MTS, the results of the third quarter: the success of a new team?
Yesterday the company announced the results of its operations for the third quarter of 2006. Press release and presentation (see below) are filled with the words "Record", and rightly so: the financial results are really good. You could even say surprisingly good. Surely in this great merit of the new team, which for five months has managed to roll this gigantic and clumsy "telecom monster" in the right direction.
What is the price of success and what to do to achieve it? Details of the strategy and tactics nobody is going to describe in detail, but many facts are on the surface. First of all, it's hard enough saving mode, which went the company's management. The quotations from the president's speech "of MTS Leonid Melamed:" It is an aggressive fight against costs is bearing fruit. " Capital costs for construction and modernization of the network in the Moscow license area are reduced to the minimum necessary and, according to Leonid Melamed, this trend will continue in the near future. Until the beginning of construction of commercial pieces of third generation network. At the same time, the company still is not going to spoil his image lag behind competitors, for example, has scheduled a large-scale modernization (EDGE) data network - this we recently wrote.
Reduction of staff - another important source of savings in the use of which has gone guidance MTS. As has been elegantly formulated in the press conference, the optimization of the number of employees. "Optimized" staff (former) on the date of the order of two and a half thousand (data for Russia), but the pace of layoffs should be reduced due to the rapid growth of subscriber base (about this growth will be discussed separately).
Announced a reduction of all forms of advertising. In addition, the principal "punch" the rebranding of the company's budget came in the second quarter. Accordingly, the reduced costs to attract new subscribers (SAC). Rebranding the Ukraine has yet to be, but the cost for this event will be charged for the first quarter of next year. In fact, the results of re-branding is not very encouraging: according to the rating Interbrand Zintzmeyer & Lux, the growth of brand value in 2006 amounted to 3,3%. That is not still imbued with the beauty and deep meaning egg-shaped, whether now spoiled particular perception of the way Russian-speaking population.
One of the main factors - the clear focus on improving the quality of the MTS subscriber base and revenue per subscriber (ARPU). Free SIM-cards in the third quarter was heard surprisingly little in the tariff plan offers an attractive option for an additional fee, etc. The entire third quarter was marked by freshly CPP, and it seems that in the MTS (and not only in the MTS) is somewhat overzealous with compensation for loss of free incoming calls. Average ARPU subscribers of MTS Russia amounted to $ 8.6 ($ 5.0 prepaid and $ 29.6 postpaid), which is higher than planned at the end of second quarter figures.
Finally, the role played tendency to increase the share of revenues from value-added services (VAS).After a long period of stagnated frankly i-mode in the MTS actually refused to further support this project and to engage seriously in the promotion of paid for additional services on more familiar to the Russian consumer platforms. Starting from a sharp tightening of policy of engagement with content providers and ending with the active development of new services and projects. For example, from September to November in a virtual shop on wap.mts.ru been downloaded one million songs.
A separate theme - the work of the Ukrainian market. Despite the lost in this country leadership, the company UMC ("daughter" MTS ") is not going to win first place at any cost. As noted by Leonid Melamed, "loss of leadership in Ukraine, we are emotionally hurt, but we balanced approach to our strategy in this country." Nevertheless, capital expenditure for network expansion and increase its capacity by almost 1,7 times exceeded those of the second quarter and nearly double - the third quarter last year. At the same time take measures to increase profitability and cut costs: reducing free traffic, "optimized" payments to dealers, reducing subsidies for phones.
What we see in the near future? First of all, a complete transition to ruble tariff, which in Russia is scheduled for January 2007. Not the first of January (it is already obvious), but almost certainly within the first month of the year. Full transition to the new billing system (Foris) at least in November and slowed down, but still held. Let no one in January (as originally planned), but by April - almost certainly. The assurances of the vice-president of MTS on Finance and Investment Vsevolod Rozanov, a service contract of the old billing system extended for only one quarter and half year delay rumors about the transition do not correspond to reality.
In light of the results of the third quarter sounded interesting to observe a change of priorities in the strategy of MTS in Russia. In November, we see immediately two landmark events: the time to market is clearly more beneficial for users of the new tariff REDaktsiya with the obligatory new connection (go with the other fare is not possible) and the active offer of free "gift" sets prepaid-boxes RED subscribers to MGTS. This unexpectedly aggressive growing our subscriber base is not very similar to the policy of the company in the third quarter. It is not excluded that the progress indicators ARPU (higher than expected) leadership MTS considered a sufficient foundation for the future and now come to grips with the preservation and hardening of the leader in the number of outstanding SIM-cards.
The illustrations are taken from the press conference MTS. Press release with financial results for the III quarter of 2006 (pdf-file 170 KB) can be found here. Full text of the presentation with all the operating performance for the III quarter of 2006, tables and graphs (pdf-file 260 KB) can be found here.
