Victor Koval

Integration Processes
in the Telecommunication Sector in Europe

Summary:
In the dynamic development of integration processes in the world economy, the structural
change is also evident in the service sector, including the telecommunications. The end of the
twentieth century showed an intensive integration processes in the telecommunication sector
in Europe, which has a positive impact on the competitiveness of their economies. The main
tools are the development of a corporate network integration contracts with companies in
different countries, which are part of the corporation. However, the territorial expansion of the
European telecommunication operators in the markets of the CIS, particularly Ukraine, assists
the development of international strategic alliances and long-term industrial cooperation in
joint ventures with the world leaders in ICT.
Keywords:
Integration Processes, Markets, Economy, Telecommunications, Services

he trend of globalization and the rapid expansion infocommunication

innovations assist constant tightening competitive environment. In an
innovative development of modern enterprises are the network structures
relevant, mainly associated with the proliferation of new forms of integration,
that are characterized by the mechanism of interaction with other market participants in various stages of development and promotion of services or goods.
On the other hand, the processes of monopoly industries deregulation, such
as telecommunications, particularly in developing countries, such as Ukraine,
which in 2011, according to the rating Emerging Markets Pulse Survey was
number 31 among the countries, which were considered by international corporations as site for business organization, enabling new players to enter the
markets of other countries.
Access to the markets of developing countries by multinational corporations has several important advantages associated with large capitalization of the
scientific research, advertising, marketing, investment in the telecom industry.
However, in a rapidly changing market, which is connected with the development of modern technologies, the consumer preferences are changing, that forces
international companies to communicate effectively with the regional business,
which is a testament to the interface mobility, as well as the flexibility and variability of vertical linkages, opening new horizons to modern forms of integration.
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The main goal of the articles was to justification of sectors integration forms
of business organization in the telecommunications sector in Europe.
The theoretical basis of the study served as the scientific methods of cognition (analysis and synthesis, induction and deduction), the dialectical method, the
method of comparative analysis, synthesis, classification, historical and logical
method and other private methods of learning.
Analysis of recent research and publications. The problem of studying
the theoretical foundations of integration processes in the economy devoted to
the research of scholars such as M. Porter, M. K. Perry, J. Henry, D. Thorburn,
G. Kleiner, B. Livshits, P. Sieber, R. T. Dalimov. In recent years, general economic
problems of building integrated structures are reflected in the works of A. Amosha, V. Geets, M. Kyzyma, G. Pasicznyk, L. Fedulov and other local economists.
However, these processes are inter-firm integration into the national economy,
on the one hand, identified mainly with the structures of holding type, and the
other global trends indicate organizational transformation network structures
at the leading type of economic integration. The theoretical foundations of the
integration process on the market of telecommunications services and information reflected in scientific papers F. Amesse, R. Latour, C. Rebolledo, O. Lemaire,
R. Hall, K. Eisenhardt, C. B. Schoonhoven, K. Rejman.
1. Development of the telecommunication sector in Europe and Ukraine
In the last decade the telecommunication sector of the world economy will
have a special place in the modern market economy, which is due to the large
average annual growth rate of consumer telecommunications services and a corresponding increase in demand, with the account of technological advances of
telecommunications. In turn, the emergence of modern technologies of building
multi trammel packet-switched services, and providing access to them, with the
gradual integration of telecommunication operators with other multimedia areas
of the national economy during the transition to a market economy mechanisms
significantly affect its dynamics and structure.
The growth in demand for telecommunication services provided to promote their share in the world structure (2.5% of world GDP in 2005 and 2.7% in
2010) and the national economy of Ukraine (5.9% in 2005 and 4.0% in 2010), in
general, due to the innovative orientation of development and implementation
of new integrated multimedia services and technologies and expand markets in
their own area or in new areas (Table 1). In addition, the increase in the volume
of the telecommunications sector increases the effectiveness of other parts of the
economy, which are the leading satellite telecommunications operators (Skype,
social networks) on the one hand, and the service sector, weighty share of the
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financial transactions that occur on the basis of telecommunications on the

other.

