To paraphrase a popular literary hero [Ostap Bender in Ilf’s and Petrov’s Twelve Chairs —Ed.], a mobile phone is not a luxury but a means of communications, although I am afraid some might fail to appreciate the joke. Now that so many in Ukraine cannot afford an ordinary telephone line, writing about the problems of mobile communications may well irritate quite a few readers. It is interesting to note, however, that a similar feature about cars is received as a matter of course.
Meanwhile, the mobile communications market in Ukraine is steadily evolving. At present, there are over 300,000 subscribers, and experts believe that the number will double next year. And these people are not all thriving businessmen or crime kingpins as many think. Among them are representatives of the middle class, which is still numerically insignificant. In any case, beeps and buzzes from mobile phones in public transport no longer cause raised eyebrows. Statistically, there are six such phones per thousand residents of Ukraine, meaning that we are lagging behind not only West European countries (where the figure is 20-30 times higher), but even our East European neighbors. Considering that the propertied stratum makes up some 15% of the populace, the statistics could well be around 50-75 mobile phones per 1,000. So what is holding back the mobile communications market in Ukraine? Why do we not have more subscribers?
There are no technical obstacles, not in terms of stationary and mobile equipment. We have four mobile and one cellular operator company. Three have capacities ensuring coverage of practically all oblast centers, major cities, and many provincial towns. The roaming system allows Ukrainian subscribers to use their phones in many countries. And there is ample market supply. What is holding all this back is primarily in the economic domain.
Mobile phone and operating costs are 2-2.5 times higher in Ukraine than elsewhere in Europe and the United States, but the operators are not to blame. They simply found themselves hostage of the Cabinet’s economic policy. Throughout the world a new type of service costs most when it first appears on the market, then its price gradually comes down. In Ukraine, however, it is the other way around: radio-frequency excises, duties, license fees, etc., have been on an upward curve since the mobile communications market began. Thus, four years ago, when introducing the new GSM 900 standard, frequency costs have risen almost tenfold.
Accordingly, air time costs jumped and the well-known Motorola Co. reduced its market presence. In an attempt to replenish the budget, the legislature and executive overlooked a little something: those of means have long accessed mobile communications networks, while the middle class is held back by high purchase and operating costs. Once again our ranking officials fail to understand that budget revenues increase not because of high rates, but depending on the number of persons making such payments.
Such pricing policy resulted in Ukraine being flooded by contraband or so-called gray phones selling some two times cheaper, with the state losing $50-60 per phone. Users say their quality is almost the same as that of the legitimate phones. Why? Simply because they all come from the same suppliers, more often than not branches of reputable companies specializing in Eastern European markets.
Faced with high prices and costs, the leading mobile operators now and then launch campaigns to attract customers by offering various privileges like free connection, lower subscription rates during the first several months after connection, smaller advance payments, selling mobile phones at low prices (often token ones, like one hryvnia), or just giving them away. Connection is possible on a contractual basis (with fixed subscription or hourly rates) or prepayment basis when a subscriber buys a special card allowing so many hours on the air. In a word, there are a variety of service packages and one can take one’s pick.
Also, a mobile phone user is faced with a vestige of totalitarianism: the permit to purchase a mobile phone, something unheard of in any civilized country. Such permits are issued only with regard to phone models certified in Ukraine, because our legislation does not recognize any foreign certificates of conformity issued elsewhere in Europe. Considering that there are some 40% uncertified models on the domestic market, this means that those who own them automatically become wrongdoers and that their phones can be confiscated without further ado.
Practically, as soon as mobile phones appeared on the market they started being stolen, begetting a new type of crime: mobile phone theft. The operators had to take preventive measures, in order to make a stolen phone very hard to use and even harder to sell. These measures include technical and institutional protection. Thus, a mobile phone is activated by entering a protective code known only to the user. When stolen, it is disconnected as soon as the user reports the theft. In addition, all phones, when connected to the operator or sold to a pawn shop, are checked against stolen property lists and all outlets selling them are periodically inspected by officers of the Economic Crime Administration.
To sum up, it should be noted that mobile communications in Ukraine are still quite expensive. At the same time, expanding the market and attracting new subscribers would mean considerable budget revenues. To this end, the Cabinet should revise the excise, duties, and payments for such services, improving them and bringing them into conformity with the potential customers’ buying power. This would produce new subscribers and make possible fresh budget allocations for the poor.
COMMENTARY
Yuri BEZBORODOV, general director of Golden Telecom:
The status of the telecommunications market and that of business in general are closely interrelated. We see that the proclaimed policy of reform is not working. Ukraine does not have such great natural resources as, say, Russia to become self-sufficient. Thus, integration into the world economy is a very important objective, and there is no alternative but investment. Everything possible must be done to step up the process.
So what is there to be done to facilitate and accelerate the development of telecommunications and business in general in Ukraine?
First, a single budget payment system should be enacted, as recommended by the IMF. This is an extremely urgent issue not only for the budget, but also for business structures, for this system would do away with endless payments to countless institutions. The state purse must be consolidated and all revenues allocated as dictated by the state budget. Our company pays five different state agencies just for use of the frequencies. Such payments should be made to the budget only, with the state deciding what budget money be channeled where. It is very important to cancel all tax concessions and other privileges currently enjoyed by certain enterprises kept operational simply because certain persons or groups close to certain people with influence want them. In telecommunications, this is clearly apparent in the case of companies receiving radio frequencies, telephone numbers, or access to common user networks free, along with other privileges. The West is well aware of the situation and, it correctly sees it as the deep roots of corruption. Also, I would like to point out that the development of telecommunications is of crucial importance for overall economic progress. They are like highways, railroads, gas and oil pipelines. Telecommunications must be regulated in such a way as to secure equal terms for all parties concerned. Unfortunately, politicians are now too engrossed in business and businessmen in politics. Every second lawmaker is into some business or another. This is corruption — I mean when People’s Deputies introduce bills meant to boost their own businesses. This cannot be permitted. Politicians should deal with politics and businessmen with business.
Tamara KARPEICHYK, Motorola personal communications manager for Ukraine and Belarus:
Ukraine’s mobile communications market is noticeably contained by the presence of the gray market. This is one of the main factors. To hinder the use of contraband telephones, a task force should be set in the first place, made up of government officials, operators, and manufacturers. Such a task force would look for realistic solutions. Also, a coordinated series of measures by the state and mobile communications operators are needed. Efforts must be made here on a reciprocal basis.
Another negative factor is certification, which does not allow market operators to feel free and act in a more flexible manner, offering the latest models. If a model is not certified, certifying it will take a lot of time. Regrettably, certification and high telephone duties make the gray market more attractive. Despite these hardships, Motorola is still present on the Ukrainian market.
Compiled by Petro IZHYK, The Day
