Subscriber data for Russian mobile operators is compiled by Advanced Communications and Media, a management consulting and research agency specializing in telecommunications and media. You can view their Q1 2013 subscriber report here.

¹ MTS owns a 49% stake in Mobile TeleSystems LLC, a mobile operator in Belarus, which is not consolidated.

Last month, I had the opportunity to speak in New York City at The Harriman Institute at Columbia University and at the Thunderbird School of Global Management in Glendale, Arizona. During both presentations, I addressed the prospects of investing in Russia and how the use of telecommunications is rapidly growing in the country. Both audiences were fantastic, and I had a wonderful time getting to know those in attendance. I appreciated their hospitality and hope to present again at the schools.

 Below, you can find a link to my presentation as well as to the video from the Thunderbird event.

Last week, I had the opportunity to attend and speak at the prestigious AllThingsD: Dive Into Mobile conference. The conference examined a number of global trends in the mobile space that are shaping our industry, such as services and technology, mobile advertising platforms, growth in Android devices and Facebook’s new Home.   The discussions were driven by leaders in the industry, and I wanted to share some of the key highlights and trends discussed at the forum.

The conference kicked off with outgoing Mozilla CEO Gary Kovacs discussing the soon-to-be released FireFox OS. Mr. Kovacs addressed how the mobile web - including HTML5 and JavaScript enhancements - has matured over the past few years, allowing developers and companies to expand and enhance the mobile OS space. Kovacs says that the time is right for more options in the mobile space, whereas in the past, the technology and APIs weren’t advanced enough to provide end-users with the best experiences.

Later in the day, we heard from two non-US companies, Xiaomi and Movile. Xiaomi is one of the fastest growing handset makers in China, selling over 7.19 million devices in 2012 and expecting that number to double in 2013. Bin Lin, co-founder and president of Xiaomi, laid out his vision stating, “We believe the future of the mobile Internet is really about services.” MTS has long imported branded low-cost handsets from China, and in addition to higher-priced offerings from Samsung, HTC and others, we offer a wide range of options to suit most budgets, as smartphone sales will increasingly drive further data penetration.  CEO and founder of Movile, Brazil’s largest mobile services company, Fabricio Bloisi Rocah, echoed the sentiments of Lin and Kovacs on services and technology. The two big trends Rocah sees are Wi-Fi penetration in Latin America and HTML5’s continued growth. Likewise, MTS believes that a total data offering to our customers will increase the opportunity to offer better services for customers.

An interesting area of discussion centered around Google’s Jason Spero and Millennial Media’s Mollie Spilman, as they examined the mobile advertising space. While still in it’s early stages, mobile advertising is steadily developing into a real ecosystem and platform. Continued enhancements to location and tracking offer this space a bright future.

On the second day of the conference, Google’s Eric Schmidt was the highlight of the event, as he spoke on Android’s growth and success, his upcoming book The New Digital Age, and the recent launch of Facebook Home for Android. Speaking of Home, Facebook CTO Mike Schroepfer opened up about Home’s development. Schroepfer shared that Facebook had originally developed Home three different ways: its current “skinned” Android form, a standalone app, and Facebook’s own forked version of Android.

During the afternoon session, I joined Carlos Domingo of Telefonica as we spoke to Ina Fried, senior editor of AllThingsD, about the Russian and Latin America mobile markets. Carlos and I dove into handsets, operating systems, and whether carries are just “dumb pipes.” 

Carlos Domingo (left) and Michael Hecker, photo by AllThingsD.com

Going into the conference, most people in the audience didn’t know much about the telecommunication world outside of the US. This gave Carlos and I the opportunity to act as ambassadors for our respective regions and educate the audience. When asked about handsets, I explained that Russia acts like both a developed and developing nations, with higher penetration of smart phones in places like Moscow and largest cities and feature phone in other areas of the country.

There is also a negative connotation in the US that carries are nothing more than dumb pipes. However, we don’t necessarily see this as a negative. We are happy with being “pipe” as long as this “pipe” generates significant profits which MTS can invest in other areas driving growth, like M2M, cloud and financial services.

Opportunities for operators in financial services has become a hot topic in the emerging “unbanked markets” with low penetration of credit products - from Kenya to Latin America to Russia, but this concept is relatively unknown in the West. Using as an example MTS’s recent acquisition of a 25% stake in MTS Bank, I explained to Ms. Fried and the audience how operators can leverage their brands, their retail networks and subscriber’s data and payment history to bring compelling offerings to the market. We believe that the relationship we have with our subscribers enables us to offer them products beyond traditional mobile communications, like payments and other financial services. 

Alexey Kornya, MTS Vice President and Chief Financial Officer, spoke with Gregg Greenberg from TheStreet.com about MTS expansion into financial services, the competitive environment in Russia and the strength of the Russian consumer. Click here to watch the video. 

