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MTS Marketing Boss Eyes $760M in Annual Software Sales

Iain Morris

The marketing boss of MTS believes the Russian operator could look to generate about a tenth of its revenues from software as a realistic "mid-term" objective.

Mobile TeleSystems OJSC (MTS) (NYSE: MBT) has been expanding into software development in both the consumer and enterprise sectors in a search for new growth opportunities outside its core telco business. (See Russia's MTS to 'Sacrifice' Connectivity in Software Rebirth.)

While the operator still generates nearly all of its revenues from the provision of connectivity services, Vyacheslav Nikolaev, who took over as chief marketing officer in June, told Light Reading that his "personal target" was to grow software sales rapidly.

"I think 10% of revenues could come from digital and software services … 10% is something in the mid-term I think is reachable," he said. "This is the time to start investing more in this area."

MTS generates more than 90% of its revenues in Russia, where it is the country's largest network operator, and provides telecom services across several other countries in eastern Europe and central Asia.

In its recent April-to-June quarter, the company reported revenues of about 106.8 billion Russian rubles ($1.85 billion), an increase of 0.7% on sales in the year-earlier period. Based on revenues last year, Nikolaev's target would imply software sales of about $740 million annually.

Earlier this year, MTS revealed that it made about $100 million in revenues from system integration services in 2016 following its takeover of a systems integrator called NVision Group the year before.

Nikolaev thinks MTS can take advantage of the fact that connectivity revenues are still growing in its most important markets despite recent economic difficulties. "This can be an important source of free cash flow that will allow us to invest in new business areas," he said.

MTS now offers about 24 of its own apps to customers and there are more in the pipeline, according to Nikolaev.

The flagship My MTS app, which allows customers to manage their own accounts and make changes to their tariffs, has attracted about 10 million users in two years.

The operator had 107.8 million subscribers on its various networks at the end of June, including 78 million in Russia, where the vast majority of the My MTS users are based.

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

Another of Nikolaev's targets is to boost My MTS take-up to about 90% of all smartphone customers.

Recent financials indicate that about 54% of subscribers use smartphones. In Russia alone, the realization of Nikolaev's target would give MTS about 37.9 million My MTS users.

That could deliver a substantial boost to sales because existing My MTS customers are generating more in average revenue per user than other subscribers, Nikolaev reveals.

"I cannot say it is a drastic difference -- it is not like 50% -- but it is two digits and I think this market is fast developing," he said.

Due to currency movements and economic uncertainties, MTS has been unable to predict whether revenues will grow or fall this year. In its latest guidance the best-case scenario is for a 2% increase in revenues, while the worst outlook is for a 2% decline.

However, due to cost efficiencies, MTS is confident of growing its operating income before depreciation and amortization (OIBDA) by more than 4% in 2017. OIBDA rose 8.2%, to RUB44 billion ($760 million), in the second quarter, compared with the year-earlier period.

MTS faces strong competition in Russia from rival operators MegaFon and VEON (formerly known as VimpelCom), which has also been trying to reinvent itself as a software company with the launch of a digital app for consumers. (See VEON's Digital Overhaul Much More Than Rebranding.)

Nikolaev says there is a major difference between MTS and VEON on the consumer software strategy. While MTS is launching different apps for different needs, VEON appears to be loading as much functionality as possible into one app, he says.

"I think putting everything into one app brings you to a situation where the app is very heavy and it is more difficult to develop and install new versions," he said. "One app is not an ecosystem."

— Iain Morris, News Editor, Light Reading

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