Some Peculiarities of Regulation of Commercial Activity in the Telecommunications Field

By Tatiana Daniltseva
Spenser & Kauffmann

The rise in demand for telecommunication services in Ukraine is encouraging fast development of the telecommunications market and attracting investment into this sphere. The regulatory grounds for the activities of telecommunication companies in Ukraine are set by the Civil Code of Ukraine regarding general rules of rendering services, including telecommunication services and the Commercial Code of Ukraine regarding the main grounds of commercial activity. The Telecommunications Act, the Television and Radio Broadcasting Act and Radio Frequency Reserve Act are the special laws in the sphere of telecommunication. Besides, the rules of rendering and receiving telecommunication services are set out by the Cabinet of Ministers of Ukraine. Regulations of the National Committee for Communications Regulation of Ukraine and the National Council for Television and Radio Broadcasting also make a considerable contribution to Ukrainian telecommunication legislation. In the view of legal regulation the telecommunication services market is divided into two big parts. The first one is occupied by operators and providers of telecommunications, i.e. companies carrying out the activity of rendering telecommunication services (excluding broadcasting activity), the second one – by television and radio broadcasting companies, providers of program service and other subjects of information activity.

The activity of telecommunication companies is governed by the Telecommunication Act and supervised by a special state body – National Committee for Communications Regulation of Ukraine (hereinafter — Communications Committee). More than 700 companies are included in the register of telecommunication operators and providers, and over 200 companies have submitted to the Communication Committee notification of their intention to conduct activity in the telecommunications market.

The order for conducting broadcasting activity is established by the Television and Radio Broadcasting Act. The National Council for Television and Radio Broadcasting (Broadcasting Council) is the special state body authorized to supervise television and radio broadcasting activity. Over 1,000 companies are registered as subjects of information activity in the State Register of Television and Radio Companies of Ukraine.

In recent years legislative acts of Ukraine governing the telecommunications sphere have undergone substantial changes.

The Telecommunications Act substituted the Communication Act, which was in effect from 1995 till the end of 2003; new editions of the Television and Radio Broadcasting Act and the Radio Frequency Reserve Act were adopted.

The main legislative novelties concern issues regarding the participation of non-residents in telecommunications companies as well as licensing issues.

Since the Telecommunication Act came into force all limitations with respect to participation of non-residents in telecommunication companies have been cancelled. Hence, a foreign legal entity or an individual can be the sole owner of an operator or provider of telecommunication.

On the other hand, as regards companies conducting activity in the television and radio broadcasting sphere, the issue of non-residents’ foundation and participation in television and radio companies is more complicated. Issues regarding the participation of non-residents in television and radio broadcasting companies are not covered by the Television and Radio Broadcasting Act, which refers to the Commercial Code of Ukraine.

As the Commercial Code of Ukraine does not set restrictions or limitations in this matter, it can be affirmed that a non-resident can be an owner (shareholder, member) of a broadcasting company. At the same time, according to the Television and Radio Broadcasting Act, the National Broadcasting Council can refuse to issue a broadcasting license if a broadcasting company does not comply with requirements regarding limitation of a nonresident’s share in the authorized capital. Though there are no legislative limitations regarding the maximum share of a nonresident in the authorized capital of a broadcasting company, the National Broadcasting Council can consider the Television and Radio Broadcasting Act as one, which prohibits the activity of Ukrainian television and radio companies fully owned by non-residents. These disaccords within the laws prevent some foreign companies and individuals from acquiring a 100% shareholding (equity interests) in the authorized capital of broadcasting companies.

The said provisions of the Television and Radio Broadcasting Act are related to television and radio companies, i.e. companies creating their own program product — broadcasters. There are no similar restrictions or limitations as to the participation of non-residents as providers of a program service, i.e. companies, which do not create their own programs, but provide subscribers with the chance to receive the television and radio programs of broadcasting companies.

It also has to be mentioned that, according to effective law, some kinds of activities in the sphere of telecommunications are subject to licensing, in particular:

(a) pursuant to the Telecommunications Act: (i) the activity of operators of telecommunications; (b) according to the Television and Radio Broadcasting Act: (i) television and radio broadcasting and (ii) rendering a program service;

The licensing of broadcasting activity of foreign television and radio broadcasting companies in Ukraine is forbidden by law.

(c) in accordance with the Radio Frequency Reserve Act of Ukraine:

(i) usage of radio frequency reserve of Ukraine. Adoption of the Television and Radio Broadcasting Act in its new wording as of 12 January 2006 caused a lot of commotion, first and foremost, from all cable television companies. The most contradictory issues are as follow:

(a) “Double” licensing. The new wording of the Television and Radio Broadcasting Act envisages a new kind of license – the license of a provider of a program service. The provider of a program service is a company which provides the means for subscribers to receive packages of television and radio programs, using the resources of multi-channel television networks. In other words, a provider of program service ensures simultaneous receipt and transmission of television and radio programs without making any changes.

At the same time, the resources of multi-channel television networks are used by cable television operators. Cable television operators are companies which ensure technical maintenance and operation of multi-channel television networks and provide the supply of television signal to subscribers.

Hence, a cable television operator has to obtain two licenses, in particular, the license of a provider of a program service to be issued by the National Broadcasting Council in accordance with the Television and Radio Broadcasting Act, and the license for technical maintenance and operation of television networks to be issued by the Communication Committee pursuant to the Te lecommunications Act.

Taking into account this situation cable television operators affirm that the valid Television and Radio Broadcasting Act caused the double licensing of the same type of commercial activity, which contradicts the principles of entrepreneurship activity. (b) Universal program service. According to the Television and Radio Broadcasting Act the National Broadcasting Council is to approve the package (packages) of the universal program service for every provider of program service obtaining a respective license. A provider of a program service is obliged to ensure the means for subscribers to receive programs, included by the National Broadcasting Council in a package of the universal program service. The list of such programs to be included in the package of the universal program service is defined by the National Broadcasting Council in each case of issue of the provider’s license. Such powers of the National Broadcasting Council are considered by cable television companies as a kind of censorship and as promoting the possibility of the interests of certain broadcasters to be lobbied.

(c) Adaptation of the programs’ content. Pursuant to the Television and Radio Broadcasting Act a company intending to rebroadcast the programs of a company whose activity is not covered by the jurisdiction of a European Union member state or a state which has ratified the European Convention on Transfrontier Television, is obliged to adapt the content of programs to the requirements of current Ukrainian legislation. The provider of program service has to, in order to adapt the content of programs, make changes therein and to actually create his own program product. In this case the provider of the program service becomes a broadcaster and, consequently, has to obtain one more license – a broadcasting license.

Numerous contradictions within the Television and Radio Broadcasting Act forced cable television companies and their association to appeal to the Ukrainian Parliament, the President of Ukraine, the Cabinet of Ministers of Ukraine and the National Broadcasting Council to amend certain provisions of the law. Taking into consideration the specific regulation of the activity of telecommunication companies in Ukraine and the history of evolution of legislation, it is highly recommended that any telecommunication company starting up its activity in Ukraine choose a reliable legal advisor.