OREANDA-NEWS. With Ukrtelecom under the umbrella of Rinat Akhmetov's SCM, the competition in the telecommunications market will become even more intense.

The acquisition of Ukrtelecom by SCM from Austrian EPIC isn't something new for the market as experts have been talking about the possible transaction for a year. Yet, after the official announcement about the deal, it is still not clear what will happen to the market.

The acquisition will cost the Group about UAH 7-9bn (the transaction is not closed yet), says Aleksandr Parashchiy, head of analytical department of Concorde Capital Investment Company. Anyway, EPIC paid UAH 10.575bn for privatisation of the company in 2011, but the telecoms provider has not shown strong performance since that time. The former owner failed to turn the company into a profitable business. EPIC just managed to cut costs through layoffs, sale of non-core assets and removal of loss-making areas from financial reports.

SCM's commitment to financing the unprofitable company (whose profit was UAH 366.8m last year and debt is USD 250m) proves the Group's far-reaching plans in the telecoms industry. SCM does not deny the fact either: they say the deal offers a good opportunity to build synergies in the telecoms market.

"Ukrtelecom is a promising investment project. Using our expertise in telecoms and the synergy with other telecom businesses within the group, we are happy to offer new services to current subscribers, attract new users and build a modern infrastructure [editor's note - in telecommunications] in Ukraine," stated Ilya Arkhipov, SCM Advisors Managing Director.

The former national provider is the biggest company in the telecoms market, ensuring fixed-line communications and Internet access nearly in all parts of Ukraine. Also, Ukrtelecom owns TriMob, the exclusive UMTS/WCDMA provider in the country. Many experts believe, however, that the company has more problems than prospects - at least, in its current position.

The point is that the former monopolist has lost most of its advantages inherited from the Soviet times. First of all, Ukrainians prefer more and more mobile over fixed-line telephony. In Q1 2013 alone, fixed-line subscribers dropped by 100,000 (1.8%) to 11.9 million. Sokrat Investment Company forecasts that the number will go down by 1.4% annually till 2018. Today, mobile users (61.2 million in April 2013) exceed fixed-line subscribers fivefold in Ukraine. Ukrtelecom's chances to become a fairly strong player in the market tend to zero without significant investment - other mobile providers will not surrender their positions.

Aleksandr Parashchiy believes that the major challenge faced by Ukrtelecom in 2013 may be the repayment of a USD 250m loan raised by the company from Sberbank in 2011. "Despite that the loan was extended for three to five years, the fixed-line monopolist recognized the debt as a short-term liability, and for some reasons the company is now facing an obligation to repay it within 12 months," the expert said.

It is entirely possible that Vega managers will top Ukrtelecom, even before the deal is closed. If SCM integrates Ukrtelecom into its telecoms business, the telecommunications market will see changes. Firstly, the hypothetical holding can capitalise on all benefits of 3G licence if it continues expanding the market, which is now limited to big cities only (the remaining territory is covered by Kyivstar 2G roaming network). It means it will compete on an equal footing with the Big Two - MTC and Kyivstar. Secondly, Ukrtelecom can also compete strongly in the broadband access market as it is the biggest provider in the segment. Finally, with Ukrtelecom's infrastructure resources, SCM's telecommunications business can largely establish rules in the market.

"SCM Group's acquisition of Ukrtelecom will bring new technologies to Ukrainian telecommunications," said Astelit CEO Aleksandr Barinov. He believes the deal will have a positive impact on both the Group's new assets and the whole industry by increasing the efficiency of the biggest fixed-line provider.

MTC did not comment on the acquisition. Kyivstar stated that it was too early to evaluate the impact of the deal on the market before the new owner announces its strategy. They added that the company would continue cooperation with Ukrtelecom and TriMob under the existing agreement on interconnection and national roaming.

SCM indeed has not commented as yet on how the alliance will develop. Experts, however, are already counting the Group's potential profit and potential losses of other players as such alliance will definitely intensify the competition.