It is no secret that Russian companies are often represented by their managers love to give my services to corporations, businesses, and myself personally, that must be confessed, a greater importance. In the course are beautiful graphics, compelling speech about the growth of production of something, a favorable economic situation in the country. Regarding our mobile operators "bombast" until recently was held solely in pursuit of a subscriber, all tried to score on the phase of the maximum number of users. Gogol's "Dead Souls" anticipated events on the Russian market, some operators began to play in creating a fully virtual users with a single cent counts. The fall of MTS shares on the stock exchange after a very weak third quarter results and expectations of more big losses in the future is not accidental. The company's management was unable to clearly answer the reasons for going to explain the gift of "free" minutes, leading to the prolongation of life SIM-card (alas, no longer a living person). In the near future the company will have an equally unintelligible to explain the reasons resounding failure of the project I-Mode in the Russian market. The event is certainly interesting and worthy of attention at the local level, if not involvement in his company NTT DoCoMo. To this end, the Japanese operator I-Mode is a means of expansion into European markets and the struggle for profits in this very attractive market. Until December 2005 the expansion of NTT DoCoMo in Europe was extremely weak, if the home market of the order of 45.8 million subscribers using i-mode, regardless of the native market of such typed only 3.94 million. You can mention that in such competitive markets as the U.S. and the UK, this service has not attracted any interest at all (from both operators and consumers alike). Since 2001 (the year of launch i-mode in Europe) success is very questionable services, its development is not at a frantic pace, and the initiative lost. For example, the same Vodafone during this period boosted its subscriber base to 147 million users (including all operators, in which the company is involved). This operator is promoting a range of services under the brand Vodafon Live!, They just stand and competing for the i-mode. The company NTT DoCoMo, started cooperation with the Russian operator, tried to turn the tide in his favor. With access to 60 million subscribers of MTS (as described in the data that the Japanese operator), the company almost doubled the number of potential users of i-mode outside Japan. This fact was very well received in the camp of those who are fascinated by the technology and considers it a success. Again began to talk about the fact that since 2006 we can expect "this expansion» i-mode on the European markets, Russia is now in these plans is at the heart. Most successfully, this is the point of the deeply respected me I-Mode Content Forum (or rather his blog).
Unfortunately, the ideologists of i-mode does not take into account the peculiarities of Russian technology "bombast, no partner on the side of at least some experience in the promotion of new technologies, and the more terminals. Let us recall the story from their own phones MTS at the end of last year. Then the company failed within 6 months to realize the 30,000 vehicles and then quickly get rid of them through all channels, releasing a dozen of them and taking payment only after the realization (the application went on the sales of hundreds of thousands of vehicles and the success of the project). Introduction of new technologies (not voice) occurs always under pressure from competitors.Lavrov Pioneer, a company that has the largest number of "heavy", mnogogovoryaschih subscribers, was not looking and focused on voice. In this regard, the vice president of marketing for MTS Mikhail Susov and lost his job (by the way he is still vacant), Mr Susov spoke about the priority of data in the MTS network only a few months before his departure. The situation for MTS was a stalemate, the competitors began to win back a greater number of subscribers through new services, ARPU for voice services fell due to low cost subscribers and urgently needed to do something. Yield found in the launch of an exclusive service I-Mode.
