Changellenge >> Cup Russia 2013 Final, April 29, 2013
DATA TRANSFORMATION: the Internet Leadership for MTS INTEGRITY Management Consultants Ageev Sergey Butakova Yulia Buzko Roman Syrunina Ekaterina INTEGRITY
INTEGRITY
TEAM
management consultants
OUR TEAM OF PROFESSIONALS Ekaterina Syrunina
Ageev Sergey
Dancing Queen of INTEGRITY
Burden of INTEGRITY
GSOM SPbU Master in International Business’14
SPbU, Faculty of Economics’ 11
ekaterina.syrunina@gmail.com +7 931 368 6992
sergey.ageev2@gmail.com +7 952 371 0277
Yulia Butakova Poker Face of INTEGRITY
Roman Buzko Humor of INTEGRITY
GSOM SPbU Master in Corporate Finance’14
Herzen State University Faculty of Law’13
july.butakova@gmail.com +7 911 744 7492
roman.buzko@gmail.com +7 911 007 6762
2
INTEGRITY
PROBLEM >>
management consultants
Mobile telecom companies should pay more attention to mobile internet, that is becoming major revenue stream The importance of VAS* in revenue structure is increasing over time, while mobile internet has become a significant component of revenues 30 26,3
26,0
25
5%
23,8 21,5
28%
20,5
20 15
14,3
27%
Internet revenues
10 5 14%
13%
15%
19%
24%
21%
40%
0 2006
2007
2008
Total revenues • •
VAS = value-added services AC&M Report
2009
2010
2011
VAS revenues
other
messaging
content
data transfer 3
INTEGRITY
PROBLEM >>
management consultants
MTS
MTS revenues has a potential to grow providing implementation of market average revenues structure MTS would receive 4% more revenues in 2011 if it’s sales structure was market average +4%
Growth due to increase of internet: core ratio
21.2
Mobile Internet
16.1
Messaging
5.1
5.1
100.0
100.0
2011, real structure
2011, industrry average structure
Core
4
INTEGRITY
PROBLEM >>
management consultants
MTS
Information flows from the content provider to the consumer reveal opportunities for additional revenues Intermediaries
+$
+$
+ Direct revenues from consumers
Indirect revenues from consumers
+
Content provider
MTS
Consumer
+$
Advertizers 5
INTEGRITY
OUTLINE
management consultants
MTS
MTS can increase profit from mobile internet through cutting costs or increasing revenues
=
Profit
Revenues
From information consumers Revenue per customer (ARPU) Pricing strategy Value-added services
x
+
N of customers Promotion Geographical expansion
-
Additional revenues
Costs Investments in technology (3G/4G) Maintenance costs
Contracts with: Social networks Search engines
Additional revenues
Costs (technology)
6
INTEGRITY
OUTLINE
management consultants
MTS
MTS can increase profit from mobile internet through cutting costs or increasing revenues
=
Profit
Revenues
From information consumers Revenue per customer (ARPU) Pricing strategy Value-added services
x
+
N of customers Promotion Geographical expansion
-
Additional revenues
Costs Investments in technology (3G/4G) Maintenance costs
Contracts with: Social networks Search engines
Additional revenues
Costs (technology)
7
INTEGRITY
REVENUES >> ARPU >> PRICING STRATEGY
management consultants
MTS
Although the most part of current consumers are young, the older segments are expected to grow faster in the near future Segments Children (under 17 years)
Youth (18-24 years)
Middle-class (adults. middle revenue)
Businessmen (adults, high revenue)
%
Growth
Interests
Payability Traffic
30%
*
Games, short videos
*
**
45%
**
Music, video, social networks, games
*
**
13%
**
News, videos, navigation, banks & insurance, social networks
**
**
12%
**
Business data, financial markets, news, banks & insurance
Source: J’son and Partners Consulting research, 2013. http://www.json.ru/
*
8
REVENUES >> ARPU >> PRICING STRATEGY
INTEGRITY management consultants
