REDUCING MARKET DISTORTIONS FOR A MORE PROSPEROUS UKRAINE 35 BOX 2 The Impact of Market Concentration, Con昀氀icts of Interest, Weaknesses in the Regulatory Framework, and the Lack of an Independent Regulator on the Telecommunications Sector n Due in part to limited competition in the telecommunications sector, Ukraine lags comparator countries such as Romania, Poland, and Kazakhstan on key measures of ICT development, especially internet penetration. Ukraine’s 昀椀xed and mobile telecommunications markets remain relatively concentrated: three operators provide 昀椀xed-line services, Ukrtelecom, Kyivstar and Datagroup. Ukrtelecom owns 昀椀xed-line infrastructure. Ukrtelecom dominates 昀椀xed-line services, with a market 57 share of 80 percent in 2017. The mobile telecommunications subsector features a larger number of players but remains relatively concentrated. The largest providers are Kyivstar, Vodafone, Lifecell, and Intertelecom. Ukrtelecom is also present on the mobile telecom market through its Trimob brand.58 Ukraine’s internet bandwidth per user is equivalent to 45 percent of Europe’s bandwidth. The Ukrainian telecommunications framework is expected to be aligned with the relevant EU legisla- tion, which should help address some of the distortions that currently impact both mobile and 昀椀xed-line services. Fixed-line telecommunication services The licensing and authorization regime for the 昀椀xed-line services market is unclear.59 The blurred distinction between licenses and authorizations increases the cost of competing in the market, as navigating the regime is burdensome for businesses. This ambiguity also allows the National Commission for the Regulation of Communications and Informa- tization (NKRZI) to limit the number of players in the market.60 Moreover, only 昀椀rms registered in Ukraine are eligible to be telecommunications operators, which likely creates a barrier to entry for foreign 昀椀rms.61 The framework for regu- lating operators with signi昀椀cant market power is also poorly de昀椀ned, which may result in either the under-regulation of operators with signi昀椀cant market power or the over-regulation of operators without market power, discouraging 62 innovation and investment and potentially reinforcing the dominance of the incumbent. Generally, telecommunica- tions operators are not subject to rules requiring functional or accounting separation, and the resulting prevalence of (continues on next page) 57 Fixed-line internet service providers included Ukrtelecom (with a market share of 23 percent ), Kyivstar (11.5 percent), Volia (8 percent), Datagroup (4.6 percent), Farlep (2 percent) and Lanet (1 percent) in 2017 (NKRZI, 2019). 58 In 2017, in the mobile telecommunications market, Kyivstar had a market share of 48 percent, Vodafone: 34.4 percent, Lifecell: 14.1 percent, Intertelecom: 3 percent, Trimob: 0.64 percent and Telesystems: 0.18 percent (NKRZI, 2019). 59 Under Article 42(7)(7) of the Telecommunications Law (http://zakon.rada.gov.ua/cgi-bin/laws/main.cgi?page=1&nreg= 1280-15), the following sectoral activities are subject to licensing: (i) providing 昀椀xed-line services and operating telecom- munication networks; (ii) providing wireless access to the telecommunications network and operating telecommunications channels; (iii) providing mobile telephone services and operating telecommunication networks and channels; and (iv) main- taining and operating telecommunications networks, radio broadcasting, and broadcast television networks. While general authorization regime has yet to be developed, Article 42(2) of the Telecommunications Law creates an authorization and reg- istration regime, under which “Business entities wishing to carry out activities in the 昀椀eld of telecommunications shall, not less than a month before the beginning of their submission, submit to the national commission that carries out state regulation in the 昀椀eld of communication and informatization, the application for inclusion in the register of operators, telecommunication providers in the form approved by the national commission that carries out state regulation in the 昀椀eld of communication and informatization.” Only 昀椀rms that have been added to the registry may o昀昀er telecom services, subject to compliance with the applicable rules for the speci昀椀c type of telecom service provided. 60 Law on Telecommunications, Article 47. 61 Law on Telecommunications, Article 27(2). 62 For example, the scope of interconnection obligations for network operators and telecommunications providers under Article 39(1)(12) is unclear.