Ukraine: Telecommunications - Gradual Changes In The Legislative Framework

Despite various setbacks in its economic development, from the early days of its independence Ukraine experiences steady growth in its telecommunications sector, which still reserves a high potential for its further development. Although the Ukrainian telecommunications market is not as developed as in Western economies and is unlikely to witness a significant change in its present participants, the Ukrainian government pursues certain measures aimed at regulating the telecommunications market and changing the regulatory framework in response to the growing need for more efficient regulation.

Currently, the regulatory framework for telecommunications sector is established by the Law of Ukraine "On Communications" of 16 May 1995 (the "Communications Law"), the Law of Ukraine "On Radio Frequency Resource" of 1 June 2000 (the "Radio Frequencies Law"), other legislative acts and acts of secondary legislation. Moreover, the Verkhovna Rada of Ukraine is expected to adopt the Law of Ukraine "On Telecommunications" (the "Telecommunications Law") in the wake of the imminent market deregulation and, in particular, the privatization of Ukrtelecom.

The Ukrainian telecommunications legislation fails to address to plenty of issues that are normally addressed to in many Western jurisdictions. However, recent developments suggest that both the quantity and the quality of Ukrainian legal rules will grow with the further development of its telecommunications industry. Ukraine is already making significant efforts in order to reform its telecommunications industry and to bring its legislation governing the telecommunications issues in conformity with that of the EU countries.

Ukrtelecom’s privatization is already under way. Although the privatization follows the general course laid out in the Law of Ukraine "On Specifics of Privatization of the Open Joint Stock Company "Ukrtelecom"" (the "Ukrtelecom Privatization Law"), certain amendments to the law may still be needed in order to make Uktelecom’s privatization more attractive to foreign investors and to speed up the process. The privatization has already reached the stage of selection of advisors and experts, which will make the required preparations to the sale of Ukrtelecom’s shares.

The Communications Law still remains the principal legislative act governing telecommunications sector in Ukraine. The Communications Law determines the legal, economic and organizational bases for operation of those companies, associations and governmental bodies, which form a part of the telecommunications networks or the postal communications networks in Ukraine. Generally, the Communications Law governs the relations between the state and local governmental bodies, communications companies (operators), organizations, and users of communications services and radio frequencies.

The Verkhovna Rada of Ukraine has recently introduced amendments to the Communications Law in connection with the adoption of the Ukrtelecom Privatization Law. Article 11 of the Communications Law, which sets forth the provisions on the protection of state interests in the telecommunications sector, was amended and restated in its entirety. Prior to the introduction of the amendments, the above article provided for a threshold of 49% maximum to foreign investments into charter funds of Ukrainian communications companies. The above restriction was deleted from the amended and restated Article 11 of the Communications Law. As a result of the above amendments, it should now be legally possible to establish and operate wholly foreign-owned telecommunications operators in Ukraine.

By abolishing the restrictions on foreign ownership of telecommunications operators, Ukraine created a more favorable environment to foreign investors in that sector. Moreover, those telecommunications companies, which are already present on the market, may now take advantage of the new modified language of Article 11 of the Communications Law in order to draw more foreign investments into their charter funds.

On 1 June 2000, the Verkhovna Rada of Ukraine adopted the long-awaited Radio Frequencies Law. The Radio Frequencies Law provides for comprehensive rules in allocation, assignment, interrelation and use of radio frequencies in Ukraine, licensing of the users of radio frequencies and other relevant issues.

The Radio Frequencies Law sets the legislative basis for charges imposed on users of radio frequency resource. Formerly, such charges were not included into the list of taxes or other mandatory payments imposed on taxpayers in Ukraine. Pursuant to the Radio Frequencies Law, the charges imposed on the users of radio frequency resource include: (i) one-time payment for the issuance of a license on the use of radio frequencies; and (ii) monthly payment for the use of radio frequency resource.

The Cabinet of Ministers adopted applicable rates of one-time payments for licenses on the use of radio frequencies and rates of monthly payments for the use of radio frequencies.

On 24 October 2000, the Cabinet of Ministers submitted the draft Telecommunications Law to the Verkhovna Rada of Ukraine. The Telecommunications Law is to address many new areas of telecommunications services in Ukraine, including provision of such telecommunications services as IP telephony, transmission of data, facsimile communications, interconnection of telecommunications networks and numbering requirements.

With the privatization of Ukrtelecom and gradual improvements in the legislative framework for telecommunications operators, one may expect that the Ukrainian telecommunications market will see further growth, especially in the IP telephony, the long-distance and local telecommunications sectors.