Network Damage Highlights Negative Internet Outlook

Ukrtelecom reported that several of its key telecommunications nodes in Crimea were repeatedly blocked and switched off on March 1 2014. This left many subscribers without access to fixed phone, internet and mobile services throughout the day, severing voice and data connectivity between Crimea and the rest of the Ukraine. Although it has since been restored, BMI believes this confirms our view for a slowdown in broadband internet subscribers and revenue in 2014 and have downgraded our forecasts to reflect this outlook. Further damage to infrastructure can also be expected if the Crimean crisis escalates and this will weigh on mobile, fixed and broadband service providers, as evidenced by examples in Thailand, Syria and Egypt.

Ukrtelecom is the country's incumbent fixed-line provider, with approximately 77% of the fixed telephony market and claims to have been operating 9.015mn local access lines at the end of 2012. Ukrtelecom is the largest provider in the country, with its 'OGO' branded broadband service totalling 1.626mn subscribers at the end of Q313, up from 1.493mn in Q312. This accounts for a market share of around 29%, with multiple other players making up the rest of the market. The company also has a small mobile unit, TriMob. Ukrtelecom was bought from Austrian Epic Group in October 2013, by Ukrainian conglomerate SCM Group, owned by Ukraine's richest businessman, Rinat Akhmetov.

Ukrtelecom has claimed that the blocks were carried out by unspecified persons wearing military uniform and also reported damage to its equipment and zonal fibre-optic network on February 28. The connection was restored during March 1, but the ongoing Russian control of Crimea has raised political risks in the Ukraine, and poses downside risks for the telecoms sector, as evidenced by the Ukrtelecom example. In January 2014, BMI highlighted our bearish outlook for the Ukrainian broadband sector in the wake of the political protests, with potential downgrades to our forecast to follow. Although the extent of the damage to Ukrtelecom's network and blocked service is believed to be minimal, we have modified our forecasts to reflect the increased negative outlook. The recent developments have caused some volatility in Ukrtelecom's share price, although we note that low trading volumes create certain distortions on the Ukraine PFTS Index.

Volatility Following Blocked Network & Infrastructure Damage
Ukrtelecom Share Price, UAH

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Related sectors of this article: Telecoms
Geography: Ukraine

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