Cup Russia 2013
Data Transformation: Internet Leadership for a Mobile Network Operator
Alexander Kravchenko Alexander Ovsepyan George Nichkov Dan Lifshits
Executive summary 1
Tariff innovations • We introduce two new payment grids: one for smartphones and one for tablets/USB modems • There would be 8 new tariffs in total
2
Marketing solutions New tariffs invented should be complemented by a smart marketing campaign to: • inform our clients about new solutions • attract new clients
3
Infrastructure investments To support the introduction of the new tariffs we should increase technological covering of the network: • expansion of 4G • Maintenance of 3G
Financial results, BN RUB (in 5 years) 91 13
Increase CAPEX in income
78
Net change
Source: Sublime analysis
2
Mobile network market in Russia is mature: market growth rate is small and 3 big players occupy more than 80% of the market There are three major players in the market, sharing ~85% of market in total
Market is growing slowly Mobile network market dynamics, BN RUB
Players’ market shares, %, 2012 Others
1000
Tele2
7%
7%
800
MTS 30%
600
28%
400
200
Vympelcom 0 2011
12E
Optimistic
13F
14F
15F
Conservative
16F
2017F
28% Megafon
Pessimistic
Source: Rostelecom research «The development of mobile business», Ovum research «Mobile revenues to grow», case data, Sublime analysis
3
Among 3 product segments in the market mobile internet should be our focus due to fastest growth rate and big potential capacity Mobile internet sales will grow faster than other segments’ sales Mobile network sales in Russia by segments, BN RUB
649
668
681
694
79
114
143
167
46
47
48
49
525
508
490
479
707
721
734 CAGR, %
191
216
242
50
467
50
454
51
441
20%
Russian mobile internet market has huge potential for growth Amount of mobile internet traffic by region dynamics, Gb per capita +58%
North America
0,5
Western Europe
0,5
Penetration, % 2012 81% 4,0
2% 75% 3,4
-3%
0,3
55% 1,8 +130%
2011
12E
13F
14F
15F
16F
17F
Mobile internet Messages
2012E 2017F
Voice Source: Cisco research, J’son & Partners research, Sublime analysis
4
Mobile internet is accessed through 4 types of technical equipment, but the market volume of only three of them will increase in the upcoming 5 years
Tablet
# of units sold, M, 2011
Mobile internet traffic, Mb/s, 2012
ARPU per month, RUB, 2012
USB modem
Mobile phone
1.14
32%
13
450
80%
3165
3%
50
0%
303
200
9%
350
5%
35
1%
85
2%
32.4
Smartphone
8%
7.6
23%
150%
7%
Attractiveness
1.14
32%
CAGR for 5 years, except growth rate compared to previous year for mobile internet traffic
Source: Case materials, Sublime analysis, J’son & Partners research
5
Thus, increase of revenue from smartphone, tablet and USB wireless modem users is the key issue for MTS
Revenue from mobile internet
Revenue from current clients
Customer base Attract new clients
1
2
Gents
Yuppies
3 The Middle
4 5 YoungWanters sters
Main questions:
Main questions:
•
Which clients should we attract?
•
What do they need?
•
What do they need?
•
What should we offer?
•
What should we offer?
•
How do we sell our services?
•
How much should we invest?
Source: Sublime analysis
6
There is a possibility to attract new clients only in tablet and USB wireless modem segments
USB modem
Mobile phone
Smartphone
• People who are searching for a cheap smartphone and even ready to switch between operators
• Costs of switching for the other operator highly outweigh savings gained from cheaper internet tariff
Description of a category
Opportunity to attract
Tablet
• Customers who has just bought a new tablet/notebook • They just search for the most appropriate internet connection (price/speed, quantity, coverage, availability of 4G) • It doesn’t depend whether a person is a user of MTS for his mobile connection
Source: Sublime analysis
7
However, to attract them, special offers for wireless connection and cheap smartphones should be made Tariffs for wireless connection should be reconsidered dramatically
Also, we should think about a campaign targeting potential phone buyers
1
•
1 tariff
4 tariffs
Quite cheap Unlimited speed
One of them is cheaper Speed is close
4 tariffs
7 tariffs
Rather expensive Unlimited speed
There exist a tariff that is faster and cheaper
+ Discount of 50%
• We should broaden our tariff grid and include cheap tariffs with differentiated quantity and speed to attract new clients
•
Contract to buy the internet package Upload the money on balance simultaneously
Megafon has a campaign offering to buy a cheap smartphone and to subscribe for the internet use
1—
Megafon has the same tariff grid for tablets and UBS modems Source: company data
8
In the structure of current users 5 different groups with focus on different needs were pointed out 5 groups of clients could be defined…
…and these groups have different needs
>50 20-50 <20
Income, K RUB/month
Customers segmentation
Yuppies
Youngsters
Group
Gents
The Middle
1
2
Yuppies
3
The Middle
Wanting <30
30-40
>40
Gents
4
Youngsters
Share
2,9%
- Are not the groups of interest because of low potential of income increase
5
Wanting
• Latest technologies • Unlimited speed