In November 2012, MTS and Microsoft announced a strategic initiative to promote innovative mobile solutions by launching Windows 8 “Ecosystem Demo Zones” in MTS retail stores. Today, the two companies unveiled the first results of this partnership at a press-event at the Mobile World Congress in Barcelona.

In November-December 2012, 20 Windows 8 “Demo Zones” were opened in the MTS retail stores in Moscow, St. Petersburg and Yekaterinburg. In these zones, customers can test and buy Windows 8 smartphones, notebooks and tablets, as well as experience how Windows cloud solutions work. Windows 8 devices come bundled with MTS data tariff plans. Since the launch of this project, sales of Windows Phones in the shops with dedicated zones increased 2.5 times, and sales of Windows-enabled  tablets rose 30%. Windows Phone smartphones already account for 20-25% smartphones sold in these shops.

The partnership with MTS has enabled Microsoft to grow Windows Phone sales in Russia. At the end of 2011, MTS was one of the first retail chains to launch Windows Phone 7 devices. At the end of Q4 2012, the share of Windows Phone in the MTS retail network’s smartphone sales reached 5.9%, which translates into three-fold increase in 2012.  According to the IDC, data presented in Barcelona, in Q4 2012 Windows Phone overtook iOS and became the third most-popular OS for mobile devices in the Russian market with a market share of 7%.

Strong sales of Windows Phone devices also contributed to the rising penetration of smartphones on the MTS network. Today more than 23% of devices on the MTS network are smartphones compared to just 9.3% two years earlier. MTS expects the penetration of smartphones to triple in 2013-2015 driven by the availability of more affordable handsets and increased usage of credit products, as well as greater customer awareness. Our customer survey conducted in Fall 2012 showed that 68% of Russians think that smartphone is too complicated to use; this sentiment is the greatest barrier keeping them from getting one. Partnerships with Microsoft helps us to offset these attitudes and educate customers to drive consumption of data and content products.

MTS President and CEO Andrei Dubovskov and Microsoft CEO Steve Balmer opening the first Windows 8 "Ecosytem Demo Zone" in a MTS store in Moscow on November 06, 2012.

I recently spoke on a panel at Northwestern University’s Kellogg School of Management’s Marketing Conference. True to the panel’s theme, “The New Golden Age: Informed, Engaged and On-the-Go,” the debate was lively, but there was not much disagreement; advanced research techniques are rapidly becoming the newest competitive cudgel for products and services.  Analytics simply represents both the biggest opportunity and the biggest threat to marketers in 2013.

One of the many highlights of the conference was Nike’s Davide Grasso opening the day’s program with a keynote discussing Nike’s marketing philosophy and its 2012 release of the FuelBand, a device that tracks one’s daily activity. Grasso shared how the product’s debut aligned with the key elements of Nike’s brand and strategy development: relevance, consistency and impact. In addition to creating a new product category, the product propelled Nike’s brand strength and doubled the size of its increasingly critical digital community.

Ken Dickman of Accenture emphasized that marketers must become literate in analytics and learn how to extract insights from big data to secure a competitive advantage.  This discussion allowed me to speak on our Red Quest  marketing campaign, which has greatly broadened how we define and influence the buying habits of millions of Russians (you may recall our tie-in to Transformers 3!).

I explained how our data revealed that consumers stick more to what they have experienced than to what they just purchased, which is why we spend so much of our R&D time on creating positive experiences for customers.  Nearly every two weeks, our teams are deploying new marketing concepts to stay ahead of our competitors and our customers’ increasing levels of sophistication.  

All of the panelists agreed that the importance of truly understanding your customers is critical to designing programs that are appropriately targeted to entice consumers and be effective to achieving a company’s goals.

Here is a link to the RedQuest video and more information on the The Kellogg Marketing Conference 2013.

You can watch a video from the conference below.

By Vasyl Latsanych, Vice President of Marketing, MTS

Alexander Popovskiy, MTS Vice-President and Chief Operating Officer, spoke with Ksenia Semeko from Standard magazine. The interview is published in February issue of the magazine dedicated to the Mobile World Congress 2013. 

You can download the article below courtesy of Comnews Publishing Group. 

MWC.pdf (538.40 kb)

With great excitement we watching recent developments in the regulation of the Russian capital markets aimed at making Russia more attractive a destination for foreign investors. 

On February 07, 2013, the international clearing system Euroclear Bank started direct settlement of Russian ruble-denominated government debt (OFZ). This long-expected move opens OFZ market to foreign investors. It has become possible after creation of the central securities depository – the National Settlement Depository (NSD) - and the creation of a direct link between the NSD and Euroclear Bank. Initially, Euroclear will be operating in OTC mode. Full-scale operations, including exchange-traded transactions, are expected to commence in March 2013 upon the establishment of a bridge with the Moscow Interbank and Currency Exchange (MICEX), Russia’s leading trading platform. The Euroclear Bank/NSD link will also enable clients of each depository to settle cross-border transactions easily.

