Business Overview

Mobile Business

Russia

In order to increase the marketing strategy efficiency, the data plans proposed are targeted at different consumer segments. Voice & Data package offers are the core of our data plan range: data plans of the Smart range. These data plans are focused on the rapidly growing segment of smartphone users and aimed at ARPU stabilisation, consumption growth and increased customer loyalty. For a particular subscriber fee, a data plan includes packages of minutes, SMS and Internet traffic. Cancelation of surcharges for intra-network roaming (roaming in trips to Russia) allowed forming a bright differentiator of this range. The launch of Smart Nonstop data plan focused on the younger audience became a significant event.

“In 2015, MTS Group demonstrated significant growth due to the successful implementation of 3D strategy. The annual revenue addition of 5% was higher than the original forecasts and the pace of our competitors. This result is particularly important for us in a situation of an economic crisis proving that we can show growth in terms of a general economy decline. This growth was based on further development of mobile Internet and subscriber base in the key markets of our operation, as well as the share increase in the broadband access and pay-TV markets for private customers in Moscow.”

Vasyl Latsanych, Vice President, Marketing, Member of the Management Board

A distinctive feature of any data plan aimed at communication is free calls within the network. MTS has been focusing on promoting package data plans since 2011, which led to a change in the subscriber profile and traffic patterns (more than 80% of traffic is now closed within the network), which allowed to significantly increase the average consumption of minutes and the loyalty of our subscriber base. We go on offering data plans with no subscriber fees for the customers using feature phones.

The third group of data plans contains the rates targeted exclusively at the users of mobile Internet services. We offer rates for the users of modems and tablets within this group. The data plan for tablet users includes unlimited access to MTS Mobile TV, which is also a significant differentiator for the subscribers. This service is used by more than 40% of the subscribers of this data plan.

Despite the reduction in the number of trips abroad, MTS continues to offer attractive rates for our customers to communicate in international roaming. Today, we offer our customers a variety of options to the basic data plan in order to significantly optimise the costs of voice roaming by free incoming calls. By the end of 2015, a significant portion of the international roaming traffic accounted for the customers using the option “Zero without borders.” For mobile Internet users who continue to enjoy the usual services when travelling, we offer the updated “BIT abroad” option with daily traffic package increased to 30 MB allowing to significantly optimise expenses for mobile Internet while roaming.

Retail Distribution

Sales Channels

The main share of connections carried out by MTS subscribers being more than 60% is taken by selling via our own mono-brand retail network actively constructed in Russia in 2009-2010. Our own sales channel allows increasing the number of connections by monitoring their quality and reducing the level of subscriber churn.

The volumes of MTS connections in Russia decreased slightly due to the suspension of cooperation with the Svyaznoy retail chain, but the development of our own retail and alternative sales channels (regional dealers) helped to compensate for this loss. MTS became the largest non-food retail network in Russia and the number of showrooms exceeded 5,000.

The distribution channel presence geography was expanded and the number of points increased by 25% over the year.

The main priorities of the retail network operation in 2015 were as follows:

  • Increased sales of V&D and other data rates
  • Increased sales of data-generating devices
  • Increased sales of data products in the B2B channel
  • Development of the online channel
  • Leadership in service quality among mono-brand retail
  • Increased operating efficiency
  • Increased customer flow
  • Providing sales of the key operator products.

Sales of Subscriber Equipment

Продажи Владельцы
смартфонов
Смартфоны МТС
In Q4 2015, the share of smartphones among all the phones sold at MTS retail stores amounted to 72%.
4G-smartphone share reached 38.5% of all the smartphones sold.
Smartphone penetration increased from 42% to 48% in 2015.
4G share among all data devices increased by more than 2 times compared to 2014: from 11% to 23%.
72% of smartphone owners among MTS customers use mobile Internet.
Long-term activity using MTS smartphones is 94%, which is 8% higher than the average of the devices available.
MTS Smart Sprint 4G smartphone won the 2015 Runet Best Gadget Prize in the category of operator smartphones.

Business in Ukraine and in Other Markets of Our Operation

Ukraine

In Ukraine, the Company renders services in the standards GSM 900/1800, CDMA 450, IMT-2000 (UMTS).