3,7%
• Latest technologies • Unlimited volume, speed
12%
• Best offer for reasonable price • Status features
7,5%
• High volume for reasonable price • New devices
18%
• Cheap smartphone to get internet connection
Age Extra factors considered: which devices do they use and it’s average price, how regularly and for what purpose, the speed demanded, technical awareness
Needs
Source: Rosstat, Sublime analysis
9
We match each of the highlighted groups with suggested monetization schemes from the best practices Options after allowance
Name
I. Linear pricing
Variable fee per usage (on daily basis or traffic basis)
Quantity traffic cap
A
Speed variation
Suitable customer segments
1
3
B
Gents
3 II. Throttling after allowance
A
No options, no charge
4
Additional steps of allowance
B
A
1
Youngsters
Wanting
2
B
Gents
• • • •
5
The Middle
III. Add-on buckets
The Middle
Yuppies
Segments can be targeted with several monetization schemes Capped speed is the best fit for the masses as well as for MTS to prevent the network from overloading Tariffs should cover all Russia Low quantity cap is suitable for older customers
Source: case data, Sublime analysis
10
The following tariff grids for smartphones and tablets/UBS modems are proposed to satisfy the needs of client groups
Proposed tariffs for tablets/PCâ&#x20AC;&#x2122;s
>50
>50
Proposed tariffs for smartphones
I.A
III.A
III.B
III.A
20-50
Income
II.A
<20
20-50
II.A
<20
Income
Extra buckets
<30
30-40
- Tariffs suggested
Age
>40
<30 - Tariffs suggested
30-40
>40
Age
New tariffs should be supported by smart marketing campaign and technological modernization of the network Source: case data, Sublime analysis
11
These initiatives should be complemented with a smart marketing campaignâ&#x20AC;Ś Secondary measures
Primary measures 1
Sales of discounted smartphones
5
Our branded smartphones are used in popular Russian TV shows and series
We combine them with predefined Internet plans for a longer period
2
First-time benefits
6
New devices and new clients are granted with favorable conditions
3
Commercials
7
Contracts with computer stores Computer stores-partners include our free USB-modem with purchases
Source: case data, Sublime analysis
Advertising showrooms Installed in our retail outlets, they target younger customers
They feature two sides of smartphones: they are easy to buy and ease of use
4
Product placement
Smartphone lotteries While showing lotteries advantages of smartphones are demonstrated
8
Flightnet Internet provision in long-haul, busy routes in business class
Measures with positive external effect on the whole industry
12
â&#x20AC;Ś and by introducing technological innovation Plan for building 4G MTS stations in the Russian Federation till 2015 4G
Current
Strategic choice
Suggested
3G
Maximum coverage
4G
Gradual expansion
MVNO* model
RUB 1.6 BN
l
Our own station
2H2013
3G coverage
Tyumen
How to expand?
Moscow
A
On our own (CAPEX)
B
Rent networks already in place (MVNO)
C
Buy others (M&A)
Network upkeep Flexible traffic management
RUB 2.19 BN 0
750 km
1H2013
0
Yekaterinburg
Source: MTS annual report, public resources, case data * MVNO â&#x20AC;&#x201C; Mobile Virtual Network Operator
Restructuring, shift the workload to night
RUB 1.45 BN 1H2014 Krasnoyarsk
Station equipment Scalable and simple to use hardware
13
The measures proposed would require RUB 13.1 BN of investments within 5 years and will result in net increase of revenue by RUB 77.8 BN TOTAL EFFECT TARIFF INNOVATIONS New tariff grid for smartphones and unified for tablets / USB-modems
43.6
RUB 77.8 BN
MARKETING SOLUTIONS
1
8
Cumulative effect for 5 years from all measures taking into account capital expenditures amounts to
net increase in revenue
47.3 ADDITIONAL REVENUES
INFRASTRUCTURE INVESTMENTS CAPEX into the expansion of 4G network, maintenance of 3G
13.1
VOICE & SMS RETAIL CHAIN
Source: case data, Sublime analysis
14
We envisaged the following implementation plan of our project to succeed
Initiatives
2013
2014
2015
New Payment Plans
2016
2017
2018
New tariff grid for smartphones Unified tariff grids for tablets/USB modems Sales of discounted smartphones First-time benefits Commercials
Marketing solutions
Contracts with computer stores Product placement Advertising showrooms
Primary measures Secondary measures
Infrastructure investments
Smartphone lotteries Flightnet
CAPEX into the expansion of 4G Maintenance of 3G
Source: Sublime analysis
15
Executive summary 1
Tariff innovations • We introduce two new payment grids: one for smartphones and one for tablets/USB modems • There would be 8 new tariffs in total
2
Marketing solutions New tariffs invented should be complemented by a smart marketing campaign to: • inform our clients about new solutions • attract new clients
3
Infrastructure investments To support the introduction of the new tariffs we should increase technological covering of the network: • expansion of 4G • Maintenance of 3G
Financial results, BN RUB (in 5 years) 91 13
Increase CAPEX in income
78
Net change
Source: Sublime analysis
16
Questions? Just raise your hand!
