Moscow. December 29. Every coin has a reverse side, and Russian Telecom to the illustration. The vast majority of other industries look at the growth in Telecom over the last decade, with black envy is on one side. On the other hand, technological progress, which provides this huge growth, requires operators of large investments. If in difficult macroeconomic conditions to yield a completely natural desire to hide and wait, soon, instead prospects will only see the back of competitors. Spend too much, and the downturn – will have nothing to pay debts. To find the perfect balance between these two extremes may be more difficult than to build a network of the next generation.
While Telecom claims to be one of the most resistant to the economic woes of industries in Russia. While many markets dived following the price of oil, telecommunications, according to preliminary data of the research company “TMT Consulting”, accelerated to 2.1% from 1.7% in 2014. Almost 60% of revenue (971 billion) in Telecom has formed mobile segment, which, however, this year for the first time in history grew slower than the market – by 1.2%.
Mobile operators in 2015, as before, developed 3G and 4G network, has done M&A deals, attracted large loans, including abroad. And even with the scope was spent on the first in the history of Russia auction for LTE frequencies, paying the state 6.3 billion rubles.
Looking to 2015, we can conclude that for the Telecom industry he has become a logical continuation of 2014. Trends, outlined earlier, continued to develop, and it’s not just about the total for the Russian economy, the geopolitics, sanctions, the devaluation of the ruble. Players of the Telecom market are in different situations – each of the operators takes the his own party. For some of them 2016 may be the year of checking the correctness of the chosen strategy and ability to achieve stated goals. But long-term growth despite the depressed macro-economy is hardly possible even in the most dynamic industry. Telcos will continue to exist in the paradigm of their business plans, introducing new services and building networks, even if a barrel of Russian oil in 2016 will be given $20. However, to fight for a place under the sun will be more difficult, and operators will have to use all the skills of battle for market share.
Forward to victory of optimization
Among the Russian mobile operators, to give forecasts of annual results, and both were conservative in the beginning of 2015. MTS were waiting for revenue growth in Russia by more than 3% (after the third quarter forecast has been raised to more than 4%),whereas by the end of 2014, the indicator increased by 5.6%. “MegaFon” was even more careful and laid in its forecast of zero growth (by the end of 2014, revenue increased by 5.9%).
VimpelCom, unfettered by status subsidiaries of global Vimpelcom Ltd., traditionally financial indicators does not, but likes to share a conceptual vision. About what 2015 would be for VimpelCom by year total savings, its CEO Mikhail Slobodin announced in late 2014. “We will save on everything, on what you can save,” he said, and carried this mantra through the entire year.
If you transfer, on than trying to save “Vympelcom” last year, it’s likely not enough fingers: the company announced the retrenchment of managers “tens of percent”, the sale of 10 of thousands of cell towers, reducing the regional offices, outsourcing IT systems and Slobodin even hinted about the possibility of moving the Central office from the Garden ring in a more advantageous, from the point of view of rental rates.
The goal of the “deep optimization” – to compete with global digital companies, which have a light management structure and high concentration levels of decision-making, said the head of “VimpelCom”. This is certainly an important purpose, but the key task of the operator, which was supposed to solve Slobodin, who has headed VimpelCom in September 2103 year, is to regain the trust of the subscribers. This, in turn, boost your revenue and success in fighting for higher positions in the market.
The total revenue of the company in 2015 has stagnated – growth over the first three quarters of 2015 happened only once – in January-March (0.2%), the rest of the time the index was down 1% on a quarterly basis. At the same time, revenues in the mobile segment in II and III quarters grew by 1% and 2% respectively.
Summer at the meeting with analysts, managers of “VimpelCom” predicted that in 2015 revenue growth will not exceed the momentum of the first quarter, which can be understood as a lack of growth. At the same meeting they reported that the revenue growth planned in 2016. In early 2014 Jo Lunder, at that time Director of Vimpelcom Ltd., promised in an interview that the Russian operator stabilizes market share and return to active growth after about two years, i.e. in 2016. In the same year, in September, a three-year contract expires slobodina.
According to the calculations, the moment he became the head of “VimpelCom” (just at the end of the third quarter of 2013), the market share of operator revenues in the Russian “big four” declined to 25.2% from 27.1% (a comparison of mobile revenue for the first 9 months of 2013 and 9 months of 2015).
