Ringing the Changes

MegaFon has focused almost exclusively on the Russian market, where it has about 70 million subscribers. MegaFon's Executive Director, Consumer Business, Mikhail Dubin says rather than expand overseas, the company aims to offer the most advanced technology at home. MegaFon is a winner in the combined performance ranking.


Mikhail Dubin

Last year MegaFon demonstrated almost double-digit growth. How has 2014 differed from 2013?

Firstly, the geography of Russian LTE networks has significantly expanded. MegaFon today provides high-speed mobile Internet in 68 Russian regions. We will reach 70 regions by the end of the year. MegaFon's LTE network is the biggest in the country, covering an area home to 40 per cent of Russia's population, roughly 60 million people.

Another important result from this year, for us and for the industry on the whole, is the commercial launch of our LTE Advanced network. MegaFon was the first in the world to offer clients mobile Internet access at speeds of up to 300MB/s. As an example, this speed means a 1.4 GB video can be downloaded in less than a minute. Just recently these speeds seemed impossible but now people in Moscow and St. Petersburg are enjoying them. In future, we plan to gradually expand the coverage area.

This year clients in Russia were given the option to switch to a different operator without changing their number (Mobile Number Portability). Talk of MNP has been ongoing since the mid-2000s and only now has this option become a reality. I'm not fond of talking about it as "freedom from mobile slavery" but it's certainly something that was needed because there are clients who want to change operator but hold onto their number.

And finally, this year our clients are using smartphones and tablets a lot more. This summer, sales of smartphones overtook telephone sales. Today, if we look at sales on the whole, smartphones account for 60 per cent, while sales of normal phones have dropped to 40 per cent. I have the sense that they will continue to fall.

You mentioned the launch of your LTE Advanced network. Experts say that right now penetration of LTE Advanced-enabled devices is still very low, so the network is not actually any use and is more about image for operators.

Similar things were said when we started building 4G networks. In 2012, we launched a 4G network with one modem. Now, just two years later, there are around 100 smartphones and tablets that support this technology. When we launched the new network back in February, one router, MegaFon Space, only supported it but now such speeds are available on at least three smartphones. And very soon we'll be offering a new compact router with LTE Advanced support in our stores. The number of such devices will increase significantly in 2015.

What mobile products and services are you interested in? What products do you plan to launch?

As before, we're concentrating on releasing affordable MegaFon-branded smartphones and tablets. Sales of budget mobile devices have been growing much faster than other segments for the second year running. That's the trend today and I'm certain it will continue next year as well. Budget smartphone consumers are fairly sensitive about price. For half of them it's their first mobile device with access to the Internet. We have cut the price of Internet options by 20 to 30 per cent especially for such clients.

We see particularly big potential for video services. At the beginning of the year we launched Smotri+, a service where people could watch the Olympics and Football World Cup. It was downloaded more than 2 million times during the Olympics, which is indicative of the significant interest in video streaming. Another popular service is MegaFon TV, where users can watch Russian and foreign TV channels in digital anywhere with Internet. In a year, the number of active users of this service has risen 50 per cent. We think this is a very promising area and plan to develop it.

Of course we are interested in everything around mobile finance. Firstly, this is mobile apps where people can pay for services using mobile Internet. Secondly, this is MegaFon payment cards. And thirdly, this means expanding the financial services we offer in our MegaFon retail offices. In addition to paying for services, this includes money transfers, loan payments, topping up transport cards and much more..

How is MegaFon developing its recent acquisition, Scartel? What will happen with competition between mobile Internet and fixed line?

I don't think it's a matter of competition. It's more about everything converging towards some kind of synergy. Mobile and fixed line Internet complement each other very well. In cities, customers prefer to use fixed line Internet at home, while outside their apartments they stay online with mobile. But there are regions in Russia where it simply doesn't make economic sense to put in a fixed line. Mobile Internet in places like that is the only "window to the world".

MegaFon has a subsidiary, NETBYNET, which offers fixed line access and provides home Internet, paid TV and phone services in 80 Russian cities. This asset will develop by offering service bundles. †

Yota is a niche operator that knows its audience well and what to offer it. This operator will of course continue to develop and grow.

Some say consumers continue to spend on phone services despite slowing economic growth. Have we reached the stage where these services have become an integral part of people's expenses or does it depend on each individual?

Compared to other sectors, telecom is of course less exposed to the negative impact of macroeconomic factors. Firstly, mobile has genuinely become an integral part of daily life. Phones are now one of those things people never leave the house without, likes keys and wallet. Secondly, mobile services are now incredibly affordable. The average mobile bill is now slightly over 300 rubles, which is less than people spend on transport. But of course we are not completely isolated and are prepared for our subscribers to focus on optimizing expenses if the economic situation gets worse. In this case, I think the operator that offers the best value for money will have the advantage.

With a population of 143 million people, Russia's telecoms market is the biggest in Europe. Do you think it will reach maturity like the western European market, which is now seeing weak growth and profitability? Or do you think the Russian market will develop differently?

Compared to the US, Japan and South Korea, the western European market looks fairly conservative. I think Russia, in terms of interest in innovation and the speed at which these innovations are introduced, is closer to the leaders. Technologically speaking, we are up there with them, and across many criteria we are way ahead. This is in large part because of the regulator's extremely reasonable approach. A simple example: we received our license to build LTE networks through a competitive tender. In countries where these licenses were sold, the development of 4G networks has been much slower simply because operators spent a lot of money on the licenses and not on building the networks.

The average quality of mobile services in Russia is much higher than in any European country. And prices are several times lower. I'm certain the development of global (and Russian) telecom will continue to be dynamic as the number of mobile devices grows and new ways of using Internet traffic emerge. This could be cars or domestic appliances connected to the Internet, fitness gadgets, mobile cameras, etc. In this diverse range, smartphones and tablets won't necessarily be in the lead.†

Doing Business in Russia 2014
Doing Business in Russia 2014
The СCEO of the Year Russia 2014Т awards come at just the right time. They celebrate the achievements of the best CEOs. They are a lesson in the possible, a benchmark to aspire to and something to be proud of.
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