The Internet Leadership for MTS Business Case
Valeria Abramenkova Oleg Dolzhenko Ekaterina Lee Ksenia Shapovalova 2013
Global trends stimulate MTS to implement a new strategy
Global trends
The increase in technical capability of mobile devices
Internet has become an integral part of daily life
MTS mobile Internet strategy includes three main issues
Monetization
1
Promotion
1 Modernization of old tariffs
2
The development of RCS technology
1 Tariffs advertising
2 Implementation of new tariffs
Technologies
Stimulating sales of smartphones
Cloud services
2 LTE-networks
3 RCS technology
1
Since Russian mobile Internet market has a great potential, MTS must make it its priority
1
Russian mobile internet market has been growing rapidly
2
The number of mobile users is expected to grow by 23% by 2014 Mobile users, mln
+23%
The volume of internet traffic is also rising exponentially The overall volume of traffic will be 6,5 times more by 2014
91
1621
Traffic volume, pb
79
65
1013
49
+556%
550 247
2011
3
2012
Although MTS is the leader in traditional mobile services…
2013
2014
…It is only the second in mobile Internet segment 10%
12%
37%
2011
2012
Voice
Mobile Internet
47%
24%
31% 27% MTS
Beeline
Megafon
Others
2014
4
SMS
12%
2013
Voice/SMS
MTS’ strategic goal is to increase profitability of mobile broadband Internet. The main focus is the mobile data transmission
Mobile Internet
1
A number of traffics functions will make MTS mobile Internet more appealing
“RETURNING TRAFFIC OPTION”
“STUDENT PLUS” • A 20% discount on mobile Internet tariffs for students • Free Wolfram Alpha • To get or prolong the function one must pay the bill in MTS retail store
• For a little additional cost one will have 10% of unused traffic returns as bonus points • Once you get enough points, you have a month of mobile Internet for free
This will attract more students, who are one of the main target audiences and keep them at full price later
“CREATE YOURSELF”
“CORPORATE SOLUTION” • Cloud service • MTS messenger for corporate purposes • Discounts on voice SMS among employees • Blocking of certain web-sites • Reports on employees monthly activity on the Internet It’s beneficial to order all the services from MTS rather than dealing with separate providers
Traffic
Speed
Student Plus
Returning traffic
MTS TV
Provides for more flexible traffic choice
1
One of the special offers can be personalized page, suitable for different kinds of clients “BUILD YOURSELF” • User has a personalized home page, where he has a number of Internet widgets that work even if he has no traffic left The price depends on number of widgets: ≤ 5: 100 rubles 5-10: 175 rubles ≥ 10: 250 rubles GPS: 50 rubles + Internet • × 2 without Internet with traffic limits
“Student’s Kit”
“Student’s Kit Pro”
“Business Kit”
“Business Kit Pro”
“Traveler's Kit”
“Traveler's Kit Pro”
“Shopper’s Kit”
“Shopper’s Kit Pro”
• Most of the widgets will be in light versions
1
Since more people have a number of internet connected devices it would be reasonable to implement a single balance account 1
The number of tablets users has been growing rapidly…
“COMBO PACK”
3
Next year the number of tablet users will rise by 250%
+250%
Tablets users, thn
2.800
+412%
Personal number for personal account Single balance for all your devices
800
+
156
2011
2
2012
700+ rubles
2013
…As well as the market of usb-modems
+
+
+
1000+ rubles depending on traffic and speed limits
Personal account
4
Total number of usb-modem users will reach 23 mln by 2013 Usb-modem users, mln
300,35 рублей +33%
23
25 мб
18
502,55 рублей
13
272 мб
42,55 рублей
On your personal page you can find the information about your current balance for every device you use
850 мб 2011
2012
2013
1
In order to promote its services MTS should use traditional ads efficiently
1
TV
Radio
Billboards
Subway ads
Internet
School students Students Under 50 Over 50
2 TV • Target audience: school students and people over 50 • Advertised products: mobile Internet and smartphone tariffs
Radio • Target audience: people under 50, drivers, and elderly people • Advertised products: mobile Internet and tablet tariffs(mobile TV)
Print • Target audience: students, people under 50 • Advertised products: tablet tariffs(mobile TV), special offers, discounts
Billboards • Target audience: people under 50, drivers • Advertised products: tablet tariffs (mobile TV), special offers, discounts
Subway ads
Internet
• Target audience: all audiences • Advertised products: mobile Internet, tablet and smartphone tariffs
• Target audience: university and school students • Advertised products: special offers, smartphone tariffs
1
Apart from advertisement other ways of promotion can prove to be effective
1
Apart from advertisement other ways of promotion can prove to be effective
The vast majority of elderly people are not advanced users of smartphones. However they form a large client base.
