Data transformation
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Specially for Changellenge Cup Russia 2013
Moscow, 29 April, 2013
Changellenge Cup Russia, 2013
TurboBoys TurboBoys TurboBoys
Svyatoslav Dulyaninov Zamaletdinov Artemiy Artem Kasatkin Anton Boyko 0
TurboBoys, team members Artemiy Zamaletdinov
Anton Boyko
Risk Management
Financial analysis & structuring
Financial analysis
Market analysis
Artem Kasatkin
Svyatoslav Dulyaninov
• MGIMO, 4 year • Winner of Fincontest ’12 • Finalist of FinOpen’12 • Internship in Ernst&Young • kasatkin.artem@yandex.ru
Changellenge Cup Russia, 2013
• MGIMO, 3 year • Finalist and prize-winner of various case competitions • dulyaninov.svyatoslav@gmail.com
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• MGIMO, 3 year • Experience of working in startups • UNCTAD internship • zamaletdinovartemiy@gmail.com
• MGIMO, 3 year • Finalist of FutureToday Changellenge Cup Moscow • anthonyboyko@gmail.com
Agenda MTS overlook Market trends and possible ways of action Monetization
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Promotion Infrastructure Summary Appendix
Changellenge Cup Russia, 2013
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Agenda MTS overlook Market trends and possible ways of action Monetization
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Promotion Infrastructure Summary Appendix
Changellenge Cup Russia, 2013
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MTS shows positive dynamics expanding into the Russian market and reaping benefits VAS1, Russia, mln rub 120.000
High case (16%) Base case (11%) Low case (7%)
100.000
Retail chain evolvement, Russia, number of outlets 4.462 4.147 3.260 1.250
80.000
3.523
1.573 1.686
1.196
+26% 40.000
2.010
2.327
2.461
2009
2010
2011
2.889
0 2008 2009 2010 2011 2012 2013 2014 2015
Franchise
Key assumptions
•High and low case growth rates are constant, in line with benchmarks •Base case growth rates fluctuate slightly based on sundry forecasts
Changellenge Cup Russia, 2013
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MTS revenue from value added services is steadily growing as well as the expansion and thus presence in the regions. 900 towns
1. Value added services Sources: MTS annual reports, vesti, team estimates
2012
71,23 mln subscribers 4
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60.000
Agenda MTS overlook Market trends and possible ways of action Monetization
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Promotion Infrastructure Summary Appendix
Changellenge Cup Russia, 2013
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Consumers are more and more engaged with their mobile devices, but they are talking less Weight of daily minutes of usage, 2011
Year-on-year growth in daily minutes of usage, Europe, 2010-2011, % Browsing social networks on mobile device
44
Reading / writing e-mail on mobile device
18 17
Downloading apps/video on mobile device
16
Listening to music streamed on mobile device
12
Talking on a mobile phone Talking on fixed-line phone
45%
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Watching videos on mobile device
34%
-4
21%
-17
This trend makes MTS face the challenge of changing business environment and the necessity of developing a new approach to the market Sources: McKinsey quarterly, team analysis Changellenge Cup Russia, 2013
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While market volume is rapidly increasing Russian companies fail to respond accordingly thus getting no extra profits
1.200 1.000
120
Value Volume
Mobile data market volume&value in Europe, bln euro, petabytes Petabytes Bln euro
12.000
100
10.000
80
8.000
120
Value Volume
100 80
+34%
766
800
+67%
60 6.578
60
550
600
6.000 +120%
+171% 400
40
4.000
20
2.000
5.121
20 0
3.200
247 200
- 20
75 0
0 2010
2011
2012
40
1.055
- 40 - 60
0
2013
2010
2011
2012
2013
European mobile operators are more fortunate in making use of increasing mobile traffic, while Russian companies, including MTS have to act as soon as possible to turn the situation to advantage. Sources: Statista, Megafon annual report, team estimates Changellenge Cup Russia, 2013
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Mobile data market volume&value in Russia, bln rub, petabytes Petabytes Bln rub
The way to tackle the challenge lies in improvement of the current business model for mobile data transaction
Increase data traffic
Optimize monetization
Sources: team analysis Changellenge Cup Russia, 2013
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Monetization
Increase sales
Increase number of users
Increase time online
Promotion
Improve current business strategy for mobile data
Increase traffic per user
8
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Optimize cost structure
Infrastructure
Increase connection speed
Agenda MTS overlook Market trends and possible ways of action Monetization
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Promotion Infrastructure Summary Appendix
Changellenge Cup Russia, 2013
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Monetizing users who spend more time online with multiple devices with new ÂŤShared data bundlesÂť Share of respondents using one or more of the selected mobile devices, %
Minutes per day spent on each device, indexed
PC
Smartphone
Tablet
7
PC and smartphone
73
27 100
11
Laptop
5
x2 Tablet
Plus a tablet
109
69
44
223
None1 15 1 They access the internet through a desktop
Offers targeting owners of multiple devices (a large monthly data allowance) can enhance ARPU and reduce churn by increasing stickiness.