MTS
Differentiated pricing strategy for smartphones and tablets Tariff
Children, Middle-class Youth
Businessmen Tablet Laptops / PCs
Volume
Price RUR/Month
BIT
50 MB/Day
149
Super BIT
100 MB/Day
299
Smart
15 MB/Day
99
Comments *Option with Mobile TV (300)
Tablet
2 GB/Month
400
*Additional Mobile TV without limits
Mini, Maxi, Super, VIP
4 GB/Month/ 7GB/Month/ 12 GB/Month/ 25GB/Month/
500/ 700/ 1000/ 1400
*Additional online-movies, music, social networks, email
Source: MTS pricing strategy, team calculations
9
INTEGRITY
REVENUES >> ARPU >> PRICING STRATEGY
management consultants
MTS
With introduction of shared data plans, MTS will be able to increase its consumer base Results
One Shared Data Plan for All Devices • • •
Tariff
Shared data plan
Smart+
• •
simplifies billing enables seamless mobile access consolidates users with a single operator
Volume 20 GB/Month
•
happy user decreased churn rate increased ARPU
Price RUR/Month 500/ 1000
Comments *Additional online-movies, music, social networks, email
10
INTEGRITY
OUTLINE
management consultants
MTS
MTS can increase profit from mobile internet through cutting costs or increasing revenues
=
Profit
Revenues
From information consumers Revenue per customer (ARPU) Pricing strategy Value-added services
x
+
N of customers Promotion Geographical expansion
-
Additional revenues
Costs Investments in technology (3G/4G) Maintenance costs
Contracts with: Social networks Search engines
Additional revenues
Costs (technology)
11
INTEGRITY
REVENUES >> ARPU >> ADDITIONAL SERVICES
management consultants
MTS
Three roles that mobile operators can play in VAS/OTT segment Role
Utility players
Function
Internet access
Internet access
Enablers
+ Ecosystem (API, network)
Internet access
Digital Life Solutions Provider or Enabler+
+ Ecosystem (API, network)
+
Share in VAS/OTT profits
Results No VAS/OTT profits. Margins in traditional revenue streams will fall down to 8-12% Limited role resulting in just a portion of VAS/OTT profits
An operator will fully reap the potential benefits from VAS/OTT revolution
End-to-end user solutions
Source: Operator’s Dilemma (and Opportunity): The 4th Wave, Chetan Sharma Consulting
12
INTEGRITY
REVENUES >> ARPU >> ADDITIONAL SERVICES
management consultants
MTS
MTS should expand beyond traditional revenue streams in the following areas New Competitors
Market Penetration Potential Growth
E-commerce
Ozon, eBay, Google, Groupon
Payments, remittance
Paypal, Facebook, Visa / MasterCard, Google
Apps (business)
Cisco, Apple, Microsoft
mHealth
Healthcare providers
Enhanced Communication
Skype, Facebook, Google, Cisco
Who Pays Customers, commerce partners
Growth
Customers, commerce partners
Growth
Customers, enterprise, partners
Growth
Insurance, hospitals, customers
Growth
Source: J’son and Partners consulting, team judgment
Customers
13
INTEGRITY
OUTLINE
management consultants
MTS
MTS can increase profit from mobile internet through cutting costs or increasing revenues
=
Profit
Revenues
From information consumers Revenue per customer (ARPU) Pricing strategy Value-added services
x
+
N of customers Promotion Geographical expansion
-
Additional revenues
Costs Investments in technology (3G/4G) Maintenance costs
Contracts with: Social networks Search engines
Additional revenues
Costs (technology)
14
REVENUES >> N OF CUSTOMERS >> PROMOTION
INTEGRITY management consultants
MTS
While being the leader in amount of subscribers, MTS still lags behind in terms of traffic. The company must “convert” its regular users into “data” ones
Trade-in
Connect your parents
+$
Targeted campaigns 15
INTEGRITY
OUTLINE
management consultants
MTS