MTS should create its own accumulative card. For every 1000 rubles spent in our partners’ stores you get 100 MTS-coins on your bonus card.
1
Increasing sales of smartphones will boost mobile Internet usage
The prices on smartphones are decreasing steadily Average price of smartphone, $
-10%
455 379
Increasing awareness
348
328
80% of mobile Internet users
People over 45 have some difficulty using smartphones underestimate the extent to which they can simplify their daily life
Application advertising MTS’ shop assistants may help them overcome this problem
2010
2011
2012
In order to intensify this tendency MTS should take following actions:
Continue developing its own line of affordable smartphones
Introduce different promotions like: - discounts when changing traditional cell-phones to smartphones - free mobile Internet trial when purchasing a new
47% of traffic
New line of MTS’s cheap corporate smartphones Pre-installed communication
applications service packs such as “Business Kit Pro” and “MTS cloud”
v
2009
Different pre-set options for different team members
Relatively low price
1
Cooperation with OTT* services is considered to be the most promising strategy
1
OTT technologies develop rapidly and have negative effect on mobile operators
OTTs demonstrate 111% growth rate Gross profit, $ bln
+111%
20
10
2011 2016
1
14 43
2020
2010
3
Mobile operators losses from OTTs are predicted to go up dramatically
2012
2014
73 Expected losses, $ bln
There are two possible ways in which MTS can remain competitive in the mobile market
Joining “Joyn” initiative
2
Modern RCS** services cannot compete with current OTT applications
VS • Using OTT you pay for traffic while using RCS you are charged for service • Fees for OTTs do not depend on your geographical position • There is no strong connection between your SIMcard and OTT application
MTS integration with Skype or JOYN as with the most popular services
Cooperation with existing OTT services
Providing MTS own OTT services
Time-consuming and expensive
* OTT – Over-The-Top **RCS – Reach Communication Suite
1
In order to optimize income and traffic MTS should not only try to develop RCS but to integrate with existing OTTs
1
Cooperation with Skype
Cooperation with Skype may be implemented in two ways: • Providing Skype users with unlimited 3G traffic at a lower price • Binding Skype account to phone number and representing the new method of payment Advantages: + Growth of number of customers and increasing loyalty + Rapid entering new markets Disadvantages: - Uncontrolled traffic growth - Reducing income from roaming - Partial loss of independence
2
Integration with JOYN
Since it is hard to compete with Skype, mobile companies should combine their efforts Advantages: + Decrease losses from short received profits in text message services + Creating of integrated platform capable of competing with other OTT services Disadvantages: - Time lag - New and still unpopular service - Significant expenses on integration
According to our analysis disadvantages of cooperation with Skype outbalance advantages. So we suggest MTS should launch JOYN development strategy together with Beeline and Megafon as soon as possible
1
When launching its own cloud service MTS will have several competitive advantages:
1
Cloud service is one of the most popular and rapidly developing trends due to a number of objective reasons:
•Cost reduction •Automation •Time saving •No complications •Mobility •Free internal resources
2
As more and more Cloud service providers appear, MTS should use its advantages as a mobile operator: •Massive sales force •Corporate relationships •Control of the last mile of content delivery
The objective for MTS, concerning Cloud service, is to offer the service as soon as possible, either by developing its own technology or by acquiring the ready one. Cloud service should become an integral part of corporative solutions, offered by MTS.