During this same time, MTS increased its share to 33.8% from 31.3%, “the Megaphone” – to 30.2% from 29.4%. Tele2 for two years, as “Vympelcom” has reduced a share in the Russian market to 10.8% from 12.2% (both statistics – based mobile assets of “Rostelecom”). However, in the case of Tele2, the comparison is not fully representative because in 2013, the operator did not own mobile assets of “Rostelecom” – they were added in August 2014.
Another slogan slobodina in 2015 to “get more for your money”. It is unknown how many will spend “Vympelcom” on capital construction by the end of 2015, however, the data at the end of the third quarter show that for the first 9 months CAPEX yoy decreased by 26.4% to 28.7 billion rubles. This is 1.6 times less than that of “MegaFon”, and 2.3 times less than that of MTS. Managers explained this disturbing trend of “smart” investing, the use of big data for the design of construction, and discounts from vendors. While implementation of the smart strategy would be premature, said the representative of “VimpelCom” Anna Imasheva. According to her, the interim analysis shows that earnings per new base station has increased by tens of percent relative to last year.
All Telecom companies are in a very difficult situation due to the devaluation of the ruble: ruble receiving the proceeds, they purchase equipment in foreign currencies, said the President of MTS Andrey Dubovskov.
MTS has reduced the pace of implementation of non-priority projects or have postponed them, but invested in 2015 more competitors, he said. The operator believes that through active investment in the crisis period, it lays the Foundation for further growth. The effectiveness of this strategy during the previous crisis demonstrated MegaFon, overtaken by revenue VimpelCom, which began to save on capex and froze the construction of new networks. However, we must not forget that seven years ago the Russian economy, in fact, got off lightly, as the oil price quickly went up. What will happen this time and where our economy is waiting for the proverbial bottom, followed by growth, it is difficult to predict. While the bottom continues to go down – despite periodic statements by Russian officials that it has been achieved.
The path optimization and the desire to get more led VimpelCom to expand in 2015 cooperation with MTS in the sharing of the radio spectrum. Now the company not only to common efforts to build LTE networks in 36 regions, but also in 20 of them divide the frequency of 2.6 GHz – total width bands is 20 MHz.
“MegaFon” rehabilitated “fixeu” And B2B
To summarize the year “Megaphone”, outlining General trends and the vector of development, is difficult. Your “zillion agony” in the past year received the shareholders of the company first learning of the amount of dividends for the year of 2014, after which, watching the fall in the value of the company’s stock to historic lows ($11,4 per GDR). However, these events hardly interrelated – in 2015, the bottom saw the shares of many Russian companies, including MTS and Vimpelcom. The capitalization of the “MegaFon” as of 24 December decreased 1.4 times compared to the previous year, MTS 1.3%, and Vimpelcom – in 1,2 times.
“MegaFon” in the past year, and VimpelCom, practicing in savings, but unlike the competitor did not do it under the banner of crisis management, but rather in search of better opportunities. Not always in favor of shareholders. For example, the decision to pay a paltry (by the standards of “Megaphone”) the dividend for 2014 – 16,13 per share, or 10 billion roubles that in 4 times less, than in 2013 – CEO Ivan Tavrin explained the need “cash management and foreign exchange risk in a cautious manner”. Financial Director of “MegaFon” Gevork Vermishyan said that large dividends in the first half of the year would force the company to sell foreign currency liquidity component of the operator. “It’s dangerous in the theoretical scenario of weakening of the ruble to the end of the year, when we will have to pay the debts”, – he said.
Forecast CFO of MegaFon as ruble overall has come true – since the announcement of the recommendations on dividends for 2014, the ruble fell against the dollar by more than a quarter. However, the concern about the debt is unlikely to appeal to the minority – in terms of dollars they received less than they could, if the primary tranche of payments was least at the beginning, not the end of the year. It is possible that this fact influenced the attitude of investors to papers “the Megaphone”.
But overall, of the financial flow 2015 “the Megaphone” has paid the most for their public history – almost 50 billion rubles. Interim dividends for 9 months amounted to 64,51 per share (RUB 40 bln). However, 50 billion (80,64 per share) at the beginning of the year would be brought by the minority shareholders us $1.45 on paper, while in two tranches they received 13% less – $1,26.