The cost of the project for MTS
MTS, unfortunately, never to publish data on the cost of the project i-mode, but on the basis of a number of parameters they can provide. Together, let us understand, in that flew to the MTS, this exclusive project. At the time of launch services in September at a news conference devoted to this Vassily Sidorov, MTS president in response to journalists' questions said the following (the transcript of his words, some minor amendments, to throw out duplicate words):"If we talk about investment in this project, they are composed of two main parts. The first is money paid under a license agreement with i-mode.Eto not only licensed as such, but advice and support. Involvement of specialists NTT DoCoMo was extremely large and crucial. The second component is the platform for which we are paid by NEC. I think that the commercial terms and both the contract will not be commented on. We're talking about millions of dollars. The third element is actually our investment in working capital at the terminals, which we then going to sell at retail. Perhaps this is less significant part. Of course, the investment management of time. "
Millions of dollars sound convincing, but do not allow accurate assessment of investments in the project. Let's go with the small, "insignificant" part of the transaction, namely the i-mode terminals, to estimate their number and the cost can be quite easy. As suppliers of terminals serves three companies - Samsung, LG, NEC. The total volume of shipments of all companies currently estimated at Mobile Research Group (MRG) was 58 thousand units at an average price of the unit at 244 U.S. dollars (based on wholesale prices). The circle is obtained 14,152,000 dollars. Here include customs duty, VAT rate and the cost of transportation, warehousing, are forced to add another 26 per cent (the minimum amount, 18 +5 +3). The total amount of 17.83 million USD. It is clear that the money invested in terminals are circulating, the company did not write them off at the same time as when paying for infrastructure, as well as licenses for the service. But to call the amount "insignificant" probably impossible, even for such an operator as MTS.
The journal "Expert" (article "Why should we Japanese miracle?" From 19.09.2005), without reference to specific individuals provides an assessment of the value of licenses and infrastructure equipment for MTS at 20 million USD (10 and 10 million respectively). Score speculative and lacked a no visible reason. However, taking into account the licensing policy NTT DoCoMo in other countries can be assumed that a minimal entrance fee to the club I-Mode is 5 million USD (with connecting new regions requires new investment money, this is the first phase of payments and only). Let's assume that it is $ 5 million and paid the MTS for the license. Once again I say, that the minimum amount and may differ to bigger side, but certainly not least.
The cost of infrastructure equipment and services for its installation, configuration, were equal to the cost of the license and could not be less. It would be strange to assume that the infrastructure for this deal gives NEC a gift that is free of charge. Further investment in infrastructure will increase in parallel with the introduction of services in new regions.Summing up the minimum level of sunk investment in the first stage can be estimated at 10 million dollars.
Let's sum up all costs and then try to calculate the date of their return:
- License NTT DoCoMo - 5,000,000 USD
- Infrastructure - 5,000,000 USD
- Telephones - 17,830,000 USD
- Advertising to promote services (not counted as own funds invested in the MTS are not made, a budget handset manufacturers, or a total budget of corporate advertising)
- Total - 27,830,000 USD
The main objective of i-mode to attract consumers do not voice services, ie, various paid subscriptions, downloading ringtones, pictures, a word access to information. In various conversations with the specialists MTS flashed the magic figure of $ 10 for i-mode traffic per month from a single subscriber. Of course, that voice traffic has to be added to this number and then the ARPU i-mode Users could easily be 25-30 dollars, which in these times is very bad for the operator.
Give back the floor to the president of MTS, - "I would not want to give all the digits on the business case (approx. edition - a project in a general sense of the word, sometimes implemented project) for this service. Tens of thousands of subscribers this year, hundreds of thousands in the next year, are active users, who naturally will have to pay, are willing to pay a lot of respect for the content, a unique service. With regard to the segment that will use it, some of ARPU, which will be removed from service i-mode will be essential. In general, the level of 50-million subscriber base, which continues to grow, natural physical growth in ARPU in the first stage, the stage of launching services, promote it, will naturally be less significant. After 6-12 months we will ignore this income is already on the consolidated financial statements.
Let us assume that performance i-mode together on the basis of available data. Where did the figure of $ 10 per month per subscriber? This is most curious in our history. If we assume that non-performing investments in the $ 10 million, then a multiple of 10 makes it easy to calculate the index of ROI (return on investment) and does not strain your thought process by special calculations. Into account the need to take that content providers receive 85 percent of the cost of subscriptions (in Europe to 91 per cent). The share of MTS remains only 15 percent, one percent can be more than lay on the overhead costs of traffic. Total leaves just 14 percent. That is, with 10 dollars in the piggy bank MTS gets only 1 dollar 40 cents. But at the same time, it is necessary to consider the cost of traffic, it is currently 1 cu per megabyte without taxes or 1 cent per 10 kb (at launch prices were much higher then they have sharply reduced by 8 times in early November, another initial miscalculation of the company in entering the market, our people are not willing to pay for content so much and many times).
