FOCUS: Russia’s Rostelecom to propel MVNO to retain clients, improve user loyalty

By Yekaterina Yezhova

MOSCOW, Sep 26 (PRIME) -- In an attempt to curb down an outflow of landline telephony users and diversify business, Russia’s Rostelecom, a state-controlled telecom operator, has started testing and will soon fully deploy a mobile virtual network operator (MVNO) on the cellular infrastructure of its half-owned T2 RTK Holding, working as Tele2. Analysts said the move will improve loyalty of users and expand Rostelecom’s ecosystem.

“We started testing Rostelecom’s mobile services on September 14 in four regions. We plan to gradually expand coverage to all regions where T2 RTK Holding operates, now counting 65 out of the country’s 85 regions,” Valery Kostarev, a spokesman for Rostelecom, told Russian Connection.

The project’s commercial operations will be fully launched by the end of October.

The companies signed an agreement on the MVNO project earlier in 2016. “It’s a full MVNO, meaning that Rostelecom has its own numbering capacity and sets tariffs. Phone screens will show the Rostelecom sign,” Kostarev said, adding that services will be provided both for individual and corporate clients.

“For Rostelecom, the MVNO’s launch is an opportunity to gain additional revenue and enhance subscribers’ loyalty, introduce home services outside flats. The company constantly works at making its services available beyond home,” he said.

Vitaly Solonin, head of the wireless department at J’son & Partners Ñonsulting, thinks the main reason behind the MVNO is a necessity to reduce churn of fixed-line telephony and broadband subscribers thanks to bundle services, comprising mobile connection.

“The core upside of an MVNO is a lack of necessity to build own network with base stations and formalize frequency resources. Such operators usually target small groups of subscribers, who can be out of focus of big cellular players. It can be ethnic groups, young people, sports fans or seniors. Such clients get a service almost completely tailored to their needs. For example, labor migrants can get information in their own language and call home at low prices,” Solonin said.

Kostarev at Rostelecom said the project’s advantage for subscribers is that calls between the state operator’s landline and mobile lines will be charged as internetwork ones, and they are always cheaper. “Besides, we are analyzing a possibility of introducing a discount for landline connection in case of a purchase of Rostelecom’s SIM card,” he said.

“SIM cards can be bought only by subscribers-users of the company’s fixed services, like telephony or broadband.”

Analysts at UralSib Capital said that the initiative could, first of all, improve loyalty of Rostelecom’s current clients, rather than become an independent source of revenue. “As the Russian cellular market is highly saturated, we don’t expect the project to have a noticeable impact on market positions of the main players,” they said in a research note.

Rostelecom did not disclose its investments in the project, but Kostarev said they are relatively low in the scale of the operator’s business since the company is not building a mobile network.

Solonin at J’son said an MVNO usually pays its host-operator for consumed traffic. “The maximum amount of a framework contract could be 330.4 million rubles, including the value-added tax, and settlements on the contract will depend on the volume of consumed services,” the analyst said.

According to Rostelecom’s documents, the state operator is going to buy the first batch of 2G/3G/4G smartphones for a total of 65.3 million rubles, the value-added tax included, for the MVNO. Rostelecom will distribute devices via its own channels – including the Internet store and the retail chain – in a bundle with contracts for mobile services.

Rostelecom declined to provide any expectations on a subscriber base.

“Until now, MVNOs have not been much popular on the Russian market: with the country’s total subscriber base at 252 million as of the end of June, MVNOs, mostly affiliated with big operators, serviced about 2.5 million clients,” UralSib Capital’s analysts said.

Georgy Vashchenko, head of Russian stock market operations at investment company Freedom Finance, said the MVNO could win 200,000–300,000 subscribers within a year, and average revenue per user could be at 300 rubles per month.

Solonin at J’son said much will depend on marketing, product promotion and tariff policies. “Anyway, we could expect the bundle offer with mobile connection to be used by at least 5% of Rostelecom’s existing clients in two to three years,” he said.

Rostelecom serviced 21.3 million fixed-line telephony subscribers, 12 million broadband clients and 9 million pay TV clients as of the end of June.

(63.8642 rubles – U.S. $1)

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