Sources: McKinsey, press, team analysis Changellenge Cup Russia, 2013
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27
33
Smartphone
Consumers are willing to pay on top of their bill to be able to watch the same video content on different screens Share of respondents ready to pay more, %
100
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40
32
22 6 5-10% more
Sources: McKinsey Changellenge Cup Russia, 2013
10-20% more
30-50% more
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50% more
Total
11
LTE is increasing the rate of market change that MTS needs to capitalize on through innovative billing system Very short time to market a growing range of offers to an increasingly segmented market
High speed LTE
Data-led services
Diversity of content
Shifting consumer dynamics
Roaming Getting Customers Using Data Roaming by Providing Cost Transparency
Changellenge Cup Russia, 2013
Providing OTT and VAS Bundles Leveraging VAS to Deliver Value to Customers
Policy Controls Providing the Ability to Control Product Features
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Dynamic Offers Providing the Foundation for Value Based Pricing
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Dynamic Services
Simple Pricing for Basic Bundles Encouraging Data Adoption and Usage
12
Introduction of Joyn RCS to Russian market will allow MTS to monetize considerable part of data traffic Value for the client and the company Value for the client
•Launching an RCS •Repulse the attack of OOT services •New torrent of profits •Gaining new segments
•Instant messaging (+group chat) •File share •Video/voice call •Geo location push •Central message storage (cloud) Copyright @ 2013 by TurboBoys. All rights reserved.
Value for the company
Strategy of launching Joyn by MTS
2014
2015
•Contract with Jibe mobile •Free roll-out of Joyn
•Including Joyn service in a
software •Drawing attention to the product and furnishing value to the client Sources: joyn.com, case data, team analysis Changellenge Cup Russia, 2013
2016
Implementing the service tariff plans as an integral part within M2M operations of it, thus no extra pay
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New data plans for smartphones and other phones will increase ARPU
Unlimited Hardcore
Social Networking
Lite
Lite surfing and mail
Changellenge Cup Russia, 2013
Basic surfing, mail+chat
Basic surfing, mail+chat and social networks
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Media content (videos, music), videochat
Unlimited consumption at the highest speed
14
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Basic
MTS monetization strategy includes introduction of crosschannel target marketing system MTS has a large audience for target marketing
1M monthly mobile internet users
1,7B monthly impressions
Sources: Mincomsvyaz, MGTS, case materials Changellenge Cup Russia, 2013
9M monthly paid TV viewers
576M monthly impressions
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•
•
An ad platform allowing brands to target audiences based on aggregate demographic data from TV programs watched or mobile traffic consumption Potential to monetize existing and future MTS mobile data traffic from users.