Starting from the calculation of traffic, we see that it will spend 3 MB (average for the usual person who is not swinging the graphics and tons of tunes). That is, it brings another 3 dollars for the company, a total of one person generates revenue of $ 4.40 USD per month. This is the most favorable outcome for the company.
Let us estimate the growth of subscriber base and take an ideal environment in which all connect to the service will use it constantly, you have to renew their subscriptions every month. In the real world should take into account the outflow of subscribers who were disappointed in the service, did not find her attractive. This may be a sizeable number, 50 percent of all connections.Next come the data calculated, it is not a real connection to the project i-mode.
September 2005 - 5000 subscribers, the main market of Moscow, the service is free during the month, an active advertising campaign in all media.
October 2005 - 10,000 subscribers in Moscow, St. Petersburg, the stage of promoting i-mode, an active advertising campaign in all media.
November 2005 - 17500 users, advertising intensity is reduced.
December 2005 - 25000 users, the use of separate channels for advertising services (print, outdoor).
January 2006 - 35000 users, a small amount of advertising, a respite, a connection of some regions.
February 2006 - 45000 people (low season), activation of an advertising campaign on the eve of holidays.
March 2006 - 65,000 subscribers (high season, a surge of sales associated with the holidays), the maximum promotional activity.
April 2006 - 81000 users, little advertising, the first part of the regions is connected, the preparation of infrastructure for new regions.
May 2006 - 100,000 subscribers (a fall in demand on the eve of the summer).
Until late 2006, an optimistic plan includes a connection of order 220,000 subscribers (total subscriber base).
In the optimistic scenario, or as it was named in MTS - Basic (in fact they seem to have been similar calculations) is taken into account the high popularity of the service and its active promotion. The tipping point for the service at the end of May 2006, when the total number of subscribers to reach 100,000 subscribers, and they will generate for MTS - 440000 USD per month. Since then, even in the absence of growth in subscriber base return on investment in i-mode will come in 2007, the initial stocks of terminals will be implemented, allowing the mass to resume their purchases.
According to i-mode users MTS
The size of the number of subscribers to i-mode, MTS has never commented on centralized figures flitted here and there. The latest data on progress on this front can be found in "Japanese lessons", the magazine "Company", dated 28 November 2005. It speaks to the press service of the MTS, that "the current moment to the i-mode in Moscow and St. Petersburg are already connected to about 4000, and before the end of 2005 we expect to attract 25,000 subscribers." In my opinion, given your comment is outdated by the time of publication, and he apparently refers to the beginning of November, the end of October. We must be fair as possible to the numbers and interpret any doubt in favor of MTS (actually above you see the same thing).Given that in the absence of the terminal to use i-mode is impossible, and similar devices sold exclusively on the net Svyaznoy task of counting the actual number of subscribers is greatly facilitated. In the market there are models with support for i-mode placed on the market informally, for example, the ancient model of Trium, but this unit and they have no influence on the situation.
Again give the floor to the President of MTS on the conditions of an agreement with a connected, - "The exclusiveness of our agreement depends on the performance of our partner in a number of planned targets for the next two quarters. We have confidence that he will be able to meet them, if not, we are protected so that we can expand the circle of partners. But once again, we believe in the baseline scenario, we believe, is different than "The Messenger" from the other dealer networks were most suited to promote the services of i-mode ».