MTS can increase profit from mobile internet through cutting costs or increasing revenues
=
Profit
Revenues
From information consumers Revenue per customer (ARPU) Pricing strategy Value-added services
x
+
N of customers Promotion Geographical expansion
-
Additional revenues
Costs Investments in technology (3G/4G) Maintenance costs
Contracts with: Social networks Search engines
Additional revenues
Costs (technology)
16
INTEGRITY
REVENUES >> ADDITIONAL REVENUES
management consultants
MTS
Search engines, e-mail, social networking are MTS possible info-suppliers Purposes of mobile internet usage in Russia, 2010 Search
72%
68%
Social networking
59%
Maps
46%
World&Local News
34%
Entertainment
68% VK
74% Odnoklassniki
29%
Business News
24% 14%
69%
Yandex
37%
Instant messenger
Sport News
Possible partners:
49% 30%
% of mobile internet users Source: On device research, J’son and Partners consulting
17
INTEGRITY
REVENUES >> ADDITIONAL REVENUES
management consultants
MTS
Additional revenues from info-suppliers will amount to 9.7% of initial revenues 1. Tariff ÂŤContactÂť
Scheme of possible partnership
MTS Partners
Base tariff = 350 RUR/Month - Up to 50% of fee
user
2. Revenues from advertising in social networks
Social network Increased intensity of use
Vk.com, odnoklassniki.ru
user
Social network
70% of paid services
30% of paid services
Increase in revenues by 2.7% from initial revenue
Advertisers Increase in revenues by 7% 18
INTEGRITY
OUTLINE
management consultants
MTS
MTS can increase profit from mobile internet through cutting costs or increasing revenues
=
Profit
Revenues
From information consumers Revenue per customer (ARPU) Pricing strategy Value-added services
x
+
N of customers Promotion Geographical expansion
-
Additional revenues
Costs Investments in technology (3G/4G) Maintenance costs
Contracts with: Social networks Search engines
Additional revenues
Costs (technology)
19
INTEGRITY
COSTS
management consultants
MTS
Technology strategy: use 3G where coverage is sufficient; construct new LTE base stations advantages
disadvantages
3G
Efficient area coverage Access from the most devices
Occasional net overload
4G
Low maintenance costs Larger volume of data available Higher speed
Huge investments (to convert base stations) Deference of effect in time
CAPEX
19% (as of Revenues)
Source: J’son and Partners consulting, team judgement
20
INTEGRITY
STRATEGY
MTS
management consultants
The strategy for 2014-2018 is in line with MTS overall 3i strategy
Internet
Integration
Innovation
Slight differentiation of the Internet access tariffs
Integration of supplementary VAS
Innovation of additional revenue streams through partnerships with social networks
R e v e n u e
I N C R E A S E
21
INTEGRITY
FINANCIAL RESULT
management consultants
MTS
Resulting percentile increase in revenues and costs
=
Profit
Revenues
From information consumers Revenue per customer (ARPU)
+ 5.7%
x
+
N of customers
-
Additional revenues
+ 9.7% (from basic revenues)
+ 3.2%
Costs
+ 10.2% (from basic costs)
INTEGRITY
FINANCIAL RESULT
MTS
management consultants
MTS mobile internet strategy will result in increase in profits by 86% 336.9 27.5
+19% 283.6
25.8
253.4
27.4
56.1 +86% 30.2
Revenues 0
+ Core revenues
+ Additional Revenues 1 revenues
- cost 0
- cost
NI 1
NI 0
INTEGRITY management consultants
MTS
THANK YOU FOR YOUR ATTENTION! 24
INTEGRITY
APPENDICES
MTS
management consultants
Back-up 1. Russia has great upward potential in increase of volumes of data transfer, following the world pattern of development In your view, which of the following are the three most critical challenges facing mobile operators over next few years?
