreed to return 80 MHz band to the state, but not gratuitously. In exchange for taking such a step, the company will receive up to 25% (UAH 572 million) compensation for the 2600 MHz band licenses fee. The compensation is equal to 2.288 billion UAH. Such compensation will give a good earning to Akhmetov’s business. The amount of compensation is 147 times higher than the one MMDS Ukraine paid for using frequencies that would eventually return to the state, wrote Economic Truth. The 80 MHz band costed the oligarch’s company only 3.4 million UAH from 2010 onwards.
At the same time, according to Economic Truth, Akhmetov’s company had only 8,000 clients and was present only in 13 regions, while the license covered the whole country. The situation looks as if MMDS Ukraine was just waiting for the frequencies to be needed for a real deployment of 4G in order to earn compensation.
It remained unclear until the summer of 2017 whether such a model would work or not. Part of the reason for this was the disagreement between the Ministry of Justice, which was supposed to approve the terms of the tender, and the National Commission for the State Regulation of Communications and Informatization, which developed these terms.
In the meantime, in March 2017, the Big Three also agreed to transfer to the state the frequencies in 1800 MHz band (total 2х75 MHz). “This is not a simple decision for us. In fact, we are
a “donor”, since we own the largest number of frequencies in 1800 MHz band, which are obtained transparently and legally,” Peter Chernyshov, head of Kyivstar, said then. The National Commission for the State Regulation of Communications and Informatization assigned to the operators the right of the first repurchase of a part of the frequencies (2×60 MHz) – this very condition became the object of criticism of the Ministry of Justice. The remaining 2×15 MHz were to be put up for an open tender.
In August 2017, the Cabinet of Ministers has finally approved all necessary documents for the holding of an auction. The Ministry of Justice signed the 4G tender procedure in September. The telecom-regulator promised to take tenders until the end of the year.
The cherished news about the tender date appeared in early November last year. As planned, the first tender deals with frequencies in the 2500-2700 MHz band and MMDS Ukraine provided the availability of these frequencies. From November 13 to December 22, the National Commission for the State Regulation of Communications and Informatization opened the reception of proposals from the operators and revealed them on January 26.
The date of the main tender for frequencies in the 1710-1785 MHz and 1805-1880 MHz bands was set at the meeting on December 21. The reveal of the operators’ proposals was set for the end of February and the bids for the cherished frequencies themselves were set for early March.
How much 4G costs
2600 MHz band
Public servants of the Cabinet of Ministers and other high officials have repeatedly stated that the sale of licenses for a new standard of communication will not only improve the quality of the Internet access, but also fill the treasury up. As stated by Stepan Kubiv, Deputy Prime Minister, the state should receive from tenders at least 6.3 billion UAH.
As for the licenses for the frequencies in 2600 MHz band, the initial price offers of Kyivstar, Vodafone Ukraine and lifecell were announced on January 26.
There are seven positions put out to the tender:
- Item No. 1 (20 MHz): frequencies 2540-2545, 2565-2570/2660-2665, 2685-2690 MHz
- Item No. 2 (10 MHz): frequencies of 2535-2540 / 2655-2660 MHz
- Item No. 3 (10 MHz): 2530-2535/2650-2655 MHz
- Item No. 4 (10 MHz): 2525-2530/2645-2650 MHz
- Item No. 5 (10 MHz): 2520-2525/2640-2645 MHz
- Item No. 6 (10 MHz): 2510-2515/2630-2635 MHz
- Item No. 7 (10 MHz): 2515-2520/2635-2640 MHz
Vodafone offered the most for the first item – UAH 572 million. Kyivstar plans to buy out the next three at a price of UAH 293 million each. Lifecell intends to purchase the items No. 5, No. 6 and No. 7, having estimated these frequency band sections in UAH 286 million each.
MMDS Ukraine will be the first one to certainly make a pretty penny out of the tender. According to the terms of the tender, their compensation, which according to the Conversion Plan should not exceed 25% of the cost of the license (573 million UAH), was slightly reduced by the National Commission for the State Regulation of Communications and Informatization to 500,092,180 UAH.
Based on the pricing offers, the state will receive a minimum of 2.309 billion UAH.
Operators will pay a minimum of 2.809092 billion UAH for the licenses and conversion of frequencies.
How much each individual operator will pay is contingent on the outcome of the trading by voice. If there are no surprises and the Big Three participants will receive those lots for which they offered the maximum value, the payments will be distributed as follows:
- Kyivstar offered 293 million for each of the items No. 2,3,4. The cost of conversion will be 62,511,523 UAH each. In total, the operator will have to pay a minimum of 1,660,534,569 UAH.
