FOCUS: Russia’s Rostelecom to reshuffle management, cut 4 bln rbls of costs

By Yekaterina Yezhova

MOSCOW, Mar 2 (PRIME) -- Rostelecom plans to approve a management reshuffle in early March to cut 4.3 billion rubles of spending a year, reduce staff, which, according to analysts, will make the Russian telecoms giant leaner and more capable of fighting for a larger market share.

“The existing management structure does not correspond any more to the level of Rostelecom’s development. We’ve become a new company and can move forward now,” Rostelecom President Sergei Kalugin, who came to the company and brought a new management team in 2013, said.

“The reform, which is supposed to primarily allow the company to build its business processes around the client, will help rapidly improve services and launch new products, provide services based on new business processes and technologies at a lower price.”

The reform, which should be completed by the end of the current year, will reduce the number of management levels and cut the number of managing positions by 15%.

Rostelecom’s business will be split into B2C, B2B/B2G and B2O segments, each of which will be run separately with its own product design, marketing and client management to make quick decisions and launch new products. The company will create a similar managerial structure in regions to adjust products to specifics of local markets.

Finam’s analyst Timur Nigmatullin said that the management reform is most likely part of a larger reorganization plan and will likely last the whole of 2015.

“The company has been actively revising its assets and signing mergers and acquisitions deals, like a spinoff of mobile assets and the purchase of media assets. Last year it adopted a development strategy until 2018. This means that changes in the managerial system could not be avoided, but they are of a systemic character,” he told Russian Connection.

The analyst said that the economic crisis was not behind the reorganization as Rostelecom was not hit by the turbulence on the financial market, has almost no foreign currency debt and does not plan it.

“Besides, Rostelecom, like other telecom companies, have a strong, sustainable cash flow from operating activities. It is close to private firms by labor productivity,” Nigmatullin said.

Almost all international telecom giants, including Deutsche Telekom, AT&T and BT, use segmented or similar management models.

“The world is moving toward virtualization and it’s very important we learn to manage products and services in such a way that there is no need to introduce new equipment, but we could re-program it, as Internet companies do, and offer new services to clients. It will allow us to expand networks faster with decreased capital expenditures and ownership value,” Kalugin said.

The operator will also merge its technical and IT blocks, while the company’s media business will constitute a separate block with functions of strategic planning.

“Previously we had business processes, like a broadband development project and a project office, all operating separately. Now we are uniting them and will control all processes, which used to be run along each other, from a single center to make modifications more efficient,” Kalugin said.

Nigmatullin said that the reform may lift the company’s shares thanks to lower spending and better corporate management.

“However, support will be moderate as the company is still run by the government and is mostly focused on the fulfilment of not always profitable state projects and, as one of the largest employers, on maintenance of social stability,” Nigmatullin said.

(61.2718 rubles – U.S. $1)

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