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    MTS outlines growth strategy


    Russian operator MTS is on a drive to make the mobile community, potential partners and investors more aware of the growth potential the company has, as it increases its presence in its six markets, and prepares for the launch of 3G networks and services.

    The operator has 85 million subscribers under management across Russia, Ukraine, Belarus, Uzbekistan, Armenia and Turmenistan, and grew revenues 29% in 2007, but its marketing management feels its brand, although very powerful within its own markets, is under-recognised in the wider market.

    Boosted by a recent report by brand consultant Millward Brown that named it the most powerful Russian brand in the world, and the only Russian brand in the top 100 global brands, the operator's CMO Cynthia Gordon, and group marketing director Mikhail Gerchuk, met Mobile Europe to discuss the operator's plans for subscriber and service growth.

    Top of the agenda was a brand boosting exercise which, given the operator's relatively elevated position in Millward Brown's listings, might seem strange, but Gordon said the aim was just to make the industry aware of the strengths of the operator, and the opportunity it offers.

    "It's about attracting the attention of partners, roamers, other operators, investors, to say "Here we are", and raising our brand to a level we're happy with," she said.

    MTS is on a current investment drive to boost revenues from value added services, as well as increase subscriber numbers in the markets that remain relatively unpenetrated. In Turkmenistan and Uzbekistan, for instance, mobile penetration still stands at just 7% and 22%.

    ARPU in Russia, its biggest and most developed market, hovers just under the $10 mark, and at under $7 in Ukraine. Of course, that makes network investment a different investment case than in Western Markets. The operator's ceo has previously said he expects to invest $425 million between 2008-10 to roll out 3G across the St Petersburg region, with a 7-10 year payback on that investment.

    Despite that relatively long investment case, Gerchuk said the operator could benefit from being later to the 3G table than other operators, in that it could go straight to HSDPA broadband services, and take advantage of lower prices for network equipment and services software. Gordon added that the devices themselves and applications were already developed, giving the operator a head-start once it has 3G access available. 10-115% of handsets in Moscow are already 3G compatible, Gordon said,

    Last year MTS under-spent its signed off capex budget, a sign that driving investment and change has not been easy, and network and technology has not been built out as fast as the operator would like. Gordon said that this year the regional CEOs have been given full sign off on their own budgets, and will be expected to make the necessary investments.

    The operator, like its competitors, faces problems rolling out 3G in Moscow as the military currently uses the appropriate spectrum. Gordon said a solution would be found, and the operator was examining all its options. Gerchuk ruled out the competitive threat from rival operators operating broadband technologies on different technologies, such as WiMax or EV-DO.3G rollout would commence in the rest of Russia's cities this year, and in Uzbekistan and Armenia this year. The company will have a CDMA450 offering in Ukraine.

    Gerchuk added that 3G also offers the operator the opportunity to become the only broadband provider to many of its customers, in markets where there is little fixed broadband.

    The company also hopes to tale advantage of its leading market share in corporate and enterprise market to boost the use of its mobile broadband services. The company has done deals with Blackberry, and Microsoft for a hosted Windows Mobile service.

    Finally, the operator plans to use its brand power to market content and web base services to its users. Currently the operator punches above its weight in the value added services market, accounting for an estimated 40% share. Gerchuk highlighted the exclusive partnership the operator has with Russia's biggest social networking site, as an example of a successful service. He added that 3G would allow the company to boost its into mobile TV, music and video download services.

    Currently 12% of MTS' revenues come from data services, including SMS.

    "There's still room to grow," Gordon said, "and 3G will help that." The operator is forecasting that intrernet services and VAS growth will outpace voice growth by 2010-12.

    Gordon said that although the operator is keen to work with strong content partners that complement the MTS brand, the operator name would remain at the forefront. The operator isn't about to join the rush to go open just yet, it seems.

    So to raise its profile, does the operator need to expand outside its CIS "home" markets into other emerging markets, perhaps into Eastern Europe or Asia?

    "That's not our focus at the moment. There are clear practical advantages financially in terms of roaming traffic, and it gives us a clear centre of competency" Gordon said, "We think there's enough growth potential in our existing markets, although we are constantly monitoring investment opportunities, acquisitions and other possible avenues. If we do expand it will be into other emerging markets."

    But does it hurt MTS to be a Russian company in neighbouring countries with, at best, complicated relationships with their former imperial and Soviet masters?

    "We're seen as an international brand," Gordon said, "not as a purely Russian company. And our CEO has made a deep effort to recruit people that represent both and international background, as well as a Russian one." Gordon herself, of course, joined MTS from Orange, and there are ex-Vodafone and O2 staff at MTS as well.

    Gerchuk emphasized that because of the shared Soviet Union background, there are still deep cultural similarities across the different countries.

    "Many people grew up listening to the same music, watching the same television programmes and films. There's a lot of shared cultural heritage," he said.