Kyivstar to invest $1B while keeping Ukraine connected

　　As Ukraine's biggest operator, Kyivstar faces struggles like none of its peers in Europe. But even as it has to work to keep people connected in the face of Russian military attacks on infrastructure and energy shortages, the company continues its push to grow and improve the network.

　　During a press roundtable in London, Kyivstar's CEO Oleksandr Komarov noted "we are living in kind of two lives simultaneously. One is how to survive. The second one is how to develop, despite the circumstances."

　　Most recently, parent company VEON and Kyivstar announced they will invest $1 billion in the country between 2023 and 2027. This is an increase compared to the $600 million pledge made last year, which covered the period between 2023 and 2025.

　　The package includes investment into network and digital services, including potential acquisitions and the development of new assets, social contributions and partnerships.

　　Komarov said the increase came after the company understood "we can run this business, let's say even quite successfully, despite current circumstances."

　　At the same time, he acknowledged that it has also been driven by the idea that "the country needs this investment, and, to some extent, desperately needs this investment."

　　Facing any scenario

　　Komarov said the investment will give Kyivstar enough resources to face "any scenario," with the spending concentrated in three layers.

　　The first is Kyivstar's core business, both mobile and fixed. On the mobile side, Kyivstar plans to acquire 2,300MHz and 2,600MHz spectrum in an upcoming auction, which Komarov said will likely take place in September.

　　The company needs the extra frequencies to cope with an uptick in data traffic, he added. "The number of data customers is growing, their consumption is growing and we need extra capacity in order to progress rather than regress with the quality of service." The network, he said, is already becoming overloaded at times.

　　There is still uncertainty as to when 5G auctions may take place. While they were scheduled to happen before Russia's full-scale invasion in 2022, they were subsequently put on hold.

　　The 5G question mark

　　Komarov says there is a possibility the regulator waits until after the war. That seems a difficult scenario to plan for, given no one can predict when the war might end at this point in time.

　　At the same time, Komarov said: "I can imagine the situation that the government will decide it can't be postponed anymore, and we should go forward, and we are preparing for this scenario."

　　In the meantime, he said, Kyivstar keeps growing its network "quite aggressively," adding that more mobile sites were built last year than in 2021, before Russia's full-scale invasion.

　　The most recent phase of the build has been more challenging than previous years because it reaches rural areas, where Kyivstar is installing greenfield towers. After last year's cyberattack, the Ukrainian government also found there are around 1,200 locations covered only by Kyivstar's mobile network.

　　In the fixed business, Kyivstar has been upgrading its fiber network to GPON infrastructure, with 70% of the rollout already completed. The technology will be rolled out to seven new cities this year.

　　Power problems

　　Part of the rationale for upgrading to GPON is that the technology is more resilient to power outages. For Kyivstar, those are a reality and not the mainly hypothetical scenario they represent for many European telcos.

　　Ukraine has been facing sustained attacks on its energy infrastructure by the Russian army. As a result, it has implemented rolling blackouts in recent weeks. These continue to have an impact on telecom.

　　While the core network, as well as the backbone and transit, have been "fully backed up" to shield them from power cuts (which could bring on country-wide shortages), there are still challenges when it comes to the RAN and fixed access networks.

　　Regulated blackouts follow predictable patterns (four hours of power supply, for instance, followed by four hours without it), which can be managed with a combination of batteries and uninterruptible power supply (UPS) systems and generators.

　　Unregulated power cuts, however, follow unpredictable patterns and batteries can run out of power. On "the most difficult days," Komarov said, 20% of the network may be without power.

　　At the moment, he said, the company has around 2,500 generators. The technology, however, has its limitations. Komarov said that "before the latest blackout, we faced a very difficult situation in Kharkiv so we were literally running the network on generators for a month."

　　Doing that in one geographical region makes it easier to concentrate resources, but Kyivstar has learned that mobile generators cannot run for weeks without breaks, said Komarov.

　　The company is also considering investing in stationary generators where possible. That is not an option everywhere, Komarov explained, because sites might not be in secure places: "Most probably this is a tower in the field," he said.

　　Installing generators all over the country would also require a lot of personnel, he said. Instead, Kyivstar is focused on creating a critical grid of sites. This consists of around 5,000 sites across all three operators that could be supported even during a massive nationwide blackout.

　　"But we should face it that our ability to provide stable service in such circumstances is quite limited," said Komarov.

　　One piece of good news is that issues with fuel supply Kyivstar faced in 2022 have eased. This is because Kyivstar has invested in fuel tanks, Komarov says, while gas stations have installed alternative power sources to be able to operate without grid electricity.

　　Deepening collaboration

　　Another big problem facing Kyivstar is a lack of available personnel. Komarov now thinks it faces an "enormous HR challenge" due to labor market shortages, migration out of the country and mobilization. "You can easily imagine the average profile of our engineers, it's an ideal soldier," he said.

　　All this could force operators to work together more closely. "I think that going into the future, it will be just unsustainable to keep three maintenance organizations across the country," said Komarov.

　　More broadly, he is prepared to consider a network sharing agreement with other mobile operators, saying they compete much more on value proposition to customers than on network differentiation.

　　War rages on

　　At the same time, the company is still facing direct destruction from the war. Komarov cited the example of Nikopol, a city of 100,000 people in the Dnipropetrovsk region located on the Dnipro river, with the opposite bank occupied by Russia. This means it can be affected by simple artillery and drones. It is covered by 40 to 50 sites and in April alone 20 of these were lost, he said.

　　"Whenever Russians are able to attack our infrastructure with a simple weapon, they do it immediately and it is not so easy to recover," Komarov said. The reason is that any personnel sent into the field during the day are easy targets for the military, so maintenance needs to be done when visibility drops.

　　Growing through acquisitions

　　Nevertheless, Kyivstar continues to grow its business despite the difficulties brought on by the war. Also part of the $1 billion investment package are potential acquisitions, with Komarov saying these would focus mainly on the fixed and fiber business. There may be ample scope, given the fragmented nature of Ukraine's fixed market.

　　"I hope, really hope that we will face serious consolidation of the fixed broadband market. Kyivstar is the market leader with just 14% market share," he said, adding that there are over 3,000 fixed broadband providers in the country. He also argued that most of them are not compliant with technical and tax regulations, concluding that "to some extent, consolidation is inevitable."

　　In line with VEON's digital operator strategy, the potential acquisitions may also focus on expanding digital services. This is a focus for all of VEON, with all its operators offering diverse digital services on top of connectivity in their markets.

　　On a group level, average revenue per user (ARPU) is 3.9 times higher among customers who use at least one VEON digital service on top of voice and data. Their churn rate is, meanwhile, also 2.2 times lower than it is for voice-only customers.

　　One example Komarov highlighted is Helsi, a digital healthcare company Kyivstar bought in 2022, which offers software-as-a-service solutions facilitating remote appointments at hospitals.

　　Also part of the initial $600 million investment package was a partnership with Rakuten, through which Kyivstar is exploring the possible use of open RAN in Ukraine.

　　Nevertheless, the idea has always been to start small, as Kyivstar's CTO Volodymyr Lutchenko told Light Reading earlier this year during MWC.

　　At the time, Lutchenko said the goal will be testing not only the hardware, but also what he called the full chain of cooperation, which includes contract preparation, price negotiation and working with local partners – as well as the logistics of delivery to Ukraine.

　　If this first phase is successful, Komarov said, then it will be scaled up. One of the advantages would be to create extra competition for existing vendors, he said.