By October 2015, MegaFon has been able to overcome the notorious “Olympic effect” of the first quarter of 2014, when the company’s revenue showed double-digit growth, with mobile operators not happen for a long time. In the first quarter 2015 revenues because of the high base effect fell by 1.2% in the second quarter by 0.7%, but due to the fact that “sank” the sale of gadgets, and in the third quarter was an increase of 0.3%. To fulfill the annual forecast for revenue (and he, unlike the Outlook for OIBDA, was not revised upward), revenues in the fourth quarter should increase by about 1.5%.
Perhaps an additional injection of revenue in October-December will be revenue from the corporate segment, where MegaFon is trying to catch up with VimpelCom. According to “TMT Consulting”, for the year the share of MTS, VimpelCom and MegaFon in the mobile enterprise segment will be 36%, 29% and 27% respectively. MegaFon later came on the market, so now catching up with competitors, says CEO “TMT consulting” Konstantin Ankilov.
According to “MegaFon” in 2015, he made extensive use of B2G customers. Revenue from government customers last year will be about 8.5 billion roubles, predicts the Director of corporate business development “the Megaphone” Vlad Volfson. 2016 “the Megaphone” will serve about 1 thousand customers under new contracts, which are equivalent to about 20 billion rubles.
Another source of growth of revenues, at least in the third quarter, became a fixed business, whereas competitors this item in the reporting subsided. The proceeds of “MegaFon” from “fixes” should grow after purchasing B2B operator Gars Telecom, also supports the direction of services for operators (B2O) and, in particular, Euro-Asian fiber-optic trunk line DREAM. The project worth more than 600 million rubles of planning paid off this year, now connected to China Telecom, China Mobile and China Unicom, European operators Deutsche Telekom, Interoute, Softnet, Telecom Italia Sparkle. While MTS and VimpelCom have noted that their fixed incomes are reduced including from-for unprofitable B2O segment.
MTS also notes that the corporate mobile communications market shows consistent growth despite economic instability: in the third quarter, the operator increased the number of sold contracts in the corporate market by 1.5 times year-on-year. The penetration of Internet usage among corporate clients of MTS for the year increased by 10 percentage points every second new subscriber to the company in the business segment is not only voice services, but mobile Internet, said the representative of the operator Dmitry Solodovnikov.
Russian business also uses mobile Internet in the framework of M2M-services – in 2015, the number of such connections grew by 20% to 3.6 million, he said. The proportion of M2M traffic in the corporate segment in 2015 have doubled to about 20 percent.
Very briskly walked the first four months of 2015 (hardly over the course of the Ukrainian hryvnia and the loss of Crimean subscribers), MTS faced with the disaster that is looming on the horizon in late 2014. Then fell apart a long time preparing the transaction on occurrence of MTS in the capital of Svyaznoy, the control of which eventually went to Oleg Malis, the brother of the head of “Euroset” and the business partner, main shareholder of “MegaFon”. As a result, “the Messenger” intermarried with the “Euroset”, owned on a parity basis by MegaFon and VimpelCom.
In April both competitors MTS is back in “the Messenger”, formerly the fiefdom of MTS (accounting for 70% of sales contracts in the salons of the retailer.)
MTS first staged a public breakup, ending of sales contracts and receive payments in the salons of the retailer, and then decided – “it’s not dostance to anyone!”. And filed a lawsuit against the Federal Antimonopoly service for the fact that she has approved the request of Oleg Malis on the acquisition of control over “Coherent”. New “group of persons” retailers Malinov brothers – could limit competition in the market operator contracts, asserted MTS. But the court at the end of the year rejected the claim of MTS, and the operator has not yet decided whether to appeal.
The search for justice in the ownership of “Connected” is more of a matter of honor for MTS (and we probably will hear more in 2016), the real headache of the operator – substitution of channel through which previously sold 10-20% (according to MTS) contracts. Rupture of relations with partner forces the MTS to significantly increase its retail network up to 5 million in 2015 and 5.5 million in 2016. And this despite the fact that neither “the Messenger” and “Euroset” are not going to expand the physical network, and MegaFon – improving the efficiency of the retail they have is to relocate salons.
