Highway to the prospect

By offering a unique service on the market and by entering into other related markets, the group of companies Volia met the key condition of successful investing.

Vadim Koshy, Natalia Zyabreva, Natalia Vlasuk

After heavy capital investments into the Ukrainian telecommunication business, the foreign investor decided not to limit itself only to development of cable networks. Investments were also made into projects in various other areas of business activity. After all, the investment project only benefited from that: it reduced the risks and created the basis for further development.

From the beginning of the 1990-ies, the state gradually lost interest in cable TV market. Even in Kiev, only several private cable operators were active, the largest ones being InterVideoKiev (IVK) and Kievtelemontazh (KTM). Still, they served only several regions of Kiev. Even these two quite large cable operators could not create a policy of active market expansion and use modern telecommunication technologies everywhere. Their growth was limited by lack of investments, and reinvested profits and banking credits were not sufficient for such strategic operations (although, despite everything, as a result of utilizing new technologies, the companies started creating the first broadband cable networks). Cable TV market was in extreme need of strategic investors.

Cable Business

Volia entered this market in 2000, after the Ukrainian Growth Funds (UGF), a family of international investment funds managed by international investment company SigmaBleyzer, invested more then $30 million in its development. As a result of investment activity (in addition to investments, the company bought corporate rights of IVK and KTM) and implementation of high technologies, Volia soon became the leader of the market. However, despite the fact that more than half of all investments were made in “cable”, the investor decided not to limit itself to cable business only. So, since Volia had TV channels (belonging to IVK and KTM), the investor made a decision to develop TV business and related businesses. That is why today Volia has two groups of strategic interests, represented on the market by Volia itself (cable business) and Volia Media (production of TV and radio programs, publishing, and producer activities).

Thereby, the investor met the main condition of successful investing by offering a unique service (which is impossible to repeat without large investments) and diversified investment risks (balancing its business by entering into different, though related, markets).

City in the Nets

As a result of active investment and innovation policy (digital TV services is provided by Volia only), the new player immediately became the leader of the market. “Though we still have competitors in the segment of analog TV, we are indisputable leaders in the segment of high-speed cable Internet. And we are the only operator in the segment of digital TV (in this area, Volia leaves behind even Moskov)”, - noted Pavel Kurmachev, technical director of Volia, in his interview with “Comp&nion”. According to Sergey Boiko, the president of the company, more than half of all investments were made into reconstruction and modernization of main and users cable networks in Kiev, construction of optical fiber network, and purchase of the necessary equipment and software.

The difference between the opportunities of old operators and Volia was obvious. “Before IVK and KTM”, - Pavel Kurmachev notes, - “a subscriber could receive no more than four programs. When these cable operators appeared, the number of programs increased (first to 7, then to 11, and later to over 18–20). And by Volia’s wideband network subscribers can receive more than 30 programs”. According to Kurmachev, modernization of old cable network and creating own optical fiber network allowed the company to improve the quality of image and reliability of communication lines, and digital TV essentially widens the variety of services, including old narrow-band networks.

Today, Volia is the largest cable operator in Kiev. It includes a number of legal entities: Volia Cable, Volia ISP, IVK, Volia Cable Service, and Kiev Telecommunication Networks (KTM). As a result of this expansion, an integral cable network was created, covering more than 90% of all the city network (800,000 homes in Kiev). Today, Volia analog TV service is provided over 500,000 subscribers. For the first time in the CIS and Eastern Europe digital transmission of TV signal was used (“Volia Premium TV” trademark), which allows to relay about 20 best Russian and international channels in digital format (these are NTV International, Discovery, Animal Planet, Extreme Sports, Euronews, Eurosport, etc.). And providing Internet access by cable TV networks (“Volia Broadband” trademark) is a real alternative to Internet by dedicated line or dial-up access.

For last two years, Volia has constantly been expanding its network. In 2000–2001, the company’s income was growing (by approximately 10% per year) exactly because of construction of new lines and finding new subscribers. If at the beginning of the year the number of subscribers was 467,000, now it is more than 520,000. Particularly active work is carried out in the newer regions of Kiev, where the infrastructure is still incipient. The management of the company is also considering opportunities in other regions of Ukraine. Volia created several affiliate cable companies in Alchevsk, Lviv, and Chernivtsi. Still, the company management believes  that financial flows should be increased not only by broadening the subscriber base, but also by providing new services.

The Child of Creative Thinking

Volia Media is the product of creative initiative. In fact, the company appeared when several creative people, who were tired of trite TV products of the existent on-air, satellite, and cable TV companies, offered a foreign investor not to stick only to investing in construction of cable networks, new equipment, and software. The idea was quite simple – to invest in cable content, i.e. in TV programs, especially since Volia had both cable operators and its channels. Then, there were other offers like to create new radio programs, to publish a magazine, etc. As a result, after investing $400,000 in hardware (the total amount of investments in media was about $1.5 million) a little more then a year ago, Volia Media was created.

Today, it is a fast-growth producer of entertainment, musical, and intellectual production. In a year, the company reached a break-even point. In three years, it plans to gain 40% of the TV advertising market. Today, there are four business lines in its structure.

Publishing: Volia Publishing issues two magazines: “E-mobile” (designed primarily for owners of cell phones) and “E” (analytical edition on high-tech and management technologies).

TV: Volia Media includes Kievtelemontazh and IVK TV companies, producing and broadcasting TV programs by Kiev cable network. These channels used to perform only supporting functions. Today they operate as full-value TV channels. The first is oriented towards the young (under 30), the second is a movie channel.

According to Sergey Belous, the specialization of these channels is a competitive advantage of Volia Media. “We leave behind all city channels, – he said, – with the exception of national and so-called network channels. The first are Inter, Noviy Canal, STB, ICTV; but IVK and KTM take the fifth and the sixth place.” It is a very good result for channels, which changed their owner less than a year and a half ago. Judging by our income, we cover about 20% of Kiev TV market.

Music (Volia Music): This business line produces and sells CDs and tape cassettes of national and foreign music bands: it also works as a producer of music bands. At that, all author's rights are observed. Author’s assessments are paid to the State Agency for Author’s and Related Rights for every musical clip or record.

Radio (Volia Radio): Today, this business line is at the initial stage of development. For now, Vola Radio only won the competition of the National Committee of TV and Radio Broadcasting and obtained a state license for broadcasting (i.e. got a radio frequency). But as the results of the competition were contested by the company that held this radio frequency before, the process of market entry was interrupted. Still, today Volia Radio already produces various programs for other radio stations. One of its first and successful projects was creation of programs for children, which have already been requested by customers.

Comp&nion’s Reference:
Volia’s monthly revenue is $1.8–$2 million, that Volia Media is about UAH 350,000. In 2001, company paid about UAH 800,000 of income tax and more than UAH 2.0 million of VAT.