It goes on sale terminals from September 2005 to March 2006 inclusive. Model, purchased MTS supplied connected on the conditions of commercial credit, the money for their retail returns on the basis of sales. The overall sales plan, which mentions Mr. Sidorov, is 40000 units by the end of March 2006. This agreement was reached at an early stage and did not change. If we compare with our calculated plan on the number of subscribers to services, then you will see the coincidence data. For example, the share of MTS is to sell about 25,000 terminals over the same period of time (up to April 2006). It is quite a realistic plan with a reasonable approach to the issue.
Is unreasonable pricing for the phones which do not allow them to sell in their offices MTS.It should be recalled that at the moment out almost all models of potentially interesting for the customer (of course, fashion phones from Samsung) have had previously submitted GSM-analogues, with a similar design, similar functionality. Models from NEC, LG because of the weakness of these brands could not even count on any significant success (we must admit that their share of sales is high due to low cost). Averaged data of retail sales are as follows for the 5 models:
Competition i-mode mobile solutions with conventional GSM-phones, for example, Samsung S410i has its counterpart in the face of Samsung E720. The cost of this well-known model in the network connected (if compared, then within the same price level) is at 11 December 9889 rubles. The difference in price with the i-mode version of the nearly 20 percent during the same value in the eyes of the consumer. On other models the comparison will be the same (except close coupled model of NEC, for it has no analogue of this, although you will find a lot better functional devices from other vendors for the same price).
According to the president of the company Svyaznoi Maxim Nogotkova at a press conference, I-Mode, its retail network in Moscow, controls 27 percent of market sales and has 250 stores, and in St. Petersburg in the presence of 80 stores control 17 percent of the market. According to the MRG in the regions where you run i-mode at the moment retailer Svyaznoi controls no more than 10 percent of the market, and even less so. Let's look at sales of i-mode phones in the network connected and try to evaluate the success of the project (further details are given MRG).
September - 910 phones, the vast majority of sales in Moscow
October - 2000 vehicles, the percentage of St. Petersburg has grown, but the basic sales in Moscow
November - 2000 phones, the percentage of St. Petersburg did not grow, it is recorded
Total for the three months were sold about 5000 terminals, MTS through its own offices are able to realize nearly 650 terminals (score MRG). On December 1, the subscriber base of subscribers of MTS service was 5,650 subscribers, here is also necessary to add a few thousand subscribers receiving terminals for free (MTS staff, journalists, promotional staff, all were ordered up to 4000 terminals for such purposes). It turns out that even in the peak number of subscribers to i-mode can not exceed 10,000 people, including 40 percent of potential "freeloader" who will not continue to access services.
Conclusions to be drawn, rather trivial, and show the general hopelessness of the selected MTS way forward I - Mode.In particular:
- Massive ads will not work, Russia is focused on the subscriber terminal and its capabilities, advertising terminals was not, it's a matter of what we wrote earlier
- Additional charge for traffic pushes buyers, it should be included in the cost of subscribing to a separate channel
- Sales in the two capitals of the snaps, the interest of the service at a constant level at the maximum advertising support
- The sales level is extremely unsatisfactory, geographic expansion will not lead to an increase in sales, and fix them (interest fizzles out in the first two cities, the proportion of controlled market for connected regions of low and high price-making)
- The price for i-mode phones can not be reduced, they are paid and are in storage until March, the total number to 85,000 units (data MRG)
- Prices for similar GSM-devices are reduced and the gap in the first quarter to reach 25-30 per cent, leading to less popular i-mode phones
- Lower prices for i-mode phone from MTS means direct loss of investments, reducing money in the commodity turnover
- Term of realization of i-mode phones (55000 pieces, not even the full amount of 85,000 shares) at the current situation more than one year, their obsolescence is expected by September 2006 and the sharp drop in interest in them by consumers (and giving away terminals will not work so easy)
- MTS company will distribute distribution to promote i-mode phones in April 2006, has a number of retail players and simultaneously adjust the value of all models
- Expanding range in overstocking existing models can not, it will not happen on the initiative of the MTS
Inciting subtotals
