FOCUS: Analysts say Rostelecom’s idea to compete with Gett, Uber too challenging

By Yekaterina Yezhova

MOSCOW, Jun 13 (PRIME) -- As a proof of its dedication to digital future, Russian state-controlled Rostelecom, now mainly perceived as a traditional telephony operator, is considering creation of a trip aggregator, like online taxi services Gett and Uber, but with a wider choice of transportation means. Analysts say the expensive idea would unlikely pay back, but may work via mergers and acquisitions.

“Those pioneers who sensed the change of consumer tastes, Uber and Gett, have made a colossal step toward the creation of a new system, a new service, mobility of the service, where we don’t want to own a vehicle, but we want to be carried from point A to point B at a lowest fee possible and within the shortest time,” Rostelecom President Mikhail Oseyevsky said earlier in June at the St. Petersburg International Economic Forum.

“Today, we only speak about taxis, but it’s evident that the system will evolve, and we think that the system will encompass other types of transport, like driverless and electric ones, commuter trains.”

He said that Rostelecom plans to create a digital platform for this service, which will require integration of 5G, data storage and processing centers, high accuracy positioning and geo-information systems, tools of communication of onland infrastructure, communication of road infrastructure with vehicles, and the vehicle-to-vehicle communication system.

The task will require coordination of a much greater number of participants than those of the pioneers of the industry. “It’s a long-term program of high importance,” Oseyevsky said.

Rostelecom’s spokesman Andrei Polyakov told PRIME that the company has not announced the project yet and “is just exploring the mobility-as-a-service (MasS) market and analyzing approaches.”

“Russia will have 50 million MasS users in 2025, and the market will amount to U.S. $58 billion,” Polyakov said.

Brokerage BCS said that “the creation of a commercially successful aggregator could become a heavy task in view of competition on the part of existing local and foreign services.”

According to Finam’s financial analyst Timur Nigmatullin, in order to have a 10–15% share of the market, which means pushing out Gett, the company will have to invest at least 2–4 billion rubles annually in marketing and infrastructure over the coming two–three years.

“By way of comparison, Yandex won 55% of the market thanks to similar injections when the market was maturing. So, I doubt that such large-scale investments would pay back to Rostelecom as the market is consolidated,” the analyst told PRIME.

“As the initiator of the system, Rostelecom has no special advantages in the face of competitors. Because of a lack of a developed search engine and an own map and navigation service, the project’s margin would most likely fall below that of the rivals, because the operator would have to focus on a price competitive advantage. Meanwhile, the company could envisage an option of mergers and acquisitions to enter the market quickly.”

The idea is in line with Rostelecom’s intention to turn into a digital company and get rid of its wireline image. The company’s revenue from fixed-line telephony contracted 11% on the year to 20.4 billion rubles in January–March, while total revenue lost 3% to 70.4 billion rubles. Subscriber base of local telephony shrank 7% to 20.3 million, according to the company’s financial report.

Revenue from broadband and pay television services rose by 7% and 18% to 17.5 billion rubles and 6.6 billion rubles respectively. The number of broadband subscribers added 5% to 12.5 million, and the number of pay television clients rose 6% to 9.4 million.

Rostelecom will unveil its new digital-centered development strategy in late 2017. The current strategy, adopted in 2013 and revised in 2015, stipulates the company’s transformation into a provider of digital services by 2020 to offset saturation in traditional segments.

(57.0020 rubles – U.S. $1)

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