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Telecom and Media
As compared to 2015 the TMT year of 2016 witnessed a far more modest outcome: fewer M&A transactions, of which none can be called “major”, uncertainty regarding the launch of 4G, and the never ending story of implementing Mobile Number Portability. Nevertheless, development of electronic services regulation, transparency of media companies ownership and the overall high performance of IT sector are definitely a good sign.
M&A: a Step Backwards?
It appears that 2015 was an exceptionally active M&A year in the IT sector, with the number of deals exceeding 60 totaling over USD 300 million in value. Many considered it a new trend and awaited more major acquisitions, like that of Looksery, a facial tracking and transformation technology company, acquired by Snapchat for USD 150 million in 2015.
Despite the fact that IT sector became Ukraine’s 3rd largest export contributor in 2016, M&A activity in 2016 evidenced that success in 2015 was merely a spike in activity, rather than an upcoming trend. In particular, the total number of venture investment deals last year barely reached 30 for the total value of around USD 40-50 million.
The largest deals included the USD 50 million acquisition of Data Centre Parkoviy, USD 20 million Series B investment for GitLab, open-source hosting solution, USD 20 million Series B investment for Busfor, a bus ticketing service, and USD 2.6 million seed investment in PetCube, a pet care products manufacturer, and USD 2.35 million seed investment in Allset, a restaurant booking service.
4G in Ukraine: Main Obstacles
In 2015 we celebrated the long-awaited launch of 3G in Ukraine. However, Ukraine is not yet on the list of 100+ countries who have introduced LTE. In November 2015 the Cabinet of Ministers of Ukraine adopted the Action Plan on Introduction of the Fourth Generation Mobile Communication in Ukraine. The said plan appears to be quite optimistic, with the tender for 4G license scheduled for December 2017.
However, prior to the possibility of any such tender becoming feasible, two major issues must be solved.
Firstly, the frequencies shall be re-distributed among the players on new conditions. That is, so called “re-farming of frequencies” will take place. Secondly, the law introducing the principle of tech neutrality in Ukraine needs to be adopted, which will enable the current players to use previously allocated frequencies for the purposes they want (for instance, GSM or LTE).
In any event, the above actions, namely introduction of changes to the national frequency allocation table / usage plan and re-farming of existing frequencies for LTE under a new technology-neutral licensing regime are scheduled for February — June 2017.
Mobile Number Portability Saga
Last year we reported about mobile number portability, the service which allows users to change their operator without changing their mobile number. Though widely available worldwide, it still remains a technology-to-be in Ukraine.
The original regulations allowing the implementation of the said service were adopted in April 2013, and 1 July 2014 was meant to be the launch date. Due to certain drawbacks in the procedure of an MNP administrator’s appointment, litigations initiated by Kyivstar against the launch of MNP service on terms and conditions provided in the original regulations, the launch did not take place.
As a result, in July 2015 new rules were adopted, and in January 2016 the tender for purchase of software and hardware for this service took place. The Dialink company was initially declared the winner, with its software solution on the Latvian platform Mediafon costing UAH 71 million. However, another participant, SI Centre, whose proposal cost UAH 39 million and appeared to gain more points from the Ukrainian State Centre for Radio Frequencies preliminary estimate, filed a claim to the Antimonopoly Committee of Ukraine, which was subsequently satisfied. As a result, SI Centre was declared the winner.
Nevertheless, due to numerous lawsuits filed by Dialink, the Ukrainian Centre for Radio Frequencies and SI Centre failed to sign the agreement within the prescribed 30-day period. Hence, the parties had to go to court in order to recognize the agreement as concluded within the required period.
The courts ruled in favor of SI Centre’s position, and Dialink’s appeal was rejected in January 2017, thereby giving the green light to SI Centre to finally implement MNP in Ukraine.
According to the current calendar plan, the new deadline is 6 April 2017.
Internet of Things and M2M Services
According to the statistics for 2016, the number of mobile sim card users exceeds the population of Ukraine by 20 million. The reason for this in not only the use of several sim cards by Ukrainian mobile subscribers, but also their active use in M2M services (ATMs, logistics services, agriculture, etc, on-line shops, etc). This is what is now called Internet of Things.
The launch of 3G gave the green light for the rapid expansion of M2M services in 2016.
It is expected that the use of sim cards in M2M services will increase sharply in future as mobile operators offer a wide range of M2M services to commercial entities enabling the simplification and optimization of business processes, reduction in operational costs, raising the quality of services and introduction of innovative technologies.
Needless to say that IoT improves and simplifies the way business is done and provides services to individuals. Thus, in the near future IoT will be actively used in industries such as healthcare, retail services, smart energy, transportation, logistics, automotive.
Transparency of Ownership of Media Companies
As one may remember, in order to introduce transparency of ownership of media companies, in 2015 amendments regarding mandatory disclosure of the ultimate beneficiary owners of media companies were made to the Law of Ukraine No.3759-XII On Television and Radio Broadcasting”.
In particular, each media company has to disclose its ultimate beneficiary holding directly or indirectly of 10% or more in its share capital to the Television and Radio Broadcasting Council, the media industry regulator, and make public this information on their Internet sites. The Television and Radio Broadcasting Council supervises diligent disclosure and is empowered to refuse to prolong the validity term of a broadcasting license in case of failure to disclose the beneficiary. The disclosure of information about the beneficiary owner is also a condition precedent to obtaining a broadcasting license from the Television and Radio Broadcasting Council.
Throughout 2016, major TV broadcasting companies, including Inter, 1+1, STB, ICTV, TRK Ukraine, Channel 24, etc., duly disclosed their ultimate beneficiary owners to the Television and Radio Broadcasting Council.