2015 became the most eventful year over the past few years:

  • the purchase of a 3G license in February 2015 was the defining event of the year. Three largest mobile operators in Ukraine took part in the tender for the 3G-license. MTS Ukraine PrJSC received the second most attractive lot;
  • indoor 3G network construction and launch in the popular shopping malls and airports started in Q2 of 2015. In the period from Q3 of 2015 and until the end of the year, our own network was launched in all regional centers, except the conversion cities of Zhytomyr, Zaporizhie and Cherkasy, as well as Donetsk and Lugansk. At the end of 2015, the 3G network worked in the territory inhabited by 35% of the population;
  • thanks to the collaboration with TriMob LLC, MTS Ukraine PrJSC was the first to grant its subscribers the opportunity to use 3G Internet through Unlimited 3G service in national roaming of TriMob LLC network;
  • in order to increase the user penetration level and the volume of mobile Internet consumption, the campaign “3G Gigabytes as a Gift” was launched since October 1, 2015. Under the campaign terms, the subscribers of prepaid and contract service forms may get 4 GB and 5 GB respectively at a maximum speed rate regardless of the 2G/3G network;
  • On October 15, 2015, a strategic agreement with Vodafone Sales and Services Limited (hereinafter referred to as Vodafone) for cooperation and use of the Vodafone brand in Ukraine was signed. The first data plans under a new Vodafone Red brand became available to subscribers in Ukraine in November 2015. The main advantage of these packages was in affordable roaming connection and calls to international destinations. The range feature was in inclusion of free minutes for calls to subscribers of other mobile operators in Ukraine and fixed-line numbers, as well as to international destinations (62 countries), into the package.

Armenia

Since September 2007, MTS owns a leading operator in the Armenian market being K-Telecom CJSC.

Under the VivaCell-MTS trademark, our Company offers telecommunication services in the standard GSM 900/1800, UMTS and LTE. VivaCell-MTS subscribers are granted access to innovative rates and services, as well as convenient service formats meeting international standards applicable in MTS Group.

Despite the tough competition in the Armenian telecommunication market, VivaCell-MTS maintains its leadership by a landslide from its competitors. The market share at the end of 2015 was 59%, according to our estimates.

The main priorities of MTS in the Armenian market in 2015 were as follows:

  • Development of mobile Internet consumption: the consumption of these services increased by 17% in 2015;
  • preserving high market share by subscribers and revenue due to increasing the data plan attractiveness regularly: “Dialect,” “Yes,” “City Talks,” “Personal” and development of unlimited options: “Super Couple,” “Super 0” and “Jan-Jan”;
  • strengthening leadership in the mobile broadband access market in the Small Screen and Big Screen segments. The development of this area was reinforced by such activities as: “Super BIT,” “BIT Unlimited,” “MTS Connect,” “MTS Connect LTE,” “4G=3G,” as well as expanding the range of smartphones sold within the package offer “Smartphone Plus Data Plan for 1 dram.”

Turkmenistan

The Company resumed operation in Turkmen market on August 30, 2012, and started connecting new subscribers since October 1, 2012. In 2015, the 3G network became available to all network subscribers.

The main priorities of MTS in 2015 were as follows:

  • Growth of the customer base
  • Increased voice revenue by stimulating the consumption of intra-network traffic
  • Increased revenue from data transfer through the optimal DATA-channel use
  • Expansion of V&D “Smart” data plans and increase in smartphones in the base
  • Development of maintenance services, VAS-services and content services

Uzbekistan

The Company resumed operation in Uzbek market on December 1, 2014, under the brand UMS (Universal Mobile Systems). The main priority of MTS after the return to the market of Uzbekistan became the subscriber base return and attraction of new active subscribers being Internet users to a free network.

Key events of the year:

  • Expansion of the starting data plan range with the new “Optima” and “Mini” data plans focused on large target subscriber base segments;
  • Providing a wide selection of additional Internet packages, both due to the diversity of the volume offered and different terms and periods;
  • Recovery of VAS — and content services’ portfolio.