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0,65M monthly MGTS internet users
15
M2M market will increase seven-fold with MTS capitalizing on value rather than raw data M2M market growth in 5 years, thousands of devices
Health e-care or security monitoring revenues in two business models
53779 Security systems Industry, energy Health e-care Payment&retail Consumer goods Transport Highest available data speed Premium for prioritization of data trafic
6437
2013
2018
We think that the most promising areas are transport, energy, consumer electronics and health e-care. Sergey Irevli Sources: J’son & Partners Changellenge Cup Russia, 2013
Preventive care premium
Raw Data
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x7
Healt insurers partnership
Value
MTS will increase revenue from M2M services based on market growth and innovative business model
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Agenda MTS overlook Market trends and possible ways of action Monetization
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Promotion Infrastructure Summary Appendix
Changellenge Cup Russia, 2013
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Taking into account current data consumption by devices and operating systems‌ Mobile data traffic by device, Exabytes per Month Nonsmartphones M2M Other portable devices Tablets Laptops Smartphones
4,9
2,9 2013
2014
2015
2016
2017
Megabytes per Month by Operating System
Android smart phones create greatest opportunity to increase traffic per user
2012 2011
1,610 1,108 1,300
968
782
Android
iOS
Proprietary
911 481
PalmOS
Windows
Sources: case data, Cisco Mobile Data Traffic Forecast 2013 Changellenge Cup Russia, 2013
Linux
Blackberry
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Symbian
18
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2012
7,5
…to increase data consumption per user we recommend to enhance subsidy of smartphones with larger screens Correlation matrix: screen size vs data use via cellular connection
100
Daily data downloaded (MB)
90
- Devices contributing data
80 70 60 50 Copyright @ 2013 by TurboBoys. All rights reserved.
40 30 20 10 0 0,0
5,2 5,4 5,6 5,8 6,0 6,2 6,4 6,6 6,8 7,0 7,2 7,4 7,6 7,8 8,0 8,2 8,4 8,6 Screen area (sq inches) Each additional square inch of screen area leads to 288MB of extra data downloaded per month
Sources: case data, OpenSignal, team analysis Changellenge Cup Russia, 2013
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To provide access for all devices we recommend to aggressively promote MTS 4G Connect module
Positioning as an all-inone will increase traffic by 23%*
*: increase in household and small business sales Sources: case data, team analysis Changellenge Cup Russia, 2013
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Home broadband Wi-Fi environment
Youths have 1,5 - 2,0 times the penetration for mobile data traffic compared with older users Penetration rate of device ownership
Penetration rate of digital activities
Online video
63 38
58
1,7x
86
Social networks Tablet
65
19 13 VoIP/video chat
1,5x Youth users Adult users
OTT video
23
1,3x
44 1,9x
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Smartphone
85 1,5x
41 22
+86%
Youth drives adoption of many devices and services. MTS can’t fail to gain attention of the young segment . Sources: McKinsey iConsumers Life online Changellenge Cup Russia, 2013
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Taking into account current trends in mobile traffic, we recommend to position new services in 18-34 year segment Monthly Data Usage by Age (MB)
578
534
412 321 264
232
177
Age:
133
122
90
59
13-17 2010
18-24
25-34
35-44
45-54
55-64
30
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216
70
65+
2011
People with high mobile traffic are more likely to be interested in LTE speed Sources: case information, Nielsen Changellenge Cup Russia, 2013
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Agenda MTS overlook Market trends and possible ways of action Monetization
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Promotion Infrastructure Summary Appendix
Changellenge Cup Russia, 2013
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Employing LTE has high potential for MTS’ traffic augmentation LTE devices sales growth in Russia, millions of units +2.519%
LTE subscriber base growth in Russia, million people 15
5,50
0,50 10
+58%
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1,70 6
0,21 0,01 0,10 0,10 2012 Tablet PCs
3,30
1,5 USB devices
2015 Smartphones
2013
2
2014
2,5
2015
2016
2017
2018
