Ukrtelekom: To invest or Consume?

European and Asian stock markets are also now selling state-owned shares of telecommunications companies. Such companies could later become an influential lever for positive dynamics in domestic stock markets. The returns on investments in this industry are among the highest and almost equal the earnings from power and fuel production. This is why telecommunications are considered today one of the most attractive objects of world investment.

Today, the density of telephone lines in Ukraine is three times lower than in Europe: there are 100 lines account for one operator, while in European countries this figure is 300-350.

It would be only possible to reach European standards through Ukrtelekom alone only in several decades. Ukrtelekom, due to the low solvency of its clients, can put up on its own not more than 15-20% of the total investment of $10 billion required for its modernization program scheduled for several years. The rest can only be brought in by a strategic foreign investor.

Such investors were once found. Deutsche Telekom, the Dutch KRM and the American AT&T, which were part of the UTEL Joint Venture, despite continuous attempts to restrict their actions by all means possible, managed to show their efficiency: their main investment obligations to the Ukrainian government have been fulfilled, the enterprise has begun to return high profits, displaying by far the highest productivity growth in Ukraine. Unfortunately, now that it became possible to bring long-distance communications to a qualitatively new level owing to heavy investments, Deutsche Telekom, KRM, and AT&T are considering leaving the Ukrainian market.

The point is that a conflict of interests has come up between Ukrtelekom and the State Telecommunications Committee, on the one hand, and UTEL, on the other. The company is in no position to receive the profits it deserves: the lion's share of communication services earnings goes right to Ukrtelekom, and the latter company's inadequate regional payment collection does not allow UTEL to get even a part of its profit.

The unwillingness of Ukrtelekom and the State Telecommunications Committee to promptly resolve these problems and, moreover, their continuous pressure on the controlling shareholders, are regarded by the investors as a lack of desire to cooperate, and this makes them raise the question of getting out of the game. The point is not only in selling their largest   investment in Ukrainian. The companies intend to leave the Ukrainian market altogether.

Who stands to gain? First of all, Ukrtelekom and the Committee which, without spending a penny, are thus getting rid of undesired rivals who manage by far the most cost-effective business in telecommunications - long-distance telephone communication. But the price of satisfying their ambitions is too high: this country is losing serious investors potentially capable of participating in the privatization of Ukrtelekom and establishment of a wholesome investment climate in Ukraine. It should also be remembered that their positive example encourages to a great extent other foreign strategic investors to come to the Ukrainian market. And on the contrary, the ousting of foreign investors by such methods makes Ukraine less attractive for investment and gives the advantage to other countries hungry for investment.

It will also be recalled that these are the only investors able to pay the price for stock expected by the government and the State Property Fund of Ukraine, as well as to satisfy the investment requirements of Ukraine's leading city telecommunications operator. For Ukraine, the privatization of Ukrtelekom is also a potential chance to cover the budget deficit and the state's current wage and pension arrears. This, however, is a blind ally; the investments are primarily needed to upgrade the technical standards of Ukrtelekom and to develop telecommunication services.

Is this not to the detriment of the national interest? The purchase of UTEL may be regarded as slight-of-hand by a small group of politicians and businesspeople, to get hold of a maverick business. For, given the absence of competitors for Ukrtelekom which swallowed UTEL, the price of the former will drop to a pre-arranged and much underrated level. Moreover, they will try to make the state pay for their ambitions. For the Western stake in UTEL cannot but compensate the financial and material expenses borne by the shareholders during their stay on the Ukrainian market. And this is a lot of money, paying which will make a big hole in the pocket of each of our citizens.

Ukraine is now passing through a critical moment. We are in fact on the eve of default. In these conditions, we must not only hold on to but fight for a strategic, not speculative, investor. And this can only mean cooperation with one according to the principles of fair and open partnership.