Vasyl Latsanych, MTS Vice President for Marketing, spoke with RBC Daily. See some of the highlights from the interview below. Click here to read the full article in Russian.
SIM cards sales. In the past in order to realize strong growth, operators simply needed to boost sales of SIMs. Today, with market penetration exceeding 150%, this model embraced by mobile operators no longer works. The high turnover of short-lived SIMs results in enormous dealer commissions. As dealers were interested in generating subscriber additions, this resulted in high churn rate. Around 70% of new SIM card sales are effectively subscribers of the same operators that were sold new SIMs with a new tariff plan. Revenues from such “new” subscribers are short-lived; effectively operators were reducing OIBDA to boost topline. This is merely a stimulation of expansion, not real growth. Hence, our decision to reduce new additions. As a result, in Q3 2011 we witnessed a year-over-year reduction of churn rate by 1.6 percentage points.
Our key objective is to ensure quality additions. Back in 2011 we abandoned the practice of paying fixed-bonuses to the regional dealers, shifting to a revenue-sharing basis. In 2012, we renegotiated agreements with all of the dealers, including Svyaznoy and Euroset, on the basis of revenue-sharing. This enabled us to eliminate fraud in SIM card sales and motivate dealers to attract quality subscribers. We are confident that by reducing turnover of low-quality subscribers, we will grow the bottom line. We consider greater penetration of smartphones as a real opportunity to increase ARPU. We are focusing on smartphones sales as we see from our experience that a subscriber who has bought a smartphone will spend 30% more as they will increase their consumption of data products. In addition to greater spending on data, we are also seeing greater spending on voice after switching to smartphones.
Data revenues. Focus on data generation is yet another way of increasing profitability. MTS has invested hundreds of millions of dollars in deployment of 3G networks – and covering nearly all of Russia at this point. However, the load on the networks is still quite low. This allows us to promote data services as our core business. That said, the growth of data revenues is limited as subscribers are not willing at this time to spend a lot on mobile internet – monthly data tariffs plans vary depending on speed from 200 rubles to 500 rubles. This is not a lot of money given that penetration of mobile internet is still low. To make a long story short, increasing efficiency of the business and building new drivers of growth is a long and tedious process which may result temporarily in a slower pace of growth, but in the long run it will create real value for the business.
Fixed-line business. In our fixed-line business we are focused on building networks and creating platforms for future growth. We have invested millions of dollars in upgrading our broadband network from which we see returns starting in 2013. By that time we will have deployed digital TV networks and will be able to offer our clients enhanced channel packages. Television in Russia is still very cheap and the prices are unlikely to go up. Still, on the basis of social package, we can create premium packages and offer our subscribers content that is in demand – sports, movies, and television series.
Roaming. Before the New Year holidays we launched an offering that allows subscribers to cut costs on international roaming. During the holidays we saw the number of roamers go up by 20% when compared to last year with voice traffic in roaming increasing on average by 40%. Users stopped switching off phones when going abroad, they no longer fear to take incoming calls, the length of the calls is going up, but APPM is decreasing. That’s exactly what we expected – to grow consumption of roaming services through more affordable pricing.
LTE. We don’t expect LTE to evolve into a mass market offering earlier than 2014-2015 for several reasons, one of which is the pace of development of end-user equipment. I can assure you that we are ready to switch on LTE network in Moscow in a week. But in the best case scenario LTE network will only start to generate stable returns in six months, probably even later. Moscow is far ahead of other regions in terms of demand for LTE service. In order to ensure LTE speeds available in laboratories, one needs to have a network with fiber backhaul networks. MTS has a competitive advantage in this respect, as our subsidiary, MGTS, is deploying a unique fully fiber - or GPON - network in Moscow- with total investments around 50 billion rubles - which will enable us to support quick mobile internet in 3G as well as LTE networks.
Retail. We are looking at the development of the retail chain as a part of the Group. Our retail subsidiary - RTK - has had two years of strong growth. During that period RTK has established itself as a major retailer, built a solid customer base and brought retail business to a break-even-level. In H2 2011 we adjusted our strategy and focused on sales of MTS services which was reflected in the change of KPIs for the management and in the incentive program for the retail division employees. This approach has resulted in declining RTK’s share in mobile retail market and lowering the sales of handsets. However, during the same period we increased the share of smartphones in the sales mix, which has enabled MTS to grow its number of mobile Internet users. Going forward, this will enable us to boost data traffic and grow ARPU.