Table 1: Capacity and access of the telecommunication sector

Region

Telecommunications revenue
(% of GDP)
2005

2010

Fixed-telephone
subscriptions
(per 100 people)
2005

2010

Mobile telephone
subscriptions
(per 100 people)
2005

2010

Fixed (wired)broadband subscriptions

(per 100 people)
2005

2010

World

3.1

2.7

19.4

17.2

34.0

78.2

3.44

7.75

Europe

3.2

2.7

24.0

25.5

61.7

124.3

1.10

9.11

Ukraine

5.9

4.0

24.9

28.5

64.0

118.6

0.28

6.50

Source: ITU (2012).

During the liberalization of Ukrainian national telecommunicational markets in the corporatization of state-owned enterprises and their privatization
(Ukrtelecom, etc.) and convergence with other areas of multimedia, advanced information communications perform infrastructural functions and provide
assistance ascending the global economy, as well as the formation of new trends
its development related to the search of effective organizational forms of association of telecommunications operators and service providers.
It should be noted that the processes of liberalization and further monopolization of the economy create opportunities greater internationalization of infocommunications sector, which is associated with the release of transnational
corporations on the foreign markets, including Ukraine, and the related financial
and economic activities of companies residents of the country.
Gradual significant reduction of the particle of the market of telecommunications operators that are in the domestic property (or owned a 51% stake), will
reduce the value of their owners investment. And as more competitive operators
are more likely to act the potential partners of foreign investors in joint ventures,
there is a need for further research transformational changes in the domestic
market, both from the network organization of business and, accordingly, in the
framework of its model generation bundling in telecommunications.
In this regard, special attention is research prerequisites for the formation
of networks of telecommunication services market in Ukraine and their functioning in the institutional restructuring of the regulatory framework of economic
competition.
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2. Development of the market of mergers and acquisitions (M & A) by

European corporations in the telecommunications sector in Ukraine
Telecommunications are very highly organized infrastructure of society,
which consists of network structures, so the processes of association and acquisitions, as a measure to strengthen market position and create a network of enterprises telecommunications sector, is due not only to the nature of the globalization of the economy of modern economic systems, and the emergence of positive
synergies activity (Kuzukov (2009: 1619).
Progressive development, both global and domestic economy, is characterized by its acquisition of the post-industrial stage of network characteristics,
related to scientific and technical progress in the field of infocommunications
and telecommunications significant influence (technologies and communication
networks) for the operation of all areas of the economy. At the same time, the
enterprises of the telecommunications sector as a catalyst for the formation of
a network of business organization, actively implement the principle of building
the network, which discourages communication between elements of their internal and external environment (Khazanov 2010: 323327).
Therefore, especially the conditions of management companies of the telecommunications sector, in increasing the last decade of mergers and acquisitions, which are increasingly characterized by cross-border agreements, make it
necessary to study the possibilities of their further integration.
Since the beginning of the 21st century intensification of integration processes in the field of telecommunications, and in almost all sectors of the
economy with a series of activities carried out in mergers and acquisitions
(M & A). Development of the domestic telecommunications business in the
direction of the merger and acquisition as one of the most typical ways to strengthen the competitiveness of operators has been associated with the integration
and unification of all business processes, as well as the union of technical resources in a single structure.
The main root cause of todays merger is the development of new services
and convergence technologies, since the latter is helping reduce operating costs
by moving to a unified communications IP transport platform (Imankul 2012).
The expansion of mobile operators of the last decade with the characteristic
of the increase in their income is almost 4 times the revenues in the fixed-line
telephony services, and the highest mobile penetration among the population of
Ukraine (120% in 2010) and a reduction in the fixed subscriber base. To assist
the development of technology Fxed Moble Convergence as a tool in the total
use of resources fixed and mobile networks to provide you with uninterrupted
service regardless of geographic origin, as well as for the organization of global
services, and billing for services (Knyazev 2011: 1014).
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Integration Processes in the Telecommunication Sector in Europe

Convergence as an essential process of development of telecommunications,

today supports the formation of a universal telecom integrator of telecommunication services, and therefore the necessary measures to integrate with other
service providers are characterized by a form of integration, based on agreements
M & A. Considering the development of mergers and acquisitions across industries, will compare the distribution of the world total and the number of agreements from 2000 to 2010 (see Figure 1), taking to the attention of non-stop nature of the changes in the market (see SV-Consulting 2012 and Kuzovkov 2009).

x
i>>i

Liv`i>

Liv`i>

i>>i1-fL

Figure 1 Global telecom deal volumes/deal values 20002010

{ x n

Source: Thomson Reuters.

