Russian foreign direct investment in Ukraine

Nataliya Blyakha                                                                                       PEI Electronic Publications 7/2009 

www.tse.fi/pei 

 

 

their products. However, it also influences on the energy economic security of Ukraine 

and largely prevents diversification of oil imports. Even if Ukraine would eventually 

implement the scheme of oil imports diversification (eg. through the operation of the 

pipeline Odessa - Brody) and Ukrainian refineries will start to receive oil from the 

Caspian region and the Persian Gulf countries, it will be extremely difficult to compete 

with Russian products because of the difference in price for raw materials and 

possibility for Russia to use price dumping. (Kyznetsova 2002) 

4.2 

Telecommunication sector  

The Ukrainian telecom sector revenue reached an estimated $5.2 billion in 2006 and is 

forecasted to have grown to $7.7 billion by the end of 2011. Mobile comprises the 

largest part, with 52.0%, of the total communications services revenue. The mobile 

sector has been by far the most dynamic telecom market in the country in the last 5 

years, with a staggering average growth rate of 91.4%. (Paradis 2007) 

Ukrainian telecommunication sector is divided between a few Russian players (Figure 

6). The first market entries occurred in 2001-2002, when key regional telecom markets 

of Russian Federation were almost saturated. From the very start Russian leading 

mobile operators focused on the CIS countries. This approach was based both on the 

economic and political ties inherited from the Soviet era and on the attractiveness of 

the CIS states as fast growing markets. Relatively low penetration rate and rapidly 

increasing subscriber base presume significant future opportunities for telecom sectors. 

Knowledge of business environment and practices in the CIS countries, which were 

quite similar to those in Russia, favored the entries. 

Figure 6 

Major mobile operators in Ukraine’s telecommunications market 

Kyivstar

42 %

MTS-Ukraine

36 %

Life

18 %

Beeline

4 %

 

Source: 

Mabila Media

 

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Nataliya Blyakha                                                                                       PEI Electronic Publications 7/2009 

www.tse.fi/pei 

 

 

Nowadays Russian companies control 96% of mobile communications in Ukraine. 

Mobile operator MTC-Ukraine is controlled by Russian holding company AFK System, 

Russian Vimpelcom owns private corporation Ukrainian Radiosystems (TM Beeline) 

and Golden Telecom; company Altimo witch belongs to Alfa-Group owns shares of 

biggest Ukrainian mobile operator Kyivstar. (Lyametc 2007) 

MTS-UKRAINE 

The second largest mobile operator is Ukrainian Mobile Telecommunication JSC, 

which is fully owned by the Russian group Mobile TeleSystems OJSC (MTS Russia) 

and is operating under the MTS Russia brand. As at 30 June 2008, Ukrainian Mobile 

Telecommunication JSC had a market share of approximately 36%. 

MTS

 entered the Ukrainian mobile market in 2002 via purchasing the controlling 

interest of UMC

.

 

Nowadays

, MTS holds 99% 

of the MTS Ukraine

 company directly 

and one per cent through its subsidiary PPT Telecom Kyiv. 

One could argue that 

the influence of MTS as an owner was rather positive for UMC. Managerial, 

financial and other types of input helped the latter to restore the leading position on 

the Ukrainian mobile market. While UMC's total investments in ten years period 

amounted to over USD 450 million, MTS spent over USD 250 million on the UMC 

development in 2003 alone. According to estimates, the total stock of MTS 

investments in Ukraine amounts to USD 1.2 billion by the end of 2004. MTS actively 

cooperates with leading equipment suppliers (Alcatel and Siemens) to expand the 

GSM network, optimize existing infrastructure, and accelerate development of next-

generation products and services. As of September 2004, UMC's network covered 

over 80% of the country's territory and about 90% of the population. Having the 

status of the MTS subsidiary, UMC gets better access to foreign financial sources. 

(Lisitsyn et al. 2005)

 

However, despite certain success MTS faced some serious problems in Ukraine. 

They basically come from a high level of political risk in the country and ideas of re-

privatization. In the case of UMC, the Ukrainian Prosecutor-General's Office in 

June 2004 claimed that the sale of Ukrtelecom’s share of the company to MTS 

was in breach of Ukraine's privatization laws, and therefore announced a re-

privatization campaign. Later on conflict was solved and MTS continued to own 

controlling stake of the MTS-Ukraine. 

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Nataliya Blyakha                                                                                       PEI Electronic Publications 7/2009 

www.tse.fi/pei 

 

 

ALTIMO 

A part of the Alfa Group Consortium (AGC), Altimo was created in 2005 to represent 

AGC’s telecom asset portfolio. Established in 1989, AGC has become one of the 

largest Russian privately-owned business groups which own assets in several 

industry sectors, including oil production, financial services, retail and telecom. 

Altimo’s telecom companies provide services to more than 120 million subscribers. 

Altimo is a private equity investment arm specializing in investments in the 

telecommunications industry with a focus on mobile and fixed-line communications. 

It invests in companies based in Russia, the CIS region, Turkey, Cambodia and in 

the South-East Asian markets especially in Vietnam and Indonesia. The firm prefers 

strong minority positions in those companies that do not have a controlling 

shareholder. It was formerly known as Alfa Telecom (Alfa Group 2008). The firm is 

based in Moscow, Russian Federation with additional offices in United Kingdom; 

Ukraine; Indonesia, Turkey; and Vietnam. Altimo operates as subsidiary of Alfa 

Capital and controls the following companies: Russia’s mobile operators – 

VimpelCom and MegaFon; major Ukrainian mobile operator -- Kyivstar; major 

Turkish mobile operator – Turkcell; and Golden Telecom – one of the largest fixed 

telecom operators in Russia. (Businessweek 2009) 

Majour Altimos asset in Ukraine-Kyivstar

 

is the largest mobile operator in Ukraine 

with a market share at 30 June 2008 of 42%. Altimo holds 34% of VimpelCom’s 

common shares and 6.4 million preferred shares, which give it 44% of voting shares. 

Beeline, a brand operated by Ukrainian Radio Systems (URS) is 100% owned by 

the Russian company VimpelCom. URS had approximately 2.1 million mobile 

subscriptions and a market share of approximately 3.8% at the end of June 2008. 

VimpelCom is a leading mobile operator in Russia, with operations in Kazakhstan, 

Uzbekistan, Tajikistan and also Ukraine. VimpelCom has app. 50 million subscribers 

and has a 35% market share in Russia. There are also several smaller mobile 

operators in Ukraine, including Golden Telecom Ukraine (which holds a GSM 1800 

MHz licence), which is also a wholly owned subsidiary of VimpelCom. (Mabila Media 

2009) 

 

Further expansion of Russian telecommunication companies could be possible through 

entering Ukraine’s fixed telephone market. Russian financial groups for a long time had 

interest in the privatization of the Ukraine's telecom monopolist government-owned 

company Ukrtelecom. Ukrtelecom Joint Stock Company is an advanced enterprise with 

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