Mobile internet penetration in Russia and other countries, 2012, % 100%
85% 85% 83% 81%
80%
77% 75%
65% 64%
60% 40%
Developing new pricing models
55% 35%
23%
19% 16%
20%
6%
0%
48%
Containing the cost of nextgeneration network developments
44%
Ensuring adequate backbone capacity for future traffic loads
37%
Expanding the variety of content and services available to users
Volume of data transfer in Russia, PB 3160 3000
2338 1621
2000 1013 1000 75
247
2010
2011
35%
Obtaining additional spectrum
22%
Identifying new ways of working with content providers
21%
Determining how to treat voiceover-IP (VoIP) providers
20%
Devising meansd of capitilising on social networking
550
0
17%
Other 2012E
2013E
2014E
2015E
5%
2016E 0%
Sources: J’son & Partners Consulting, Accenture. Mobile Web Watch 2012 (survey N = 12, 485)
10% 20% 30% 40% 50% 60%
INTEGRITY
APPENDICES
management consultants
MTS
Back-up 2. Additional data on smartphones
Smartphones development in Russia, 2010-2012 Sales, RUR bn
Operating system used in smartphones in Russia
Average price, ths RUR
40
16
80%
35
14
70%
30
12
60%
25
10
50%
20
8
40%
15
6
30%
10
4
20%
5
2
10%
0
0
0%
67,20%
8,00%
Android
Sources: case materials
Bada (Samsung)
7,70%
6,90%
Asha
IOS (Apple)
5,90%
3,60%
MS Symbian Windows (Nokia)
INTEGRITY
APPENDICES
MTS
management consultants
Back-up 3. Consumer analysis Most important criteria in the choice of a network provider for mobile Internet access Very important Quality of network Coverage Connection speed
Extremely important 31%
64%
28% 26%
Quality of customer service
29%
The device subsidy
58%
24%
Cost of data connections
Past experience with the provider
Devices used in the past 12 months to access the Internet
57%
69% of users have used mobile devices for internet access
61%
Netbook
37%
Tablet
22%
55% 41%
30% 24%
Smartphone
34%
Computer/ Laptop
92%
TV
94% of users have used stationary devices for internet access
38%
29% Gaming console
Devices on offer from the network providers
26%
Content available from the network provider
24%
27%
Special offers
24%
27%
29%
26% 0%
Sources: Accenture. Mobile Web Watch 2012 (survey N = 12, 485)
20%
40%
60%
80%
100%
INTEGRITY
APPENDICES
management consultants
MTS
Back-up 4. Pricing of the mobile internet access How many times did you access the internet yesterday? (October, 2012) several times a day
Volume 46%
2-3 times a day
20%
1 time a day
19%
none
14%
don't know
2% 0%
10%
20%
30%
40%
1 2%
13%
20 MB
200 MB
40%
2 GB
5 GB
15%
MB per day
1 MB
2%
0,03
20 MB
13%
0,67
200 MB
40%
6,67
2 GB
15%
66,67
5 GB
5%
166,67
Other
25%
-
50%
Structure of mobile consumers in terms of used traffic, 2012 1 MB
% of users
Differentiation of tariffs (for smartphones & tablets): Introduction of smaller-volume tariff (15 MB per day)
5%
Sources: Accenture. Mobile Web Watch 2012 (survey N = 12, 485), team calculations
55% of users consume less than 50 MB daily
INTEGRITY
APPENDICES
management consultants
MTS
Back-up 5. Pricing of mobile internet for competitors Tariff
Price (RUR)
Megafon Internet XS Internet S Internet M
Volume (Gb/ per month)
Speed (Mb/s)
Price (RUR)
Volume (Gb/ per
Speed (Mb/s)
month)
Smartphone
Tablet
190
1.5
no restriction
390
3
3
690
6
5
Internet S Internet M Internet L Internet XL
390
3
3
690
6
6
990
9
10
1290
20
20
150+13 (per day)
no restriction
no restriction
600
no restriction
no restriction
Beeline «Prolong speed»
100
«Internet without limit»
150+13(per day)
1
no restriction
«Internet no restriction no restriction without limit»
19(per day)
«Internet for a day»
Sources:
Internet + Wi-Fi
no restriction
no restriction
INTEGRITY
APPENDICES
management consultants
MTS
Back-up 6. Technologies Usage of different technologies to access Internet in Russia, 2012, % Fixed and wireless Only fixed Only fireless
Development of 2G, 3G and 4G in the world, mln
Mainly fixed Mainly wireless
8% 4% 45%
17%
3G and 4G will be key technologies in 2017 worldwide 2-2.5G
3-3.5G
4G
14% 45%
26%
76% 51% 10% 2012
Sources: J’son & Partners Consulting,
4% 2017
INTEGRITY
APPENDICES
management consultants
MTS
Back-up 7. Technologies for internet access Type
Advantages
Disadvantages
Wireless - 2G
Voice transferred
Low speed of data transfer High maintenance costs
- 3G
Occasional net overload
- LTE
High speed of data transfer Low maintenance costs Larger volume of data available
Huge investments (to convert base stations) Deference of effect in time Voice not transferred (VoLTE)
- WiMAX
Easy to implement in vertically integrated systems (transport, safety systems, M2M, smart grits etc.)