Increase in global M & A market in the telecommunications sector in the

last decade certify its extreme, when the volume of agreements reached peak twice: the first was due to the active implementation of information and communication technologies at the beginning of 19992000, which supports the presence
of global growth operators in the mid-2000s years .
In turn, the regional phase of the consolidation (e.g. in the U.S. market for
mobile and broadband sector in Europe) led to a second peak of activity agreements mergers and acquisitions from 2005 to decline in 2007. The sharp decrease of the agreements after this period is related to the financial crisis, which
had negative consequences in Ukraine, despite the fact that the field of telecommunications, as a rule, provided relatively stable sector, towards the long term
(Lemaire 2012).
During this period, large European operators increased their exposure to
emerging markets, with Africa outperforming developing Asia as a target market
for footprint growth (see Figure 2).
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Victor Koval

Figure 2 Telecom deal volumes/deal values in EMEA 20082011

i>>iL 1,

i>i

n n      

Source: MergerMarket, Thomson Reuters.

In Europe, the ten largest transactions with value of more than 1 billion
occurred in telecommunications markets in developing and transition countries,
as the European Union (Poland) and the CIS (Russia, Ukraine).
According to studies of Thomsonreuters.com and Mergers.ru, due to the
crisis the market for M & A in Ukraine (and the world) decreased significantly,
but the volume of mergers and acquisitions in the telecommunications industry,
from 2010, showed a positive trend (see Table 2).
As the share of fixed-line services in the total revenue from the provision of
telecommunications services in Ukraine continues to fall, and data transmission
services are gaining more and more important position in the market, the largest
M & A agreements in recent years have been associated with the convergence of
asset broadband and mobile services.
Leader in telecommunications M & A remains Kyivstar, when the merger
took place with Vimpelkom Ltd. (Russia) in the amount of $ 5.6 billion in 2010,
also Ukrtelecom in connection with the sale of assets Epc nvest Telecom Ltd.
(Cyprus) in the amount of $ 1.32 billion, and in 2003 completed an agreement
of 100% accumulation shares Ukrainian Mobile Communication (trade mark
UMC) in the amount of more than $ 350 million (SV-Consulting 2012).
Besides that, the activity in mergers and acquisitions in the telecommunications sector related to the fact that small regional telecommunications company,
as a rule, first increase due to the consolidation of its position, and then themselves melts objects absorb large telecommunications operators, mainly in the
segment online services.
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Integration Processes in the Telecommunication Sector in Europe

Table 2 The largest M&A agreements in the telecommunications sector

of Ukraine
Year
2008

2009

Merger

Deal value (US$ mil.)

TopNET/Miirolink.net

0,78

Ucomline Holding/Farlep

5,00

DataGroup/Home-net

1,35

MTS/Comstar-Ukraine

4,15

2010

Vimpelcom/Kyivstar

5600,00

2011

Epic Telecom/UkrTelecom

1321,80

Source: MergerMarket, Thomson Reuters.

It is important to note that during the period 20082011 in the structure of

M & A agreements in the telecommunications market, the largest share purchase
of domestic assets by foreign companies, in particular, 100% of Ukrtelecom.
Stimulus mergers and acquisitions in the domestic telecommunications
market are not only the demands of consumers, which are rapidly changing, and
the search operators opportunities for value-added, and the trend of globalization and the world of technology.
Evaluating the cost-effectiveness of the integration of telecommunications
operators in the first place, was designed to reduce the potential costs of infrastructure maintenance, since the board as hardware and platforms can be significantly reduced if the harmonization of requirements for procurement in the new
company, according to the compatibility of various network components.
Further development of the M & A effort to consolidate regional telecommunications assets related to the provision of broadband access to the Internet
- Internet service providers large telecommunications operators, as the latter will
focus on retaining customers and improving the quality of the subscriber base
with the slow pace of the races. Therefore, the tendency to market consolidation
caused enlargement of telecommunications operators in the domestic market through mergers and acquisitions involving companies with a lack of efficiency and
the ability to obtain a synergistic effect.
3. Prospects for integration of the telecommunications operators in strategic alliances
The degree of integration of the enterprises in the telecommunications markets of Western Europe is high, but in Ukraine intensification of integration processes seen in the fastest growing segments of the telecommunications market
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the sector of mobile services, which is caused by increasing the monopoly of

