Kyivstar Invests $1 Billion to Ensure Network Connectivity in Ukraine
As the largest operator in Ukraine, Kyivstar faces different challenges from its European counterparts. However, despite facing Russia’s military attacks on infrastructure and energy shortages, the company must strive to maintain people’s connections, but it continues to drive the development and improvement of the network.
At a media roundtable in London, Oleksandr Komarov, CEO of Kyivstar, pointed out, “We seem to be living two lives at the same time. One is how to survive. The second question is how to develop regardless of the environment.”
Recently, parent companies VEON and Kyivstar announced that they will invest $1 billion in Ukraine from 2023 to 2027. Compared to the promised $600 million from 2023 to 2025 last year, this number has increased.
This plan includes investments in networks and digital services, including potential acquisitions and development of new assets, social contributions, and partnerships.
Komarov stated that this growth occurred after the company understood that “despite the current environment, we can operate this business and can even be said to be quite successful.”.
At the same time, he acknowledged that the idea that “the country needs this kind of investment, and to some extent, there is an urgent need for this kind of investment” has also driven this initiative.
Komarov stated that this investment will provide Kyivstar with sufficient resources to cope with “any situation”, with expenditures concentrated on three levels.
Firstly, Kyivstar’s core business includes both mobile and fixed services. In terms of mobility, Kyivstar plans to acquire 2300MHz and 2600MHz spectra at the upcoming auction, which Komarov said may take place in September.
He added that the company needs additional frequency to cope with the increase in data traffic. “The number of data customers is growing, their consumption is growing, and we need additional capacity to make progress in service quality rather than regressing. This network is sometimes overloaded.”
It is still uncertain when the 5G auction will take place. Although they planned to be held before Russia’s full-scale invasion in 2022, they were later put on hold.
Komarov stated that regulatory agencies may wait until the end of the war before taking action. This seems to be a difficult scenario to plan because no one can predict when the war will end at this point in time.
At the same time, Komarov said, “I can imagine that the government will decide not to delay any further, we should continue to move forward, and we are preparing for this situation.”
Meanwhile, Kyivstar continues to actively develop its network, with more mobile websites established last year than in 2021 before Russia’s full-scale invasion.
The recent construction phase is more challenging than in previous years as it involves rural areas where Kyivstar is installing green towers. After last year’s cyber attack, the Ukrainian government also discovered that there were approximately 1200 locations with only Kyivstar’s mobile network coverage.
In terms of fixed business, Kyivstar has been upgrading its fiber optic network to GPON infrastructure and has completed 70% of its deployment so far. This technology will be promoted in seven new cities this year.
Part of the reason for upgrading to GPON is that this technology is more resilient to power outages. For Kyivstar, these are all realities, not the main assumptions they represent for many European telecommunications companies.
Ukraine has been facing ongoing attacks from the Russian military on its energy infrastructure. Therefore, the government has implemented rotating power outages in recent weeks. These factors continue to have an impact on the telecommunications industry.
Although the core network, as well as the backbone and intermediate networks, have been fully backed up to protect them from power outages (which could lead to nationwide shortages), there are still challenges when it comes to RAN and fixed access networks.
Regulatory power outages follow predictable patterns (such as 4 hours of power supply followed by a 4 hour power outage), which can be managed through a combination of batteries, uninterruptible power supply (UPS) systems, and generators.
However, unregulated power outages follow unpredictable patterns, and batteries may run out of power. Komarov said that on the “most difficult days”, 20% of the network may experience power outages.
At present, the company has approximately 2500 generators. However, this technology also has its limitations. Komarov said, “Before the last power outage, we were facing a very difficult situation in Kharkiv, so we were actually running the power grid with generators for a month.”
Komarov stated that doing so in a geographical area can make it easier to concentrate resources, but Kyivstar has learned that mobile generators cannot operate continuously for several weeks without interruption.
The company is also considering investing in fixed generators if possible. Komarov stated that not all places have this option because the location may not be in a safe place: “Most likely, this is a tower in the wilderness.”
Installing generators across the country also requires a large number of personnel. On the contrary, Kyivstar focuses on creating a critical website grid. This includes about 5000 sites from three operators, which can be supported even during large-scale power outages nationwide.
Komarov said, “But what we should face is that our ability to provide stable services in this situation is very limited.”
The good news is that Kyivstar’s fuel supply issues in 2022 have eased. Komarov stated that this is because Kyivstar has invested in fuel tanks, and gas stations have installed alternative energy sources to operate without a grid.
Another major issue facing Kyivstar is the lack of available personnel. Komarov now believes that due to labor market shortages, population outflow, and population mobilization, the company is facing “significant human resource challenges.”. He said, “You can easily imagine the average image of our engineers, they are ideal soldiers.”
All of these may force operators to collaborate more closely. Komarov said, “I believe that in the future, retaining only three maintenance agencies nationwide will be unsustainable.”
More broadly, he is preparing to consider signing network sharing agreements with other mobile operators. The competition among these operators is more focused on customer value proposition rather than network differentiation.
The war is still ongoing
At the same time, the company still faces the direct destruction of war. Komarov takes Nikopol as an example. Nikopol is a city with a population of 100000 in the Dnipropetrovsk region, located on the banks of the Dnipro River and occupied by Russia on the other side. This means it can be influenced by simple artillery and drones. He said there are 40 to 50 sites here, and 20 sites disappeared in April alone.
Komarov said, “As long as Russians can attack our infrastructure with a simple weapon, they will take immediate action and it will be difficult to recover. The reason is that personnel entering the battlefield during the day can easily become targets of the military, so maintenance is needed when visibility decreases.”
However, despite the difficulties brought by the war, Kyivstar’s business continues to grow. The $1 billion investment plan also includes potential acquisitions, which Komarov stated will primarily focus on fixed and fiber optic businesses. Given the fragmented nature of Ukraine’s fixed market, there may be sufficient space.
“We will face severe integration in the fixed broadband market. Kyivstar is the market leader with only 14% market share.” He added that there are over 3000 fixed broadband providers in the country. Most of them do not comply with technical and tax regulations, and it is concluded that “to some extent, integration is inevitable.”
According to VEON’s digital operator strategy, potential acquisitions may also focus on expanding digital services. This is the focus of all VEON companies, and all their operators provide diversified digital services based on their respective market connections.
At the group level, customers who use at least one VEON digital service outside of voice and data services have an average revenue per user (ARPU) 3.9 times higher. At the same time, their churn rate is 2.2 times lower than that of voice customers.
An example emphasized by Komarov is that Kyivstar acquired digital healthcare company Helsi in 2022, which provides a software as a service solution to facilitate remote hospital appointments.
In the initial $600 million investment plan, Kyivstar also established a partnership with Rakuten, through which Kyivstar is exploring the possibility of using an open RAN in Ukraine.
However, Kyivstar’s Chief Technology Officer, Volodymyr Lutchenko, told Light Reading earlier this year during the MWC that this idea has always been starting from scratch.
Lutchenko stated at the time that his goal was not only to test the hardware, but also to test the entire cooperation chain he mentioned, including contract preparation, price negotiations, cooperation with local partners, and logistics delivery to Ukraine.
Komarov stated that if the first phase is successful, it will expand in scale. One of the benefits of doing so is to bring additional competition to existing suppliers.