Sales of LTE devices are going to triplicate by 2015 and demand for LTE services is projected to grow exponentially, while negative shift of the trend is unlikely Sources: J’son & Partners Consulting, team estimates Changellenge Cup Russia, 2013
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Gradual expansion will ensure the LTE coverage of 75% of Russia’s territory 2013
2014
2015
Medium coverage
High coverage
2016
2017
2018
No LTE coverage
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• 7 regions
Far East
North-West Center 2000
40 Povolzhye
Ural
Siberia
South 40
Sources: team estimates, MTS report, team estimates Changellenge Cup Russia, 2013
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Gradual expansion will ensure the LTE coverage of 75% of Russia’s territory 2013
No LTE coverage
2015
2016
2017
2018
• 14 regions
Medium coverage
High coverage
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• 7 regions
2014
Far East
North-West Center 2312
768 Povolzhye
Ural 624
Siberia
South 456
Sources: team estimates, MTS report, team estimates Changellenge Cup Russia, 2013
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Gradual expansion will ensure the LTE coverage of 75% of Russia’s territory 2014
• 7 regions
2015
• 14 regions
No LTE coverage
Medium coverage
2016
2017
2018
• 22 regions
High coverage
1307
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2013
Far East
North-West Center 2312
1243 Povolzhye
Ural 743
Siberia
South 931
Sources: team estimates, MTS report, team estimates Changellenge Cup Russia, 2013
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Gradual expansion will ensure the LTE coverage of 75% of Russia’s territory 2014
• 7 regions
• 14 regions
No LTE coverage
Medium coverage
2015 • 22 regions
2016
2017
2018
• 33 regions
High coverage
1961
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2013
Far East
North-West Center 2312
1243 Povolzhye
Ural 1200
Siberia 2615
South 931
Sources: team estimates, MTS report, team estimates Changellenge Cup Russia, 2013
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Gradual expansion will ensure the LTE coverage of 75% of Russia’s territory 2014
• 7 regions
• 14 regions
No LTE coverage
Medium coverage
2015 • 22 regions
2016
2017
• 33 regions
• 50 regions
2018
High coverage
2214
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2013
Far East
North-West Center 2565
1749 Povolzhye
Ural 1200
Siberia
3536
2615 South 1437
Sources: team estimates, MTS report, team estimates Changellenge Cup Russia, 2013
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Gradual expansion will ensure the LTE coverage of 75% of Russia’s territory 2014
• 7 regions
• 14 regions
No LTE coverage
Medium coverage
2015 • 22 regions
2016
2017
• 33 regions
• 50 regions
2018 • 60 regions
High coverage
2214
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2013
Far East
North-West Center 3159
1749 Povolzhye
Ural 2389
Siberia
3833
2912 South 2031
Sources: team estimates, MTS report, team estimates Changellenge Cup Russia, 2013
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The expansion will be profitable for MTS in any scenario Return on investment, bln.dollars.
Required investments for expansion, bln.dollars.
7
0,93
5,57
1
0,65
0 2013 2014 2015 2016 2017 2018
2013 2014 2015 2016 2017 2018
Total
Revenue (high scenario) Total investments Revenue (base scenario)
6 5
1,58
4
1,02
3
0,74
2
0,65
LTE expansion from 2013 to 2018 will require 5.5 billion dollars, reaching breakeven point by 2018 Sources: team estimates, MTS report Changellenge Cup Russia, 2013
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Revenue (low scenario)
Employment of femtocells will increase MTS’ mobile traffic Femtocell units in Russia and in USA, October 2012
Average download speed in Moscow, %
1,7 million
Beeline MTS
-87%
0
+849.900%
10 20 30 40 50 60 70 80
Average upload speed in Moscow, %
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The technology is not widely used in Russia yet it has potential
Megafon
Beeline MTS
2 thousand
-56%
Russia
Megafon
0 10 20 30 40 50 60 70 80 90 Low speed Medium speed High speed <200kb/s 200-1200kb/s >1200kb/s Sources: team estimates, Expert, J’son & Partners Consulting Changellenge Cup Russia, 2013
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2 thousand USA
MTS can gain competitive edge by improving mobile internet connection quality and femtocells are the solution
32
Eliminating ‘blind spots’ in Moscow will significantly increase the quality of MTS’ services Blind spots with no coverage in Moscow center
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All the operators have the ‘blind spot’ problem Femtocell is a cheap and efficient way of solving it.