Limited usage in niches (smart grids, M2M) Absence of rouming service Lack of invested funds
Fixed (broadband)
High speed Unlimited capacity
Necessity to construct infrastructure
High speed of data transfer Voice transferred Efficient area coverage Access from most devices
Sources: J’son & Partners Consulting, team judgment
To be used – yes/no
INTEGRITY
APPENDICES
management consultants
MTS
Back-up 8. 3G and LTE geographical coverage
LTE base stations: - Own in Moscow - Rented from Yota in Kazan
> 10 th people per base station 7-10 th people per base station 4 - 7 th people per base station 32
INTEGRITY
APPENDICES
MTS
management consultants
Back-up 10. VAS – Apps Accessing internet at work
1. Applications Volume of mobile apps, mln USD
Smartphone
Volume of mobile apps, mln USD 1500 1000 500
1300 CAGR = 69%
no 26%
160
0 2012
2016E
yes 74%
Which of th following types of apps have you downloaded from the Internet on your smartphone/ tablet? Information apps
Tablet
72%
Entertainment apps
70%
Apps for arranging leisure activities
53%
Educational apps
46%
Organisational apps
no 35%
43%
Apps that help manage your money
33%
Fitness and health apps
32% 0% 10% 20% 30% 40% 50% 60% 70% 80%
Sources: J’son & Partners Consulting
yes 65%
B U S I N E S S
A P P L I C A T I O N S
INTEGRITY
APPENDICES
management consultants
MTS
Back-up 11. VAS – Payments & Cloud services 2. Payments Are you using mobile payments on your smartphones/ tablets?
Buying tickets for events (concerts, cinema, theater)
Do not use/not interesting in using
46%
39% 16%
55%
Buying train, fight tickets
46%
Buying clothes or shoes
Interested or planning to use
Buying other consumer goods
Currently using
Buying food or groceries
Usage
39% 37% 22%
0% 10% 20% 30% 40% 50% 60%
3. Payments
Russian IaaS market, sales in bln RUR
Cloud computing is expanding worldwide Mobile non-cloud traffic
Mobile cloud traffic
3
2,6
2,5 74%
76%
Increase spectrum of MTS Money activities
78%
2,2
2 80%
82%
84%
2,8
1,6
1,5
1
1 0,5
26%
24%
22%
20%
18%
16%
2012
2013
2014
2015
2016
2017
Sources: J’son & Partners Consulting
0,15
0,38
0 2010
2011
2012
2013
2014
2015
2016
Storage of medical records for EMR (mHealth)
INTEGRITY
APPENDICES
management consultants
MTS
Back-up 12. MTS retail stores
MTS retail stores
5000 4500
own stores
4000
franchise stores 1573
3500
1686
3000 2500
MTS retail stores increase smartphone penetration rate
1196 1250
2000 1500 1000
2010
2327
2461
2889
35,00% 30,00% 25,00% 20,00% 15,00% 10,00% 5,00% 0,00% 2010
500 0
2011
2012
sales of smartphones through MTS retail stores, % of total handsets
2009
2010
2011
2012 smartphones penetration, % of all registered mobile phones on MTS network
Sources: MTS annual report, 2012
INTEGRITY
APPENDICES
management consultants
MTS
Back-up 13. Risks evaluation Risk
MTS risks evaluation matrix
Risk impact
Higher
Mobile number portability
Regulatory& policy framework Macroeconom ic
Technology evolution
LTE deployment, development of wireless technology
MTS scale & competitors
Competitive pricing and marketing strategy
Technology evolution MTS scale & competitors
Regulatory & policy framework
Interest rate & currency exchange Unpredictable consumer demand
Risk likelihood
More
Long-term contracts, government lobby
Mobile Number Portability
Retain Loyalty of Consumers
Interest & currency exchange
Hedging strategy
Unpredictable consumer demand
Short-term marketing campaigns
Macroeconomic Sources: MTS annual report, 2012, team evaluation
Evaluation Recommendation
Reserves and alowances 36