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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

Print

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»

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