KYIV, Dec. 1 – Ukraine’s mobile phone market could double in 2001 as operators engage in a battle to lower bills and improve services, but experts say the country’s overall economic weakness will prevent longer term growth.
The mobile market, made up of five operators, is expected to grow by around 300 percent by the end of this year and to double to 1.5 million subscribers in 2001, local operators say.
“This year will become the most dynamic in terms of pace of growth,” said Oleksandr Sklyarov, the deputy head of the largest operator, Ukrainian Mobile Communications (UMC).
Mobile calls were not even possible in Ukraine before 1993 when UMC launched the first mobile network in the former Soviet state, attracting at first just 800 clients.
Now mobile penetration has reached a modest 1.2 percent in the country of 50 million. Some operators point to a huge market potential, citing the examples of more mature markets in the Czech Republic, Poland and Romania.
At least 3.2 million people own mobile phones in the Czech Republic, a country of 10.3 million.
Analysts and some industry insiders say market growth in Ukraine was different.
Jeff Howley, chief operations officer at Golden Telecom, Ukraine’s subsidiary of Russia’s Golden Telecom Inc said growth in Ukraine was driven mainly by high commissions received by dealers.
“True market potential is clouded by the way sales are made …dealers are getting into the situations when they are scheming how they can sell any connection to anyone,” he said.
Analysts say Ukraine’s economic situation is too poor to justify the projected growth. The average salary in the country is $40 a month.
“There is no evidence of purchasing power increasing significantly. There is nothing happening here economically to justify the kind of growth that is being projected,” said a Western analyst.
The launch of pre-paid cards and heavy discounts on the telephones were the main reason behind recent growth, experts said. It made mobile services more affordable and shifted the client base.
“The kind of customer that is more and more common is the low usage customer,” said Howley. “The time when customers talked an average 500 minutes a month each is gone, now we have teenagers who actually talk for five seconds.”
UMC’s Sklyarov agreed, saying they recorded a decline in average traffic per client but said the company planned to offer new services to make clients use their phones more often.
OPERATORS PLAN FUTURE INVESTMENT
Ukraine’s major operators UMC and Kyivstar said they plan to invest heavily next year on expanding their networks, offering new services to woo more customers. Other market players urged a more cautious approach.
UMC is planning to extend WAP (wireless application protocol) services to pre-paid customers, but an auction of third generation licenses is still in its early planning stage.
UMC has invested $300 million since it was set up by national monopoly Ukrtelekom, which holds 51 percent, Deutsche Telekom AG , Tele Danmark AS and Dutch Koninklijke PTT Nederland (KPN) with 16.3 percent each.
“This year we will invest over $50 million and I do not think the amount will be lower next year,” Sklyarov said.
UMC had 180,000 subscribers at the start of the year and sees the figure rising to 400,000 by the year end, Sklyarov said, adding that UMC was eyeing 55 percent of the total market next year.
“We will do everything to remain a mobile operator number one,” said Sklyarov.
Kyivstar, which has 250,000 subscribers compared to 50,000 at the end of 1999 and accounts for 34 percent of the market, says it plans to boost its market share to become a market leader.
It says it plans to boost its clientele to 800,000 in 2001 and will invest $100 million to expand its networks and improve services over next year.
Ihor Mikhailenko, Kyivstar’s spokesman, told Reuters the company had already attracted $140 million in investments since 1997. The Norwegian telecoms company Telenor owns a 35 percent stake in Kyivstar, with Ukrainian firms holding the remaining 65 percent.
But other operators said the battle for market share might saturate the young market too quickly.
“The numbers game is a psychological game, this market could grow in a much more paced and much more rational manner and still see a positive return,” said Golden Telecom’s Howley.
“Right now the market share grabbing could very well lead to the market just burning out.”