Sublime: an experienced team of professionals with diverse backgrounds who enjoy solving problems for you
Alexander Ovsepyan
George Nichkov
Alexander Kravchenko
Dan Lifshits
hovsepyan.hse@gmail.com +7 916 637 8910
george.nichkov@gmail.com +7 903 976 6643
alexandre.kravchenko@gmail.com +7 916 383 0415
lifshitsdan@gmail.com +7 916 262 5583
HSE’14/LSE’14 BSc Economics
Financial University’13 / UCL’13, Finance and Credit
LSE’14, BSc Politics and Philosophy
HSE’14/LSE’14 BSc Economics
• Finalist of the business case game BNP Paribas Ace Manager 4, 2012 • Holder of the President of the Russian Federation scholarship
• President of the Russian Society at the LSE • Finalist, Oliver Wyman Case Study Competition’12
• Semi-finalist, McKinsey Business diving’13 • Participant , KPMG K-Practika’12 • Holder of Alpha-chance scholarship
• Winner of Russian stage of Unilever Championship’13 • 2nd place in Changellenge CupMoscow’11 • Participated in exchange program with Tilburg University, the Netherlands
18
Cup Russia 2013
Appendix
Alexander Kravchenko Alexander Ovsepyan George Nichkov Dan Lifshits
Initiatives evaluation Years 2009A MTS business Revenue in Russia, BN RUB Subscribers base, M Share of MTS subscribers who use Mobile internet MTS subscribers who use Mobile internet, M Revenue from mobile data transfer, RUB BN Growth of mobile data transfer business Share of MTS total mobile business revenue ARPU (MTS) ARPU, RUB VAS ARPU, RUB Mobile internet ARPU, RUB Smartphone ARPU, RUB Tablet ARPU, RUB USB-modem, RUB Simple phones, RUB MOU, min Shares of main devices types used by our active Internet subscribers Smartphones Tablets USB-modem Simple phones Industry data Mobile business sales, RUB BN Mobile internet revenues, RUB BN Growth of mobile internet revenues MTS market share Average ARPU Subscribers, total, M
2010A
2011A
2012E 337 71 37% 26.3 33.1 34% 12%
2013F
77 44% 33.7 44.9
2014F
82 51% 41.3 58.2
2015F
2016F
85 56% 47.8 69.5
2017F
88 62% 54.4 81.4
90 68% 60.8 93.7
Current situation
53
76.4 44%
297 81 105 85 200 350 35
111.02 92.66 228.02 385.04 35.35
117.42 99.63 253.15 412.06 35.70
121.25 105.13 270.92 424.51 36.06
124.64 110.41 287.26 433.13 36.42
128.47 115.99 304.63 442.01 36.79
29% 3% 15% 52%
30% 3% 15% 52%
31% 3% 15% 51%
33% 3% 14% 50%
36% 2% 14% 47%
40% 2% 13% 45%
94.24 24% 35% 326.33 230.00
111.20 18%
127.88 15%
143.23 12%
158.98 11%
174.88 10%
Source: Sublime analysis
20
Initiatives evaluation ASSUMPTIONS • The traffic of mobile data transfer will grow fourfold on account of decreasing cost of sending 1 Mb • By 2015 smartphones will constitute half of all sold mobile phones in Russia • USB-modems will remain the biggest contributor to the tota ltraffi of mobile data transfer by 2015. However their sales are going to decline • MNO are interested in pushing internet sccess via smartphone forward because smartphones complement USB-modems instead of replacing them Years Traffic Aggregate traffic of mobile data transfer via USBmodems, PB Aggregate traffic of mobile data transfer (excl. USBmodems), PB Total aggregate traffic of mobile data transfer, PB Share of USB-modem in total traffic Sales Sales of smartphones, M Growth of sales Sales of simple phones Share of smartphones in total mobile phone sales Sales of USB-modems, M Sales of tablets, M Subscribers # of active subscriders using Mobile internet, in SIMcards, M Growth of # Costs Average cost of 1 Mb (via smartphone), RUB Average cost of 1 Mb (via USB-modem), RUB
2009A
2010A
2011A
2012E
2013F
2014F
2015F
2016F
65
216
452
812
1,276
2,338
3,160
10 75 87%
31 247 87%
98 550 82%
201 1,013 80%
345 1,621 79%
2,338
3,160
3.9 105% 31.6 11%
8.1 108% 32.4 20%
0.2
34
7.1
5
1.9
6%
Current 12.7 16.4 situation 19.8 22.2
1.1
57% 28.9 31% 13.0 2.5
29% 26.8 38% 12.7 3.5
21% 24.2 45% 12.5 4.7
12% 22.2 50% 12.2 5.8
39 15%
49.4 27%
65.5 33%
79.1 21%
90.8 15%
101.1 11%
4.2
1.8
0.7 0.17
0.4
0.3
24.4 10% 20.8 54% 12.0 6.8
2017F
26.6 9% 19.3 58% 11.8 7.9
Source: Sublime analysis
21