Ukraine to offer three 3G telecom licenses for UAH 2.7 bln each

The Ukrainian government approved on Dec. 1 the tender rules for the sale of licenses to provide 3G mobile telecommunication services, the National Communications Regulation Commission reported on Dec. 2. According to approved rules, the three, 15-year licenses will each be offered for a reserved 30MHz frequency band at a starting price of UAH 2.7 bln. Each tender winner will also have to pay an additional UAH 0.53 bln, which will be used by the Defense Ministry for the “conversion” of the offered frequencies (which are reportedly used currently for military purposes).

Among the other rules, each licensee will be obliged to launch 3G mobile networks covering the 24 regional centers of Ukraine within 1.5 years and all towns in Ukraine (except for occupied Crimea), with a population of more than 10,000 within six years. A company will lose its license should the Ukrainian government apply sanctions against it (according to legislation adopted after Russia occupied Crimea). The tenders should convene within 60 days after their rules are approved, i.e. by end-January 2015.

Alexander Paraschiy: Clearly, the successful sale of these licenses will provide good support for the state budget next year, or up to UAH 8.1 bln in financing (excluding payment to the Ministry of Defense), which would be 17x more than Ukraine received from the privatization of state assets in 11M14.

The sale of licenses for 3G mobile services has been postponed many times during the last nine years, after then-state company Ukrtelecom was granted an exclusive 3G license in December 2005. The core candidates for the licenses are Ukraine’s two dominant mobile operators with Russian roots: MTS-Ukraine, subsidiary of MTS (MTSS RX); and Kyivstar, a subsidiary of Vimpelcom (VIP US).

Theoretically, these companies may ignore the tenders as they face the risk of being sanctioned by the Ukrainian government. But we are sure they will participate because 1) they stand to lose a significant portion of their customer base in Ukraine, which is one of their core markets, and 2) by not participating, they will only give the government more reason to sanction them (with the likelihood of sanctions being very low currently).