Costs of calls to U.S. slashed as local rates head for increase
In a move intended to make Ukrtelekom more attractive to investors when it is privatized next year, the government said it would increase the cost of local phone calls by 50 percent next month. At the same time, rates for some international calls will be slashed.
The move will strike a blow to most Ukrainians’ pocketbooks, while benefiting customers who make frequent calls to the United States, Canada and Australia.
During a news conference in Kyiv, Ukrtelekom officials said they expected the new rates would increase the value of the state‑owned telecoms monopoly.
For the telephone company’s competitors, notably firms that allowed callers to bypass Ukrtelekom by making calls routed through Internet providers, the announcement was grim news. Representatives of the Ukrainian Internet Association said it fears that the lower international rates could drive off customers who had been attracted to the lower rates charged by IP‑telephony providers.
Under the rate plan approved by the State Communications and Information Committee, the cost of a one‑minute local call will increase by 50 percent, from 2 kopecks to 3 kopecks. Government statistics show that the average residential customer makes 307 minutes of local calls a month.
However, part of the impact of the increase in the local per‑minute rate will be offset by an increase in the amount of free minutes included in Ukrtelekom’s basic monthly rate. It will be raised from the current 100 minutes of local calls per month to 175 minutes.
The committee also raised domestic long‑distance rates by between 20 and 56 percent, depending on the time and the day of the week.
Rates for international calls were reduced by an average of 20 percent. The committee said that the use of new technology had made it possible to reduce rates for calls to the United States, Canada and Australia from $1.50 per minute to $0.50 per minute.
Oleh Pendzyn, state secretary of the Economy Ministry, said he estimates that the rate increases will generate an additional Hr 65 million in tax revenue this year.
The higher rates also mean that the government will pay more to subsidize phone service for so‑called privileged users like war veterans. Pendzyn said that the higher rates will cost the country an additional Hr 9.5 million in subsidies this year and Hr 22.5 million in 2003. About 1.6 million Ukrtelekom subscribers are privileged users.
State Communications and Information Committee Deputy Head Oleh Prozhyvalsky said the higher rates would make it possible for fixed‑line telephone operators to upgrade and expand their telephone networks, adding 500,000 new phone lines next year, compared to the 370,000 lines added in 2001.
“While much of the world takes fixed‑line phones for granted, there are a lot of remote places in this country where a fixed‑line network is unavailable,” Prozhyvalsky said.
Prozhyvalsky said that 58 percent of the country’s families don’t have fixed‑line phones. Among families living in small villages, the figure is 81 percent.
In addition to the country’s 10.5 million fixed‑line customers, about 2.5 million Ukrainians are waiting for new phones to be installed in their apartments.
Prozhyvalsky said that Ukrtelekom should experience about 9 percent growth in revenue overall because of the rate changes. In 2001, Ukrtelekom revenues were Hr 3.4 billion, according to Invest Gazeta’s Top 100 rating.
“Higher revenues will allow Ukrtelekom to upgrade its network to digital standards,” Prozhyvalsky said. He said it is becoming increasingly difficult to keep analog phone connections functional.
The government plans to conduct a tender to sell a 42.86 percent stake in Ukrtelekom next year. The phone company controls 83 percent of the nation’s local call market.
Prozhyvalsky said that the government met interested investors during a pre‑tender “road show” presentation in London on July 10. He declined to name the investors.
“This is a positive step with regard to the country’s development and its move toward integration with the European Union, and it is in line with international requirements for the country,” said Steve Johnson, director of Millennium Financial Services, part of a consortium advising the government on the Ukrtelekom sale.
Johnson said that the rate increases for local calls will be structured in a socially‑responsible manner.
“My understanding is that they will be higher during business hours so that the poor do not feel the full impact,” he said.
Johnson considers the international tariff decreases are being driven by natural market forces and are required in order to maintain a competitive position.
“This will enable the company to retain revenues that would otherwise be lost and will enable Ukrtelekom to finance social activities, such as rural infrastructure development, that the country needs,” he said.
Johnson said the privatization sale would be unlikely to occur before mid‑2003.
“The privatization process is very time‑consuming,” he said.
Oleksandr Olshansky, president of the Ukrainian Internet Association, called the rate increases “an unfair game,” and said that the higher local rates would discourage Internet dial‑up users.
Yury Korzh, general director of Global Ukraine, an Internet service provider, was less pessimistic, and said that he doubted that the increase would affect his company. He said that the increase in the number of free minutes included in the base telephone charge would absorb some of the extra cost to Internet users, and that the higher phone rates would be unlikely to dissuade people from using the Internet.
And rather than a death blow, Korzh said that the new rates may inspire IP‑telephony companies and Internet service providers to explore new technologies, including the development of what he called a “pure IP‑based network (also called VoIP or Voice‑over Internet Protocol).”
Korzh said that about 50 IP‑telephony and 300 ISP companies are doing business in Ukraine.
The nation’s mobile phone operators are also expected to benefit from the increased rates for local calls. Kyivstar GSM spokesman Ihor Mykhailenko said that globally, the gap between the cost of a fixed‑line phone call and a call made by a cellular phone is narrowing. As local rates increase and mobile rates decrease, mobile phone operators will benefit, he said.
