OREANDA-NEWS. December 30, 2007. The “interconnect” war has been unleashed in the Ukrainian mobile communication market again. The “interconnect” war between Golden Telecom Ukraine and UMC (former name of the Russian-based Mobile Telesystems subsidiary) began in early March 2007, UFC-Capital reports. The initiator of the “battle for interconnect” was Golden Telecom. Before November 1, 2006, the company while preparing to cut its “fixed-line – mobile” calls rates asked UMC to reduce its tariffs for access to the network by 40%. UMC blocked the direct access of Golden Telecom to its network, as the latter refused to prolong the contract on the former terms and conditions (access to UMC network costs UAH 0.5 for each minute landing, whereas the traffic termination on the fixed network of Golden Telecom Ukraine costs UAH 0.18 per minute). After the direct access to the UMC network was blocked, the subscribers of both operators talked to each other via by-passing channels, while these two companies were trying to resolve the dispute by public statements. So, Golden Telecom was supported by Ukrainian Radiosystems (URS), Astelit and a group of companies – Optima and Farlep, which appealed to the monopolistic position of KyivStar and UMC in the communications market. However, the aforesaid operators supported Golden Telecom Ukraine only morally, while the company itself referred for assistance to the National Communication Regulatory Committee and to the Antimonopoly Committee of Ukraine.

Two weeks later, the operators settled this dispute by negotiations. After long-lasting discussions they signed an agreement on telecom services provision. According to its provisions, the rates for access to the telecom networks were set at acceptable for both parties levels.

Now, the conflict is about to blaze up again. According to Pavel Pavlovskiy, chief executive of MTS, after January 1, the company will not extend the agreement on direct traffic swap with Golden Telecom as the latter requested to cut the interconnect rates by 10%: “In March we agreed with Golden Telecom about a 10% cut, now, they again request to cut it by 10% … We do not consider this situation to be fair.” At the same tine the CEO of MTS specified that the current agreement with Golden Telecom has a number of significant weaknesses. Thus, according to Mr Pavlovskiy, the agreement does not provide for allowing of traffic in the networks of both companies via the networks of third parties: “In certain cases we do redirect the traffics to Golden Telecom networks via networks of other operators, specifically of KyivStar and Ukrtelecom. Golden Telecom does not do it. Should the agreement be not prolonged our subscribers will be able to get through to Golden Telecom subscribers via indirect traffic exchange. It is unlikely that their subscribers will be able to do something similar.” In addition, according to the MTS CEO, the further interconnect rates cut may lead to abuse on the part of Golden Telecom: “They will be able to provide access to our network to the other operators via its own, thus earning on the rates difference.”

The key reason for the conflict between the operators is an increasing competition amid market approach to saturation. The market reality is that the larger the operator is, the lower rates it can offer to the final consumers. And the latest rates offered by Kyivstar and MTS are the brightest evidence of this. The average retail cost of a minute on the market has closely approached to the ARPM of large operators. Small operators are unable to compete with the large ones on equal terms – either by tariffs or by services quality or coverage. Their investors are aware that there is no sense to invest significant funds into network and services development: They will never catch-up with the large players, and their investments will be just wasted. Therefore, they are looking for other strategies to regain a market share.