Ukraine's wireline broadband market expects further consolidation in 2012 - comment of Alexander Sokolov, head of analytical Department, "Pro-Consulting". 1prime.biz

The Ukrainian wireline broadband market grew rapidly in 2011, Ukrainianfinancial and analytic company Pro-Consulting's analytical department Director Alexander Sokolov said, adding that the subscriber base rose 18%-20% in this period and exceeded 5 million users as of the end of the year, while revenue grew 12%-15% on the year in 2011. Revenue growth was slower than the number of subscribers added in small cities, where tariffs for broadband services are lower than in larger cities, Sokolov added. The total number of residential wireline broadband subscribers increased 36% in 2011 to 5.3 million users in Ukraine as of the end of the year, according to data released by research company iKS-Consulting on March 30. The broadband market in Ukraine's larger cities is already over-saturated, said Nataliya Kunderevych, an analyst at iKS-Consulting's Ukrainian office, said, adding that operators mostly sign-up former subscribers of their rivals rather than attract new subscribers. The broadband penetration rate has reached 30% of households, Sokolov fr om Pro-Consulting said, adding that the number is expected to grow to 55%-65%. A rapid expansion of broadband services may be ensured by the implementation of state programs like Open World and Digital District, he added. The programs are aimed at developing the communications and IT infrastructure at Ukrainian schools and ensure the availability of Internet access services for the whole of the county. In 2011 The Ukrainian broadband market saw key trends continue as the subscriber base and revenue grew at high rates, while broadband services were expanded in smaller cities, Sokolov said. The market also saw the acquisition of smaller broadband operators by their larger competition, he added. One of the key trends that has recently come to light is a decrease in the city of Kiev's share of the country's total revenue from broadband services, Kunderevych from iKS-Consulting said, but added that in the meantime, cities with population of 50,000-100,000 will see their share grow. A decrease of the monthly average revenue per us er (ARPU) from wireline broadband services, specifically on the residential broadband market is likely to stabilize, Kunderevych said. The Ukrainian broadband market is undergoing a consolidation that started in late 2009, Sokolov from Pro-Consulting said. Broadband operator Datagroup is one of the most active participants of the merger and acquisition market, as it purchased several regional operators and recorded the highest growth rates, Sokolov from Pro-Consulting said. In July-December 2011, a wave of mergers and acquisitions hit the Ukrainian broadband market that included both large and mid-sized operators, Kunderevych from iKS-Consulting said. "Except for Ukrtelecom and Kyivstar, which build networks on their own, other companies, buy smaller providers," she said. Ukraine's three largest wireline broadband operators, namely Ukrtelecom, Volia, and Kyivstar accounted for 42% of the country's residential broadband users as of late September 2011, according to data from iKS-Consulting. The merger and acquisition activity is significantly affected by the political situation in the country, Sokolov from Pro-Consulting said, adding that some businessmen sell their companies at low prices, while large operators are now in a holding pattern, and some market participants have the opportunity to quickly increase their market shares,Sokolov said. One of the key events of 2011 was the sale of the government's 92% stake in wireline giant Ukrtelecom to Austrian investment group EPIC, which was seen by experts as a firm step towards improving the competition on the Ukrainian telecommunications market. However, the situation on the market has not changed significantly so far, Sokolov said. The new investor has continued Ukrtelecom's policy of expansion within the broadband market, and the company is increasing its subscriber base both in large cities and in small localities, wh ere the operator has no strong rivals,Sokolov said. Ukrtelecom is a large company, whose development plans cannot be changed on short notice. "Once the company is restructured and its mobile assets sold, the company will begin a more active policy of broadband service promotion, which could have a considerable affect the market," he added. Apart from reshuffling the management of Ukrtelecom itself, the broadband market on the whole has seen no significant changes after the change of Ukrtelecom's owner, Kunderevych from iKS-Consulting said. "The company has certainly been looking to increase its profitability, so it hiked tariffs on socially oriented services, such as wireline radio and telegraph services starting from January 1," she added. The company focuses on providing broadband and mobile services, remaining the dominant fixed-line telephone operator in Ukraine. In large cities, Ukrtelecom faces competition from local providers, while in smaller cities the company's position remains quite strong, Kunderevych said. While the wireline broadband market is rapidly growing in Ukraine, wireless broadband services are being developed at an insufficiently high rate, Sokolov from Pro-Consulting said, adding that wireless technologies do not significantly compete with wireline broadband technologies. "This is caused by the main mobile operators' lack of licenses to provide (third generation) 3G and (fourth generation) 4G wireless services," he said. Wireless services may not become a real alternative to wireline broadband services in remote localities of the country as wireline broadband services, which cost less than wireless and more popular with users, Sokolov said. Mobile Internet takes part of revenue from wireline broadband operators despite the difference in technologies and niches occupied, Kunderevych from iKS-Consulting said, adding that revenue from mobile Internet rose 8% on the year in July-September 2011, compared to 11% year-on-year growth in January-March 2011. Data for all of 2011 was not provided.