According to the President of MTS Andrey Dubovskov as, most carrier retail and even multi-brand retailers unprofitable. The operator would like to see the number of points of sales in the market fell, but forced to do exactly the opposite.
“Limit retail growth does not depend on us – we’re always going to answer. Outlets that we control, at times less points that control our competitors. However, we connect not significantly less than competitors of the “big three”, but a certain amount – 1-3 million sim cards on a quarterly basis. But we can’t connect to 5 million less then we will lose market share”, – told reporters currently at the end of the year.
MTS has not yet replaced its own retail sales contracts lost in the “Connected” and hopes to solve this problem for a few blocks.
MTS would also like to operators are generally connected to less subscribers than now. According to Dubovskov as, in Russia annually is on sale 113-115 million sim cards (with a population of 146 million people). Database operators, therefore, are filled with “dead souls”, which give quarterly growth, and in half a year – high quarterly outflow.
Particularly acute problem of churn for operators is in Moscow – this region generates, according to AC&M, 17% of the Russian subscriber base and, according to various estimates, 25-40% of the proceeds of the “big three”. In the second quarter of 2015 the leader by the size of the subscriber base in Moscow and the Moscow region became VimpelCom outstripped MTS. However, some market players believe that this is a “Pyrrhic victory” – say, the base operator’s toxic, because some sim cards VimpelCom distributes free of charge (for example, applying to the ordered pizza) or imposes. The latter, however, according to the observations of correspondents, is true for all operators and their associated retailers. But the fact of the free distribution of rooms VimpelCom denies.
Someone comes, someone leaves, or brothers our smaller
The most anticipated Telecom event 2015 happens to be connected with the capital market. The October release of Tele2 in Moscow, probably in 2016, slightly redistribute the share of the “big three”. In December, the operator had 1 million subscribers, which corresponds to 2,43% of the Moscow market at the end of the third quarter (a total of 41.2 million sim-cards).
Tele2’s ambition extends further in the Moscow region it aims at 10% market share, more than 4 million subscribers. Tele2 only need three years to increase its subscriber base to 20 million to execute its own plan and to press in 2018 VimpelCom.
The capex reduction is not exactly about Tele2. In 2015 CAPEX operator has established a record: in January-September it amounted to 28.3 billion rubles, more than double its capital spending in 2014. It is likely that CAPEX will grow at the same pace and in 2016. Tele2 will invest around 11 billion concessional bran (really, five) credits VTB for construction of networks in Moscow, as well as their networks cover 19 regions, excluding Crimea and Sevastopol.
By the end of 2015 Tele2 will be unprofitable, as in the next two years, predicted the company. Net income and dividends to shareholders (Rostelecom, VTB, Bank “Russia”, “SOGAZ” and Alexei Mordashov) Tele2, according to her own prediction, “Shine” not earlier than the end of 2018. However, the shareholders of the operator, apparently, are willing not only to wait patiently for success, but also generous to lend him.
While Tele2 has been pursuing to transform the “big three” the “big four”, to the Volga region SMARTS, last visible regional player, 2016 seems to be the last. The remaining four activists of his Empire founder Gennady Kiryushin plans to sell in 2016 (however, these companies are under the arrest of the British court at the suit of one of the contenders for their purchase – MTS). Latest local mobile operator in Russia is the Ural “Motive”, which in October reported on the construction of 4G on the territory of Sverdlovsk and Kurgan regions, Khanty-Mansi and Yamal-Nenets Autonomous districts.
Speaking of LTE 2016 will probably be the year when every one of operators “the big three” will close the fourth generation networks 83 regions of Russia, except the Crimea and Sevastopol, which still cost their mobile operator “K-Telecom”. By the way, LTE-MTS network formally already cover all 83 subjects.
In 2016 we will see a continuation of familiar themes: sell SMARTS residues, the development of 4G with the launch of the functionality of VoLTE (voice over LTE), the second, more ambitious and expensive, the auction for LTE frequencies, and surely new projects on joint construction of networks.
