Our Strategy

Key Development Areas and Targets (KPI)

Description of the Main 3D Strategy Elements

MTS operation is based on the strategic 3D concept: Data, Differentiation, Dividends. This formulation reflects our vision of growth trends, future development prospects and key operation priorities.

“Data” being the first element reflects a segment that is currently the main source of growth for the telecommunication services market. In our opinion, data-related services will form in future the most important part of the customer experience, while traditional voice and non-voice services will play the part of a compulsory minimum, a basic service. The term “Data” means not only the data transfer process and technology. In our interpretation, it is a wide sector of the customer experience affecting all spheres of human activity in the modern world of information. This is an area of interaction between the service providers of various areas and scale with the customers independently forming their own information and service environment. Telecommunication operators are a key element of contact establishing in this model and we will seek to realise our natural advantages when being in this role: to find points of growth, to capture consumer environment queries, to determine the most popular services and to be active in this field implementing ourselves not just as a communication operator, but also as a service provider, accumulating knowledge and improving the data processing methods.

We formulated the “Differentiation” direction based on the desire to take a broader look at the area of our operations, going beyond the status of a conventional telecommunications operator, and covering not only a full range of communication services, but also the related areas such as financial services, M2M, geo-location and cloud-based services, subscriber equipment, TV, content, etc. We believe that the purpose of the differentiation is the creation of our own differentiating factors that will enable us to significantly differ from our competitors, to deliver a special value, to provide our customers with a unique customer experience, to create products and services that would not only motivate people to choose MTS, but would also significantly increase our customers’ loyalty. This value also reflects our ongoing commitment to improvement of products and services in all sectors of the Company’s operation, to win and retain significant market position, and, where possible, to be market leaders, to deliver advanced and diverse customer experience. Therefore, Differentiation is associated not only with our intention to generate value in the promising markets, but also with the desire to diversify the service portfolio, thus mitigating the industry risks and strengthening our competitive position.

Andrey Dubovskov, President of MTS PJSC, noted: “We believe that there is no sense in strategy changing during challenging times, because it will evidence that we did our business wrong in less challenging times, in the times of a healthy economy, and were not ready for any changes. Experience has proven that we have always been ready for hard times and actually show that we can be better than the market even in a period challenging for the economy.”

Andrey Dubovskov, President of MTS PJSC

Another strategy direction indicated as “Dividends” reflects the emphasis we will place on maintenance of stable shareholder return. Despite the macroeconomic challenges of late, MTS does not plan any changes to its dividend policy. The most important part of the process of creating shareholder value is a constant and consistent improvement of business efficiency, based on the optimal use of technological and organizational solutions, control of expenses, sound investment policies, and improvement of business processes. As a separate direction underlining our aspiration to ensure cash flow stability and predictability, as well as reduce the foreign exchange risks, we identify maintenance of the optimal level of debt and its cost.

The main strategic priorities of MTS in the short and medium term are:

  • Retaining leadership in the mobile segment, both in terms of total revenue and the number of subscribers, and growth rate in the most dynamic mobile data transfer business
  • Active development of mobile data networks (LTE and 3G) to achieve growth potential with growth rates above the market average
  • Ensuring of a high competitiveness level and provision of a full range of telecommunications services in the fixed line sector
  • Development of financial services in cooperation with MTS-Bank, implementation of synergies with other business areas
  • Increased operating efficiency of the single-branded retail chain, using this channel to sell the services and promote consumption of the data transfer services, including by selling our own range of branded subscriber devices
  • Development of promising areas of data services: Big Data (value extraction from the company’s information assets), M2M and the Internet of Things, customisation and branding of mobile devices, system integration

MTS strategically positions itself as a primarily telecommunication company, the universal service provider, offering a full range of high quality services, absolute and undisputed leader in the mobile segment. Telecommunications is our key competence and core business. At the same time we have gained intellectual, organisational and management capacity to be used as a basis to seek points of growth in adjacent markets that will allow us to create more value for our customers and shareholders, and more broadly – to enrich the lives of people, to provide new opportunities for living, business and self-fulfilment. We are convinced that implementation of the 3D Strategy will allow us to maintain and strengthen the market position, ensure financial stability and operating efficiency, guarantee the development and growth in the most dynamic segments, will enable us to offer our subscribers the best experience and to fulfil the obligations to the shareholders.