As a Barclays analysts pointed out in a recent note, foreign presence in the Russian government debt market currently stands at 14% - which is relatively low compared to 25-30% in other emerging markets. In 2013-2015, Barclays expects inflow of foreign investments in OFZ triggered by Euroclearability to increase up to $25-40 billion from just $9 billion in 2012.

According to the comments made by Chairman of Euroclear Bank Frederic Hannequart upon the launch of OFZ settlement, Russia’s corporate and municipal debt might become eligible for settlement within a month.

On February 13, 2013, Clearstream, another leading international securities depository, announced plans to open direct settlement link to the Russian market following the opening of a main account at the NSD in February 2013.

The next logical step would be enabling international securities depositories to settle trades with the Russian equities. A number of encouraging comments in this regard were made by senior Russian officials last week.

According to the Deputy Head of the Federal Service for Financial Markets (FSFM) Yelena Kuritsyna, the Ministry of Finance and the FSFM are discussing aligning the date when equities become eligible for Euroclearability with the date when the limit for international circulation of Russian shares is cancelled. Current regulations limit depositary receipts conversions to 25% of a Russian company’s shares and 50% of their listed stock. In 2011, President Dmitry Medvedev signed a decree to lift curbs on Russian company’s shares abroad. According to the Deputy Head of the FSFM, both changes in the regulation are slated for July 01, 2014. However, Minister of Finance Anton Siluanov said last week that “in his personal opinion” access to Russian local equities for Euroclear/Clearstream will be open even earlier - from January 01, 2014

Overall, recent developments showcase a great deal of progress towards the alignment of the regulation of financial markets in Russia with international standards. With the modernization of capital markets’ infrastructure being high on government’s agenda, Russia’s equity and debt markets are likely to benefit from an inflow of foreign investments.  In turn, this can also stimulate much-need domestic investment through both liberalization of current regulations and the increased attractiveness of Russian capital markets.

Today we are issuing a report on mobile retail in Russia during Q4 2012, based on the estimates from our mobile retail network. 

Highlights from the report:
-  During Q4 2012, the number of phones sold in Russia decreased by 2% compared to Q4 2011 with around 11.7 mln devices sold
-  During Q4 2012, the mobile handset market in Russia expanded by 18% in sales compared to Q4 2011 to reach RUB 64 bln 

-  The average price of mobile phones during Q4 2012 increased by 20% compared to Q4 2011

-  At the end of Q4 2012, MTS retail network comprised 4,462 stores, including 1,573 franchised outlets. 

Please download the complete report here

Retail Report Q4 2012.pdf (563.79 kb)

Last week Sberbank CIB launched "Ivanov Consumer Confidence Tracker" with an aim to establish and track trends in confidence, spending patterns and savings habits among Russian consumers. The research focuses on consumption patterns of the Russian middle class, whom the report dubs The Ivanovs.

Key findings of the report include:

-     While 2012 was challenging in terms of personal income and concerns over the direction of the Russian economy, most consumers are now more optimistic and expect an improvement in their personal situation in 2013

-     While optimistic, the majority of consumers is still not yet confident enough to make major purchases. Most people are holding back from big-ticket purchases while waiting for further evidence of better economic growth.

Sberbank-CIB analysts have collected strong evidence of the growing economic power of the Russian middle class:

-     Based on the OECD definitions, 55% of Russian households can be considered ‘middle class’ compared to 30% in Brazil, 21% in China and 11% in India. Wealthy households are also more numerous with 15% of Russian households boasting annual income above $50,000 compared to 5% in Brazil, 2% in China and 1% in India.

-     On a forecast GDP per capita in Russia of just over $16,000 at the end of 2013, Sberbank-CIB estimates that it will take more than a decade for other emerging markets to reach this figure: 25 years for India, 20 years for China, 17 years for South Africa and 11 years for Brazil.

-     Russia is the world’s fifth biggest consumer market, by spending volume and is set to overtake Germany as Europe’s biggest market and the world’s fourth largest consumer market by 2020.

-     Since 2000 retail spending has grown at Compound Annual Growth Rate of 20% and, in 2012, totaled just under $700 bln. More than half of that total is non-food related.

We list below some of the report findings relevant to MTS. A full report is available for Sberbank-CIB clients only. 

The Ivanovs display high brand loyalty to telecommunication providers. Only 6% of respondents want to switch to another mobile operator. The data suggest that churn rate in this social strata is not likely to increase significantly when mobile number portability is introduced in December 2013.

The report also presents evidence of very low debt leverage of the middle class as only 17% of respondents spend more than 20% of income on debt servicing, while 61% spend zero. This implies a strong potential for development of financial services among the middle class. The survey also looked into the ways consumers communicate with the banks and highlights "bank branches" as a primary way of contact with credit organizations. Mobile banking penetration is relatively low and is likely to grow in prominence going forward.