- Vodafone Ukraine offered UAH 572 million UAH for the item No. 1. The cost of conversion is 125,23,046 UAH. In total, the operator will pay at least 697,023,046 UAH.
- Lifecell offered 286 million UAH for each of the lots No. 5, 6, 7. The cost of conversion is 62,511,523 UAH each. In total, the operator will pay a minimum of 1,450,534,569 UAH.
In theory, the operators’ proposals can grow during the trading by voice and they will have to pay more. What happens in practice will be known on January 31.
1800 MHz band
There definitely will be competition between the Big Three during the tender for the 1800 MHz band licenses, as the main LTE coverage will be deployed in this band.
According to the terms of the tender, the following 6 items will be put out:
- Item No. 1 (30 MHz): 1710-1725/1805-1820 MHz (lifecell)
- Item No. 2 (50 MHz): 1725-1750/1820-1845 MHz (Kyivstar)
- Item No. 3 (40 MHz): 1750-1770/1845-1865 MHz (Vodafone Ukraine)
- Item No. 4 (10 MHz): 1770-1775/1865-1870 MHz
- Item No. 5 (10 MHz): 1780-1785/1875-1880 MHz
- Item No. 6 (10 MHz): 1775-1780/1870-1875 MHz
The first three will be reserved for the specific operators so that they can support the operation of the GSM network. Kyivstar, Vodafone Ukraine and lifecell will be able to repurchase at the starting price the part of the spectrum assigned for them. Item No. 1 (30 MHz) will go to lifecell for 795 million UAH, item No. 2 (50 MHz) – to Kyivstar for 1.325 billion UAH, item No. 3 (40 MHz) – to Vodafone Ukraine for 1.060 billion UAH.
The starting price of the last three items of 10 MHz is 265 million UAH each. The operators wanted the National Commission for the State Regulation of Communications and Informatization to arrange additional items along with their main bands. So, they would form a continuous band of the spectrum, which is necessary for the deployment of 4G. Well, then each of the Big Three would take its item and the trades would become a formality. In this case, the state would receive about 4 billion UAH for the licenses.
But the regulator “cut” the frequencies in such a way as to create a situation where a hypothetical fourth player might appear in the competition. Theoretically, this player could buy items No. 4-6 and get a continuous band equivalent to the one owned by lifecell. The telecom market experts interviewed by Liga.net do not believe in the appearance of the fourth player since it would have had to build infrastructure from the ground up to billions of hryvnias. However, such an approach of the National Commission for the State Regulation of Communications and Informatization will force Kyivstar, Vodafone Ukraine and lifecell to compete for a tender for an additional segment of the spectrum closely situated to their main band.
Without a consideration of how the prices of additional items will grow over the course of trading in early March, the state will make 3.975 billion UAH.
If the tender run true to form, and Kyivstar, Vodafone Ukraine and lifecell receive each of the assigned items plus one of the three additional ones, then Kyivstar, as the largest “donor” of frequencies, will receive compensation from its two market colleagues. Vodafone Ukraine will have to pay a competitor 25,453,073.66 UAH, and lifecell – 82,117,244.25 UAH. In aggregate Kyivstar will receive the compensation of 107,570,317.91 UAH.
Consequently, each of the operators will pay in the tender for frequencies in 1800 MHz band such a minimum amount:
- Kyivstar –1,482,570,317.91 UAH (taking into account the compensations from other operators);
- Vodafone Ukraine –1,350,453,073.66 UAH (taking into account the compensation payments to Kyivstar);
- Lifecell –1,142,117,244.25 UAH (taking into account the compensation payments to Kyivstar);
The check, please
If you sum up all the payments, then the state, without taking into account the possible increase in rates during the trades, will gain from the sale of licenses: 6.284 billion UAH.
- MMDS Ukraine, the final beneficiary of which is Rinat Akhmetov, will receive 500,092,180 UAH.
- Kyivstar will pay for the 4G licenses and conversion at least 3,147,07,569 UAH.
- Vodafone Ukraine will receive a check for at least 2,470,068,346 UAH.
- Lifecell will pay at least 2,187,651,569 UAH.
For comparison, almost three years ago lifecell (Astelit at that time) paid 3 billion 355 million 400,000 UAH for the 3G license, Vodafone Ukraine (MTS Ukraine at that time) – 2 billion 715 million, Kyivstar –2 billion 700 million UAH. In addition, all three operators also paid 1.6 billion UAH for the conversion of the military frequency. 10.5 billion UAH in total.