We’ll see how effective was the optimization of VimpelCom, what will retail insulation, MTS, Tele2 will be able to “move” the “big three” in the Moscow market. The new year will show whether the “Megaphone” to secure a leading position in data revenue. To help him – child frequency resource of Scartel (brand Yota), which next year will launch the sale of its mobile contracts about 10 subjects, predominantly in the Caucasus (the end of the year the number of regions with distribution of sim cards Yota will increase to 71).
The state operators are waiting for two key things – the further liberalization of sharing (spectrum sharing) and ensuring non-discriminatory access to homes.
In October 2015 the state Commission for radio frequencies (SCRF) took the first step on the path to full spectrum sharing – allowed operators to join their existing LTE frequencies in the bands 900 MHz, 1800 MHz and 2.5 GHz. In 2016, the state Commission may consider the issue of spectrum sharing in the 800 MHz band. Operators are waiting for the enactment of a law that will allow a full legalization of spectrum sharing in all bands, exchanging and selling frequency.
The bill is already two years travelling on offices of officials and legislators, but so far without success. To bill a lot of comments from the main legal Department of the state Duma, to say that he is ready for the second reading – prematurely, said in late December, the Chairman of the Duma Committee on Informatica Leonid Levin.
“In the new year we hope for a swift adoption of the legislative amendments on the joint use of frequency spectrum that will enable us to more efficiently use the scarce frequency resource, especially in the context of our work in “VimpelCom”, – said the representative of MTS Dmitry Solodovnikov.
According to the head of the company Andrey Dubovskov as, in the regions in which base stations are being built jointly with VimpelCom, the average growth rates of LTE users at MTS to a third higher than in the whole country. “Additionally, we managed another 10-15% from the initial forecasts (25-30%) reduce costs of construction and operation of networks”, – said the head of MTS. With the unification of the frequency spectrum (as part of the decision SCRF) our joint project goes “to a qualitatively new stage of development” – said Dubovskov. Sharing of the frequency resource will increase the speed of mobile data transfer and speed up the construction of networks in cost optimization, which gives MTS and “Vympelcom” base “to build plans for further expansion in the number of regions with the joint use of frequencies, said Dubovskov.
Another important issue is the further expansion of possibilities of joint use of Telecom infrastructure, noted in “the Megaphone”. The regulatory framework currently does not allow operators to share, for example, transit nodes, equipment switching and routing of packets of information, billing, and telematics service platform. “In the current economic situation the possibility of sharing is a necessary step. Cost reduction the operator during the introduction of such a measure reaches 1.5-2 billion rubles per year”, – said the representative of “MegaFon”.
Interesting MegaFon and spectrum sharing – the company at the end of the year was sent to the scrd requests for frequency sharing with his “daughter” Scartel in 12 regions.
“Tele2 is ready “to implement all possibilities for efficient use of the spectrum, but specific plans at the moment, no,” said the press Secretary of the operator Olga prokopiya galushina.
Kvartirny vopros, or “HOA two percent”
The issue of ensuring equal access of operators in an apartment building with Internet and TV networks has been discussed for about four years. In December the Ministry of communications admitted that he has not found understanding with the Ministry of construction on the bill providing for relevant amendments to the Housing code and the law “On communications”.
“Under present law the decision on the entry of a new operator into the house shall be taken by 2/3 votes of homeowners, and it is virtually impossible to organize”, – said the Vice-President of MTS Ruslan Ibragimov. “In fact, there is a conflict of two constitutional principles – the right of ownership and the right to receive information. These are management companies, arrogating to itself the right to decide which operator to put into the house, and setting them a fee for entrance to the house. According to some estimates, about 2% of its revenue from broadband services out these companies”, – said a top Manager of MTS.
“It’s no secret that often the HOA and management companies do, let’s talk straight, blackmail operators. They put unrealistic prices for access, create various obstacles on the way to the final consumer services”, – said the representative of “Rostelecom”.
In addition to providing non-discriminatory access, necessary changes in construction norms and rules (SNIP), which ensures the creation of residential infrastructure for Telecom equipment, said in state-owned companies. “The existing building codes do not provide for the possibility of laying telecommunications infrastructure of several operators”, – says Ibragimov.
These issues were discussed at the forum “Internet Economy 2015” at the end of December and were included in the road map that should be referred to the President by representatives of the industry. “Hopefully, this will help move the issue,” said Vice-President of MTS.