Recovering the Internet in the de-occupied areas: Why not all fixed-line providers can return, how this reshapes the market, and what players will be rescued first

"Telecom companies now face three significant problems. First, the number of employees has decreased: some have joined the Armed Forces, others have moved abroad with their children. And those who are left have to do much more to maintain the networks. The second problem is that there are far fewer subscribers in the de-occupied territories: not all residents can return to their destroyed homes. The third problem is that the people who stayed in the liberated regions are either completely insolvent or do not have enough money to pay for services. Therefore, operators face a challenge: how to restore the destroyed networks when they have scarce resources," said Yuriy Matsyk, Director of the Fixed Internet Development Department at the Ministry of Digital Transformation, at the "Regulator 3.0. Ukraine Online" conference.

Mind clarified the details: what are the possible scenarios, what the government does, and why non-transparent accounting may prevent providers from receiving assistance from donors.

Portrait of the market. According to a recent report by the telecoms regulator, in 2022, the fixed-line internet market grew by 1% to UAH 15.928 billion. However, when adjusted for inflation, the industry shrank by more than 26%.

There are about 3,000 registered Internet providers in Ukraine. The largest are Domashniy Internet (Kyivstar), Ukrtelecom, Datagroup-Volia, Triolan, Lanet, Vega (Vodafone Ukraine), etc. Mind previously described the realities of this market during the war in more detail.

A push for consolidation. Yuriy Matsyk predicts that the de-occupied territories may see a redistribution of the market: "Let's say there were five providers in a settlement. Not every one of them will be able to take the risk of finding funds to restore the networks and wait for the return of subscribers. Accordingly, companies that have additional resources (people and finance) or can attract them will continue to gain a foothold in these areas. This means that there will be Internet providers that are already able to self-organise, find opportunities to rebuild networks and maintain them."

How many market players require assistance? "There were attempts to create a register of affected providers at the IAU. However, we faced a problem: how to determine (verify) which company was affected, and even more importantly, how to estimate the amount of damage. We did not reach any consensus," says Oleksandr Savchuk.

He clarifies that this is why the process went the other way. "There are certain humanitarian projects and organisations. Each individual company that considers itself affected applies for cash grants or in-kind assistance on its own. It is important to consider three aspects of assistance:

• recovery
• improving sustainability;
• reimbursement for what was lost without recovery.

"Most people focus only on the first aspect. However, the situation needs to be viewed in dynamics. That is, the task of restoration is always solved first. For the de-occupied territories, it has already been largely resolved. But there are no reliable statistics yet. In my personal opinion, we need to pay more attention to the second aspect – increasing sustainability. This involves much larger territories (not just the affected ones) and requires much more money," explains the Chairman of the Board of the Institute of Advocacy.

How can the state help? The Ministry of Digital and the National Commission For The State Regulation of Electronic Communications, Radio Frequency Spectrum And The Provision of Postal Services (NCEC)  say that there will be no privileges for individual players. "The conditions should be the same for everyone: both for an individual entrepreneur and a large operator. The state cannot help only, say, small providers. For example, in the Kyiv Oblast – Bucha, Irpin, Gostomel towns – small operators restored networks on their own. The same thing is gradually happening in Kherson, Kharkiv and other oblasts," says Oleksandr Zhyvotovsky, Head of the NCEC.

He explains that providers are guided by demand. Each region has different dynamics of population return: " When looking at the overall financial situation of the industry, it is not as bad as, say, in the energy sector. Unfortunately, we do not see the full picture from small operators. So far, I don't have an answer to the question of whether the state will come to support small businesses in telecoms when there are so many more needy sectors. However, the Ministry of Digital has good experience in distributing Internet subsidies on a competitive basis. Perhaps they will be able to launch a similar project."

The first one is equipment from international donors. Using the Uneeds platform (developed by the Ministry of Infrastructure and funded by the EBRD), the Ministry of Digital is creating a separate module for telecoms. It is ready and should be launched soon. Each operator will be able to create its own account there and submit an application with a list of equipment needed for restoration in a particular area. The system, in turn, will verify this account: check for registration, reporting, etc.

The second project is still at the stage of approval by the funds, so its details are not yet available to the public. The Ministry of Digital Transformation promises to provide details and instructions on how to apply for the competition as soon as it is launched.

However, there are two obstacles. The first one has to be removed by MPs. "The Law on Humanitarian Aid was adopted in the years when it was used exclusively by the Red Cross and other similar organisations. This law does not allow private companies doing business in Ukraine to provide humanitarian aid. Even if they are affected by the war. Why hasn't the law been amended yet? The Ministry of Digital appealed to the parliamentary corps to do so. We have had numerous conversations. I hope the MPs heard us," explains Yuriy Matsyk.

He adds that there is at present only one way to legally bypass the ban: "I know one telecoms company that managed to do this and get equipment from Europe. But it had to pay customs clearance and VAT. Now that many actors have limited resources, not everyone can afford such costs. Furthermore, this very complex mechanism requires a lot of human involvement. It is much easier to amend the law."

Oleksandr Savchuk recalls that there are already quite a few examples of people receiving aid without paying VAT. "Laws and regulations are partially in place. Of course, they do not cover all types of potential assistance. The problem is rather that all these procedures for obtaining aid are very bureaucratic. Most small companies simply don't have the resources to deal with all this paperwork," explains the Chairman of the Board of the IAU.

Why is imprecise reporting now becoming a problem for getting help? "Every time we apply to donors, they ask for detailed data on the amount of aid, including the number of subscribers in a particular locality. We open the reports and see that on paper, the providers have very few clients there. Would a donor be interested in helping to rebuild such a network? This is a rhetorical question. Then another incident may occur. If a provider applies to restore, say, a network with 1,000 subscribers, and the report shows a lower number, the donor may also lose the desire to help a 'double faced' company. It is very important for foreign donors that everything is as transparent as it can be," explains Yuriy Matsyk.

Oleksandr Savchuk also assumes that the insufficient transparency on the part of the affected companies is a kind of barrier to both the provision and distribution of aid.

Oleksandr Savchuk specifies: "Indeed, a few years ago the issue of interaction with media groups was very relevant: 'Nowadays, OTT providers are playing an increasingly important role. The IAU has not received any appeals from anyone regarding the (un)fair assessment of the number of subscribers of a particular provider."

What about the number of employees? Providers occasionally ask the authorities to help them reserve the most valuable technicians to keep their networks running. However, there is also a nuance here. Most market players are registered as sole proprietors. "And the law 'On Mobilisation Preparations and Mobilisation' clearly defines the main requirement: a company can apply for specialist bookings if it keeps military registers. Sole proprietors do not fall into this category. Amending Cabinet of Ministers Resolution No. 76 would be of no help: the resolution cannot contradict the law. So I see the only way out now. Small providers who need to retain a core of specialists can abandon the simplified taxation system and switch to the general tax regime. Then they will be entitled to make exemptions from draft," explains Yuriy Matsyk.

"But there's one hitch. Compliance with the military registration law does not guarantee companies that their employees will be exempted. A week ago, there was a meeting in parliament on this issue. If I'm not mistaken, more than 340 companies wanted to get reservations. In fact, only about 25 of them have it," says the Chairman of the IAU board.

And clarifies: there are still many factors that affect reserving employees. "For example, the shortage of a particular person's military specialty or the company's classification as critical to the operation of the economy and the livelihoods of the people in a special period. The General Staff always has a specific and independent opinion on this issue. Generally speaking, the issue should be addressed systematically and at the state level, taking into account the priorities of solving the tasks encountered by the state," summarises Oleksandr Savchuk.