UMS reached the highest figure among all the countries of the Group in terms of penetration into the base of smartphone users: 65%.

Fixed-Line Communication

Development of Fixed-Line Networks

Broadband access growth rates at the Russian market are falling. The service is developed mainly due to the growth in the number of private users, but, considering the penetration of more than 50% at the end of 2015, the market is saturated not only in the large but also in the majority of medium-sized cities. ARPU service growth is difficult in highly competitive conditions and also due to the trend towards service packages (Internet + TV and Internet + TV + telephony). The operators have exhausted their opportunities for organic growth and the process of subscriber migration from operator to operator does not bring long-term benefits to the companies.

Fixed-Line Telephony Services

MTS continues to systematically follow the strategy of improving the quality of our fixed line products by upgrading the networks, launching digital and interactive TV services, expanding the capacities of the main channels for the growth of speed rates for the subscribers.

In 2015, MTS increased the attractiveness of the Basic Digital TV Package significantly by implementing new channel packaging since July 1. The Basic Package channel offer increased by more than 40% (an average from 90 to 130), the number of Basic Package HD channels increased almost by 3 times (from 9 to 26). It is the largest Basic Package of the regional markets, which is also included in all package offers with broadband access and telephony.

Removal of blocks and expansion of broadband access network capacity allowed changing the service by increasing the average consumption rate of the existing broadband access subscribers up to 2 times.

2015 was marked with a serious decline in prices on selling offers from federal broadband access operators; following the market dynamics, MTS also reduced its rates on selling broadband access offers and packages. MTS stimulated additional sales of broadband access to the MTS TV base thanks to the said actions.

In 2015, MTS launched a hybrid platform that extends the capabilities of conventional digital and satellite TV by interactive components. At the program level, the hybrid TV solution will connect IPTV cable TV on the basis of the MGTS network in Moscow and DVB-C in the regions of Russia, as well as MTS Satellite TV, with online services: web services with access via the TV screen, program guide with advanced features, video on demand and the service of watching later. Test operation of the hybrid platform began in the 10 largest cities of Russia: Nizhny Novgorod, Yekaterinburg, Rostov-on-Don, Novokuznetsk, Volgograd, Krasnodar, Izhevsk, Kirov, Belgorod and St. Petersburg; it will be further launched in all regions of operation of the MTS TV service. The final project stage will be the launch of the hybrid platform within the MTS TV mobile service and Stream OTT-portal.

The year ended with the start of a federal campaign to launch the new “TV Everywhere” product, a service allowing MTS TV to be watched on any screen, anywhere. Active promotion and connection are planned for 2016.

In 2015, the sales of telephony and package Triple Play products were launched further in 16 regions.

Financial services

In 2015, a joint project of MTS and MTS-Bank gained further development. This partnership allowed MTS becoming an integrated provider of telecommunications and financial services, as well as using the synergy of the two areas to increase customer loyalty and monetisation.

Within the project framework, MTS aims at becoming a supplier of financial services to the largest subscriber base in Russia in order to improve loyalty, increase the lifecycle of subscribers and ARPU.

Main achievements

Penetration of financial services in the subscriber base increased by 3 percentage points and reached 15% at the end of 2015.

Alongside with the shrinkage in retail lending market and ceased credit card issuance in the MTS showrooms, the issuance of POS-loans in the MTS retail network resumed in 2015. Changes in the risk strategy led to a sharp increase in the quality of POS-loans issued against 2014 being more default.

In February 2015, a new debit product “MTS Money Contribution” entered the market.

The process of integration of MTS financial products and MTS Bank was launched: new product placement principles were formed and financial zones were presented in the MTS retail network which are a single point of consumer access to all financial services. A pilot project was launched in 17 MTS showrooms integrated with the MTS Bank’s offices, which allowed to reduce the operating costs of MTS Bank at the first stage and to increase the penetration of financial services in the customer flow.

The process of transferring the MTS financial products to the MTS Bank base (settlement bank) started.

A number of new services, including innovative (“Mobile Ticket”), was launched.

A significant turnover increase for mobile payments on the partner data trading platforms and the growing number of transactions were achieved in an exclusive cooperation with partners.