1
The most reasonable way to develop LTE in Russia is as a part of LTE Union
Although right now LTE is not in high demand in Russia…
1
2
… It is expected to become the leading technology in mobile Internet in the near future 2,0 LTE-devices share,%
+1,4%
0,6
2012
3
• Investment in developing LTE infrastructure by a single operator is estimated at $5 bln
Faster speed
More affordable cost
New apps
New devices
• The main problem is acquiring appropriate frequencies. However, MTS owns it through one of its key shareholders’ company “Cosmos TV”
2013
… Or as a part of LTE union
МТS
MegaPhone
Beeline
RosTeleCom
Operating profitability, %
CAPEX, $mln 3.000
35
2.500
30
2.000
25 20
1.500
15
1.000
10
500
5
0
0
2010
MTS can develop LTE infrastructure either by itself…
2011
2012
2010
2011
Investment in LTE infrastructure per company is estimated at $2,9 bln. Lower investments will increase CAPEX less, therefore already decreasing operating profitability of the companies will be affected less dramatically.
2012
1
Thoroughly developed strategy in the fields of promotion, finance and innovations will promote the increase in profit
1
The global trends in the development of IT and patterns of communications made it obvious that the importance of mobile Internet will increase. Meanwhile, the role of traditional voice calls and SMS will decrease dramatically. In order to keep up with the tendency and stay competitive, MTS should introduce new strategy of development which will imply three steps:
Monetization •Modernization of old tariffs •Implementation of new tariffs
2
Promotion •Stimulating sales of smart phones •Advertising new tariffs •Bonuses and special offers
3
Innovations •Development of RCS •Cloud service •LTE networks
1
Appendix 1 Traffic Calculation MegaPhone Tariffs USB Modems Traffic limit Cost
3
6
10
20
30
50
100
390
690
990
1290
1590
1990
2990
3
6
10
20
390
690
990
1290
Tablets Traffic limit Cost
Mobile Internet Traffic limit
1,5
3
6
Cost
190
390
690
MTS Tariffs
Cost
3000 y = 621,92ln(x) - 393,49 R² = 0,9262
2500 2000
USB Modems Traffic limit
Traffic Calculations 3500
4
7
12
25 1500
500
700
1000
1400 1000
Mobile Internet
500
Traffic limit
1,5
3
Cost
150
300
0 0
20
40
60
80
100
120
-500
Y=622ln(x)-394
1
Appendix 1 Discounts
Accumulative Card/ Free Trial Period
Combo Pack
Revenue (mln rub)
150
Traffic now (Pb)
201
Traffic expected (Pb)
345
Price per Mb now (rub)
1
Number
Internet
Devices (mnl)
76
Users (mln)
43
6000
Price with dicsount (rub)
0,8
With 2 devices
33
9000
Change in revenue (mln rub)
60
With 1 device
10
6000
Expected users with 2 devices
47
9000
Student Discounts Students (mln)
2
Internet cost per year (rub)
6000
DicountedInternet cost per year (rub)
4800
Students expected (mln) Change in revenue (mln rub)
Change in Revenue (mln rub)
27
3 24
1
Starring: Kate Lee
Ksenia Shapovalova
MGIMO Sophomore of MEO-IT
MGIMO Sophomore of MEO-IT
Member of consulting department in MGIMO Business-club
Member of the marketing module in MGIMO club «Economicus»
Valeria Abramenkova
Oleg Dolzhenko
MGIMO Sophomore of MEO-IT
MGIMO Sophomore of MEO
Member of IB department in MGIMO Business-club
Leader of the marketing module in MGIMO club «Economicus»
Econotards