the leading telecom operators.
Since the organizational structure of the majority of domestic corporations
built and implemented over the holding type, then in the post-industrial economy, they are less adapted to the effective operation and development of the competitiveness of individual elements of corporations and corporations in general,
which, in turn, requires more flexibility from large enterprises (Tretyakov 2008;
Rejman 2006). Thus, the active formation of integrated corporate structures to
networked forms of consolidation of telecom business is an important and promising direction in the development of Ukrainian economy.
Forms of integration of business structure, based on the networking of participants in the process of combining the specific interests and resources in creation of value, have confirmed their advantage over the forms of integration, based
on mergers and acquisitions, with the size presets and direct transaction costs,
less investment in the implementation of the value chains (Tretyakov 2008).
Review of methodological features and basis for the formation of network
integrated structures suggests that in infocommunications of Ukraines rejection
of an integration strategy based on M & A in favor of a flexible network forms
the structural organization of business strategic alliances, the most responsible dynamic effects of changes of the telecommunications operators in the world
(SV-Consulting 2012; Tretyakov 2008). Telecommunications markets, characterized by some special needs associated with the formation of strategic alliances.
Strategic alliances is a universal flexible form associations of market participants, which easily transforms networks.
Patterns of development of strategic alliances in Western Europe, which
lead to the following conclusions:
1. The opening of national telecommunications markets for the other
parties and the emergence of foreign ownership has led to a noticeable
decrease in the prices of telecommunications services and a better quality of services in this area.
2. The emergence of foreign ownership has increased the level of investment in the national telecommunications sectors.
3. Privatization and separation of regulatory and supervisory tasks have
been an effective solution to the policy the EU telecommunications
markets, thereby creating a transnational strategic alliances and reduce
prices for services.
4. Regulation at all national telecom markets of the EU countries was
a decisive step in preventing abuse telecommunications holding
a monopoly on pricing for the services.
The emergence of new telecommunications companies, including those created in the form of alliances with foreign partners due to the technological deve136

Integration Processes in the Telecommunication Sector in Europe

lopment and modernization of the telecommunications industry in Ukraine. It

provided the Ukrainian companies in the new economy, more direct investment
and trade credits for the purchase of new equipment.
Formation of network structures in areas of the world economy in recent
years, determined by the characteristics of investment projects and finding areas
increased competitiveness on the one hand, and farm output interactions outside
the enterprise within the emerging organizational forms of management in the
process of inter-firm cooperation on the other.
During the organizational forms of network increases the need for capital investment to strengthen integration interaction of market participants in
a dynamic market growth infocommunication largely due to intense internationalization and investment and technological activity in sectors of national
economy. According to statistics (Ukraine in Figures 2011), investment in 2011,
the economy of Ukraine amounted to $32.3 bln., including foreign companies
invested $6.5 billion. Results of survey of world investment prospects, according
to figures developed by UNCTAD (Conference on Trade and Development) index
attracting foreign investments have shown to improve Ukraines rating of 54
seats in 2006, 47 in 2008 to 38th in 2010, with 141 countries (UNCTAD 2011).
According to estimates by UNCTAD (2011), over the next three years to
continue the high level of funding from various multinational companies in the
services sector under the influence of the investment climate. Therefore, the
investment for sustainable development of the national information and communication industry due to increased capital investment by foreign investors.
The development of network forms involves the formation of two models
of the relationship between market participants. The first model network
structure with guiding core (parent companys dominant position in relation to
the others), which operates under one brand. This pattern of relations aimed at
interaction partners that are characterized by high flexibility and high potential
to adapt to changing conditions.
The second model is the network structure without steering kernel is a set of
businesses, interoperable and independent in legal terms, the interaction which
increases the resistance of each other in the network (Franke 2002).
Structural interaction in the system of economic integration leads to increasing the competitiveness of individual companies and the network structure as
a whole, creating an incentive to form a unified system of operation depending on
the strategic goal of entity combinations
Forming and joining organizations in a single network encourages mutual
growth in both models presented above basic network shapes, however, initially
depends on the business strategy and the degree of its integration of information
and communication on the market according to a expansion of a horizontal type,
vertical or mixed integration (see Figure 3).
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Figure 3 The degree of integration association members telecommunications market of Ukraine