Blind spot area Sources: team estimates, Expert, Moscow Government IT dept Changellenge Cup Russia, 2013
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Eliminating ‘blind spots’ in Moscow will significantly increase the quality of MTS’ services Blind spots with no coverage in Moscow center
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Getting rid of ‘blind spots’ will allow MTS to take a lead in quality and gain advantage over competitors.
Employment of femtocells has been approved by regulations in 2012. The market is likely to explode, following the global trend.
Femtocell-equipped area Sources: team estimates, Expert, Moscow Government IT dept Changellenge Cup Russia, 2013
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Agenda MTS overlook Market trends and possible ways of action Monetization
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Promotion Infrastructure Summary Appendix
Changellenge Cup Russia, 2013
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Strategic timeline November 2014: • New flexible billing system deployed • Move from tiering pricing to valuebased pricing
2014
July 2015: • Free Joyn roll-out • Major partnerships with 3rd party content providers
2015
September 2015: New tiering pricing with 4G upgrade available for certain MBB plans + Pure 4G offer “What plan fits your need?” “Can be upgraded to 4G”
2016
Changellenge Cup Russia, 2013
2017
October 2017: • M2M project rollout: mobile revenues triple
2018
September 2016: New pricing with 4G included in three additional data plans + router option "Give your all gadgets the maximum connection" "4G router and 3 months of maximum speed included” (Oct 2011 campaign offering max speed of 80 Mbit/s to all 4G plans)
“4G included” Sources: McKinsey, press, team analysis
August 2016: • Development of M2M value based applications • B2B target marketing solution
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January 2014: • Mobile tariffs: smartphone, shared data bundles • Develop data-based billing system
The initiatives proposed will boost LTE penetration and hence change revenue structure: 90% - traffic revenue Iniatives
MTS LTE subscribers
Technical part Enhancing infrastructure by building new stations and femtocells
Thousands
10.000
600 90% of total revenue comes from mobile data processing
450
Pricing Value-based pricing Services Launch series of new services, including data heavy videoservices such as exclusive access for tablets Joyn launch
50
Promotion Focusing on youngsters, aggressive marketing Promotion of wide screen devices and 4G module Sources: team analysis and estimates Changellenge Cup Russia, 2013
June 2012
TurboBoys
October 2012
Actuals
June 2013
2018
Target
37
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+2.122%
Devices Broadens devices portfolio from PC data only to tablets and smartphones with tethering feature
Agenda
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Appendix
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Backup: Go-To-Market approaches vary widely, depending on the market context and individual competitive position LTE pricing versus 3G
How can 4G grow revenues?
Market expansion (new services and customer segments)
Gain market share (attacker proposition) Changellenge Cup Russia, 2013
In Austria, the top telcos charge a significant price premium for LTE (~100-150% more than HSPA+) but still quite in trial stage
Key findings No one-size-fits First mover with willingness to develop a technology all rationale for LTE image and change the market share game deployment Potential to grow residential mobile broadband in Market context areas not covered by DSL and player position First mover with willingness to underline innovative technology position in mobile Strong plans to develop and sell new services with 4G broadband are key for LTE GTM Strong focus on fixed broadband/ telephony market LTE products and (LTE offer for rural DSL "white spots“ and DSL pricing very specific substitute in urban areas) to player priorities Attackers founded network joint venture in Sweden and are aggressively marketing their mobile broadband products to increase market share
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Price premium (speed, quality of service)
> 50% premium for 4G offers (€11/month) First mover strategy in Sweden by the incumbent and in Norway by the attacker
Backup: The major part of mobile data traffic in Russia comes through usage of USB devices 2012 Type of gadget 2,5
22,5
40,5
Average internet traffic, mb/month
450
303
<50
≈120 Petabytes of information traffic in 2012
x3,6
≈ 430 Petabytes of information traffic in 2012
≈ 550 Petabytes of information traffic in 2012
Cellphones smartphones tablets ≈120 Petabytes
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Number of subscribers, mln
USB modems ≈430 Petabytes
Sources: J’son & Partners, Megafon annual report, team estimates Changellenge Cup Russia, 2013
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