Strategy Implementation in 2015

Steady achievement of the target values of key operating indicators is the best demonstration of successful implementation of our strategy. It should be noted, that the cautious forecast given by us at the beginning of the year was further adjusted positively, which was made possible thanks to the successful implementation of a number of strategic projects and the final result was beyond these expectations.

Indicator Forecast Actual
Initial (early 2015) Adjusted (Q3, 2015)
Earnings addition, MTS Group > 2% > 4% 5,0%
Earnings addition, MTS-Russia > 3% > 4% 4,4%
Adjusted MTS Group OIBDA margin > 40% > 40% 40,7%
MTS Group CAPEX ~ RUB 85 billion ~ RUB 92 billion RUB 96.11 billion

As a part of strategy implementation, MTS was working on several directions, among which the following deserve special attention.

Data Direction

Promotion of Voice & Data rates
  • Penetration of V&D rates increased by more than 2 times in 2015
Stimulation of data-oriented subscriber equipment sales
  • Development and promotion of branded equipment with pre-installed applications were carried out
  • Entry threshold reduction was implemented by reducing the retail margin on the phones in all price segments
  • Smartphone sales increased by 1.4 as compared to 2014
Development of 3G/4G network
  • The number of LTE subscribers doubled in 2015
  • An agreement for implementation of joint investment with VimpelCom in order to optimise costs and increase construction pace was concluded
Increased radio frequency spectrum utilisation capacity
  • Refarming of frequencies in the 1800 MHz band for LTE was carried out actively
  • Acquisition of lots at the frequency auctions

Implementation of projects in this direction allowed increasing revenue from data transfer services by 19.8% in 2015 compared to the previous year.

Differentiation Direction

Digital commerce
  • Double increase in MTS Online Store revenue in 2015
  • Leadership by the number of MTS website hits among all Russian mobile operators
  • Successful implementation of the planned joint projects with OZON
Financial sector development
  • At year-end 2015, penetration of financial services in the base reached 15%
Entry into the system integration market
  • NVision Group CJSC was acquired and its integration started
Satellite TV
  • A complete sales network using our own channels and product-specific partners was constructed; mass sales were launched by mid-year
M2M and the Internet of Things
  • At year-end 2015, MTS kept its leading position in the M2M market
  • Projects on the telemetry of stationary objects (electricity, utilities, industrial facilities) were implemented
  • Projects with insurance companies using geo-location data were carried out
Extraction of value from the company’s information assets through the implementation of the Big Data concept
  • In 2015, the development strategy until 2020 was approved
Other services (OTT/Cloud)
  • A number of projects was implemented: B2C “Second Memory”, B2B “Easy Office”, branded digital services (music, games) were launched

Positive effects from the differentiation projects are visible now, but a significant impact of their results on the company operating performance is a matter of the medium— and long-term prospects.

Dividends Direction

The Board of Directors and the management of MTS are aware than regular and stable dividends form an integral component of the investment attractiveness of MTS and shareholder return. Since 2010, MTS has paid in total over RUB 235 billion of annual dividends, with their average annual growth rate amounting to 12% (notably, during 2010-2015 the annual amount of payment has increased by 69%). In 2015, the company made a record-setting payment of RUB 52 billion. It should be noted that the amount of dividend paid by MTS from 2006 to 2015 is the largest among all Russian mobile operators.

We are sure that our current strategy fully meets the current market conditions, ensures the concentration of efforts in the most important and promising areas and allows achieving operating and financial results at the level above the market.

Strategy in the Field of Mergers and Acquisitions

The company monitors the opportunities of inorganic growth both in the markets of its operation and beyond. MTS PJSC has sufficient experience in the integration of acquired companies that allows incorporating them into the business structure efficiently and getting a positive economic effect as quickly as possible.