The European Bank for Reconstruction and Development and the International Finance Corporation on Oct. 10 said they would provide $435 million to finance a recently merged Ukrainian telecoms company.

The funding is part of a deal — led by French billionaire Xavier Niel — that represents the largest foreign direct investment in Ukraine since the start of the full-scale invasion.

Niel’s investment holding NJJ Capital, in partnership with Ukraine’s largest private equity firm Horizon Capital, announced in September that it would acquire and merge Ukraine’s third-largest mobile operator Lifecell with service provider Datagroup-Volia.

The new company — Datagroup-Volia-Lifecell — will be headed by Mykhailo Shelemba, former CEO of Datagroup-Volia and shareholder of the new entity.

The merger will create the second-largest fixed-mobile convergent operator, Holger Muent, EBRD's director of telecommunications, media, and technology, told the Kyiv Independent in an interview. Kyivstar is the country’s largest.

“Bringing two leading operators in separate sectors together into one is a game changer for the industry,” Muent said, adding that the deal would be significant in peacetime, but is even more so during war.

The Kyiv Independent sat down with Muent to discuss what the deal means for Ukraine and its telecoms sector and plans for further investment.

This interview has been edited for clarity.

The Kyiv Independent: Besides much-needed foreign direct investment, what does a deal like this bring to Ukraine and its telecoms market?

Holger Muent: The telecoms sector is extremely important for the country, both in general and in the current context of the war. Keeping the banking sector functioning, government services that have shifted online, and online education driven by the circumstances of the war — all of this hinges on a functioning telecoms sector.

Merging the two and creating a fixed mobile conversion operator creates additional redundancy, speed in the network, more reliability, and better services. That is good generally in any market, but particularly in Ukraine in the current circumstances. For example, you can connect the mobile base stations to the fiber network so you have redundancy in speed there as well. The merger also creates competition, which creates choice and competitive pressure, which in my view is just good.

You also have the entry of a very knowledgeable, experienced, and deep-pocketed investor into the sector. If you think in terms of bringing in practices that have been tried somewhere else that are up there with the best management and technical practices, it’s a game changer.

The Kyiv Independent: How does this deal fit into the larger picture of a struggling European telecoms market where companies are in debt and struggling to find growth?

Holger Muent: NJJ Capital goes for the higher risk-higher growth opportunities, so from that point of view, it makes sense. The underlying factor of the situation in Europe is that a lot of the value that comes from increased speed and connectivity doesn’t accrue to the telecoms operators, but to the content providers and tech companies. If you look at the total value created in the system, the guys who actually make the connection, don't actually capture a lot of it and that creates pressure on the industry. A lot of it has to do with regulation.

Ukraine is at a totally different stage. Firstly, there is a relatively low coverage with large parts of rural areas that don't have decent access so there's a lot of what is pretty basic connectivity that needs to be established and that obviously will expand the market. But you're not yet at the stage where it's all about 5G and 100% fiber, and where a lot (of the value) goes to tech companies.

The Kyiv Independent: What are the plans to expand coverage and access as part of the investment?

Holger Muent: The merger itself creates the opportunity for convergence, but there needs to be additional investment, including in additional coverage, reaching regions that haven't been covered so far, and increasing speeds. In the fixed line network, I expect speeds to increase over the next few years by maybe four or five times. Consumers, businesses, and government agencies will have more availability, more people can reach these services, and the services will be delivered at a higher speed, which also changes what kind of service or what kind of content can be delivered. The convergence will be implemented quite soon and that takes some physical investment, not necessarily country-wide digging of holes to put cable in the ground, but targeted capital expenditure that will happen very soon.

The Kyiv Independent: The risks during a war like this are enormous — how concerning is the risk that the worst could come to pass, that Ukraine could lose the war, or that this winter will be the worst since the start of the full-scale invasion to a deal like this?

Holger Muent: The catastrophic risk exists, but at the EBRD we are confident that it will not materialize because otherwise, we would not be putting $1.5 billion into Ukraine every year. The power situation is obviously a very serious concern and is a focus of our operations as we put a lot of money every year into improving the resilience and reconstruction of the energy sector.

This deal actually creates energy efficiency by creating redundancy in the system. If you transmit data through fiber, it takes less energy than doing it via radio signal. You also get network efficiency because you have a wider array of paths that you can route data through. Choosing the optimal route for that data reduces energy consumption. Obviously, that’s not insurance against the catastrophic risk, but it does help to mitigate power outages and generally reduces the load on the energy sector to some extent, so it plays its part in that.

The Kyiv Independent: Is this process already underway?

Holger Muent: That is the big thing. DataGroup-Volia has a lot of cable in the ground already so that can be tapped into for the mobile network now. Before they were run as separate networks, but now, they’re combined and run together. It won't happen tomorrow, but it's the near-term plan to make this happen. And then obviously there will be an expansion of the fiber network and of the mobile network, but in step together.

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