Russia's MTS targets quad-play, outlines LTE and data ambitions

MTS, Russia's largest mobile operator is putting quad-play services at the top of its agenda, reflecting the convergence strategies of several operators in Western Europe.

"Our next big focus is convergence," said Vyacheslav Nikolaev, the director of B2C marketing at MTS, told FierceWireless:Europe in an interview. "The main rationale for the services is customer loyalty," he added.

MTS has acquired several regional fixed-line players across the Commonwealth of Independent States, and is now in the process of creating a unified billing system in order to integrate these operators. Once this is completed, Nikolaev said quad-play bundles of fixed and mobile services will be rolled out region by region, starting with Moscow this year. The company already offers discounts to customers who subscribe to more than one service plan.

Nikolaev also said that MTS, which competes with VimpelCom and MegaFon in the mobile market, would consider buying more fixed-line players if good opportunities emerged, and said the operator is generally open to interesting opportunities both within and outside the CIS--if the price is right.

Meanwhile MTS is also stepping up its LTE rollout this year, and plans to spend 40 billion rubles (€940.3 million) on LTE networks this year and next.

Nikolaev said the operator has a dual strategy for LTE; on one hand it has to cover certain regions under the terms of its licences, and expects to have eight "licence regions" covered by the summer of 2014. On the other hand, it is aggressively targeting commercial areas where demand is high, and will roll out LTE in these cities on a region-by-region basis; commercial services are already available in Moscow.

The operator also recently finalised agreements with both Ericsson and Nokia Siemens Networks for the supply and deployment of LTE equipment. Ericsson has been chosen to deploy the LTE network in four regions covering more than half of Russia, thus becoming MTS's main vendor. NSN will provide the equipment for MTS's first deployment of FDD-LTE in Moscow and the Central Russian regions during the third quarter of 2013, utilising 800 MHz and 2.6 GHz spectrum.

MTS already offers TD-LTE services for laptop users in Moscow, and the FDD-LTE services will enable it to extend LTE to smartphone plans. Nikolaev added that the use of TD-LTE has been extremely effective at offloading traffic from MTS' 3G network, which MTS has also now upgraded to 42 Mbps HSPA+.

Nevertheless, the rollout of LTE is currently facing a major hurdle: the 800 MHz frequencies that have been awarded to operators have not yet been completely cleared and are still being used by government agencies and the military. "This is a major problem," said Nikolaev. "We do need 800 MHz frequencies," which are particularly good for rural rollouts because of strong propagation characteristics. He added that MTS is working with the government agencies on refarming the spectrum, "but this is going very slowly!"

He said the recent "notorious government initiative" to place all 800 MHz frequencies into a single company, which would have resulted in operators losing their 800 MHz licences, had merely been an effort to resolve the current situation. "We believe there will be a rethink on this," said Nikolaev. "The scenario of a single network, I don't think this could be effective…the ministry is now open to other suggestions. We now have to wait and see what happens."

Notwithstanding the spectrum issues, Nikolaev made it clear that MTS wants to roll out LTE as fast as possible, and move more of its subscribers onto data services in order to boost its data revenue. The company reported a 37 per cent increase in data revenue in the first quarter of 2013 compared to the year before, and 40 per cent growth is now expected this year.

Nikolaev added that MTS wants to avoid the mistakes it made with 3G, when it adopted a slower approach to the network and fell behind rivals in terms of data adoption. However, the operator has an advantage compared to Western European operators: "We are lucky in that voice revenue is not falling down as fast," said Nikolaev "We have been able to increase market share in voice" by offering free minutes.

While the pace of voice revenue growth may have slowed, the fact that it is still growing "will give us time to grow and develop our data business," he added. Smartphone penetration is now around 30 per cent in Russia, he said, and penetration is higher still in Moscow.

MTS now offers smartphone plans that include unlimited data (BIT plans), albeit throttled down after certain limits are reached, and includes value-added services such as TV in its tablet tariffs. However, Nikolaev said shared data plans that allow a user to have a smartphone and tablet on one tariff are not an immediate priority for the operators: "This actually moves your revenue down, and we don't need to do that yet," he said.

In terms of the devices themselves, Nikolaev confirmed that no operators in Russia are selling the iPhone after becoming disenchanted with the strict conditions imposed by Apple.

It also seems that Apple made what Nikolaev believes to have been a strategic mistake in Russia: iPhones were launched in Russia three to four months after other markets. Russian consumers who wanted an iPhone would travel to Europe or the U.S. and buy one there. "So when the official versions were launched, anyone that wanted one probably already had one," Nikolaev said.

As a result, iPhone sales are not something that MTS will miss, and indeed the operator has previously said that it is decreasing the share of premium smartphones in its product portfolio and selling cheaper smartphones including MTS-branded Android devices in order to drive up ARPU. Nikolaev added that MTS is of course always open to negotiation with Apple, and said the operator will continue to woo iPhone users with its network.

MTS certainly has a busy time ahead. However, not content with offering "only" telecoms services the operator has branched out into the financial services industry by buying a 25 per cent stake in a bank, now called MTS Bank. Subscribers will be offered a growing portfolio of mobile money and traditional banking services in the months ahead, added Nikolaev.

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