The degree of integration operators
The strategic goal

Horizontal
integration

Vertical Integration

Joint integration

Market consolidation

Derivation of new services

Standardization and coordination of business processes

Entering new segments of the

industry

Subjects integration

Company
initiator

Joint-stock company
Top Net

Joint-stock company MTS-Ukraine

Joint-stock company Kyivstar

Property
acquisitions

Joint-stock company
Mirolink.net

Joint-stock company ComstarUkraine

Joint-stock company BeelineUkraine

Source: Own construction (2012).

Among the most commonly used forms of cooperation can be identified to

create new joint ventures, strategic alliances, mergers and acquisitions, as well
as participation in investment companies and funds in the privatization of state
enterprises due to the voucher auctions and purchase of shares of privatized enterprises on the stock market.
Strategic alliances are one of the best varieties in the world economy combined to meet the needs of the market and successfully compete in a globalized
modern world economy. However, the increasing dynamism and complexity of
the national telecommunications market with a permanent reduction in life-cycle
services, frequent technological change and increased competition over time will
assist telecommunications operators to a more flexible and adaptive network
organization, but the desire for control over the market will keep the strategy of
mergers and acquisitions as a way to eliminate competitors in the market.
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Integration Processes in the Telecommunication Sector in Europe

Conclusion
The telecommunications sector of the world economy in the last decade
will sit a special place in the modern market economy, which is due to the large
average annual growth rate of consumers of telecommunications services and
a corresponding increase in demand, with the account of technological advances telecommunications. In turn, the emergence of modern technologies of multi-service networks based on packet-switched services, and providing access to
them, with the gradual integration of telecommunications operators with other
multimedia areas, the transition to market economy mechanisms of managing
a significant effect on its dynamics and structure.
Technological changes in recent years in the telecommunications field in
the direction of an increase in supply at least meet the rapid growth in demand
for innovative services. In addition, the market itself has contributed to various
technological transformations, not only related to the increase in traffic (increase
MOU - the number of minutes for voice transmission), but also with his character
and the dominant role of the service as an integrated service, which meets the
requirements of consumers and led to important changes in the management
structure of the industry.
To increase the resistance of the competition, telecommunications operators are adapting control system consumption of services by expanding their
range in order to increase value in products. Increasing importance of customer
value for the user assumes the formation offers bundled services that generate
new cash flow and increase profitability by reducing costs. However, a limited
investment terms of development of the network infrastructure, telecom operators have policies acquisitions or entry into alliances with those operators that
have existing infrastructure.
Essential characteristic of strategic alliances, as opposed to other forms of
cooperation, reflecting the values of the growing influence of personalization
interests and values customer satisfaction on consumer services.

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Integration Processes in the Telecommunication Sector in Europe

Abstrakt:
Integran procesy v evropskm telekomunikanm sektoru
Integran procesy ve svtov ekonomice postupuj velmi dynamicky. Zrove zde probhaj hlubok strukturln zmny, vetn telekomunikanho sektoru v rmci slueb. Na konci
20. stolet se prohloubily integran procesy v tomto sektoru i v Evrop, co mlo pozitivn
dopad na konkurenceschopnost evropskch zem. Mezi hlavn nstroje integrace pat rozvoj
podnikatelskch st mezi spolenostmi z rznch zem. Teritoriln expanze evropskch telekomunikanch opertor na trhy Spoleenstv nezvislch stt, zejmna do Ukrajiny, pak
napomh rozvoji mezinrodnch strategickch alianc a dlouhodobch forem prmyslov
spoluprce v rmci joint venture se svtovmi ldry o oblasti informanch a telekomunikanch technologi.
Klov slova:
Integran procesy, trhy, ekonomika, telekomunikace, sluby

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