Knowing the number of terminals sold, we can just talk about the number of subscribers to i-mode in the MTS. That's the beauty terminal based solutions, you can not While playing different parameters to create the appearance of success of the project. Simple calculations show that for all-out effort by two partners of the project sales terminals by April 2006 will reach 2500-3000 Terminal monthly. That is, the total number of terminals will be sold to 17,650 units. Even assuming that all subscribers will use the services of i-mode, the income from them will not cover operating costs for the operator. Direct costs to attract a single subscriber i-mode at the moment (think of the 10000 people today base) was 2783 USD. By April, the light reaching the base of 21000 people (including the donated vehicles and promotion, though this is a game in favor of MTS), the cost of raising one subscriber will be 1325 USD. The calculation of the surface and does not account for advertising costs, storage devices, the purchase of infrastructure equipment for other regions. In reality, the cost of attracting subscribers to April will be according to our calculations, about 2200 USD.Unreality expenses strikes and raises doubts as to what kind of goal pursued the company, introducing a service that way. It can be assumed that this kind of PR-activity, but the amount spent on it, never repaid, and indirect signs indicate the seriousness of the MTS in an attempt to promote i-mode on the Russian market. The question now is not whether, when the i-mode will begin to develop in Russia, where MTS recognizes the failure of his attempt, and will enter the race for the consumer, using conventional technology (read: not exclusive).
A side effect of the failure of MTS to implement technology in Russia and other CIS countries will be a heavy blow to the idea of i-mode in other countries, particularly Eastern Europe, several major European markets, perhaps countries BRIC. In fact, the Russian operator in 2006 to put a fat cross on NTT DoCoMo expansion into other markets, will thus pebble, which will cause the total collapse of the market against the backdrop of negative expectations. Unfortunately, this is not cause for pride in local companies, and the reason for the disorder.
The future of the MTS - a short time and long-term prospects
On the example of the introduction of i-mode is clearly seen that the company has entered into a protracted crisis, which sometimes begins to resemble the uncontrolled dive.The absence of a coherent and understandable concept of development, even within the MTS leads to sad results. They imposed the general deterioration of operating performance, which is a consequence of downsizing the company. It would affect not only average or below flight level, but will be freed and a number of senior positions. I would venture to suggest that the contract of President of MTS, Vasily Sidorov not be extended, in its place may come a manager of a Western company. Would be funny if it turns out to be a former manager of one of the world's major operators, who begins to pay attention to the Russian market to absorb the local operator. I think, add two and two of our readers will be able to.The reason for the resignation or departure of honor will probably lose MTS Beeline number of connections at the end of the year. Active promotion of Beeline in the retail network, Euroset will lead this company to a leading position.
In the short term MTS enough trouble with the loyalty of "heavy" users, which in the transition to a new billing system are beginning to experience difficulties with the calculation of own funds in the account or the availability of communication. Problems of time, but they strongly affect the company's image (rather read a forum MTS, to understand what is at stake). Removal from the playing field a number of staff of marketing and self-care more adequately assess the situation of workers in other companies will also create a certain negative attitude (leave must be at its peak, the number of CV in the firms to recruit staff in the field of telecom strangely increased month ago). Confusion, the replacement of specialists with new people, all it will take time, but his company does not have.
The next step of the MTS is a transaction with one of the major players in the telecommunications market, which will have a dramatic effect on MTS. The announcement of the transaction can be expected in the first quarter of 2006, put it into practice will begin in the second quarter of 2006. My personal assessment of the actions of company management boils down to that in a domestic crisis problem is not localized, but rather superimposed on one another, which only enhances their overall effect. The logical conclusion from this situation would fall in the capitalization of the MTS in early 2006. After the fall will be partially recoup, the company may begin to look for someone who would be interested in its assets. Welcome Vodafone Live! On the Russian expanses, like this.