MTS looks for integration with Comstar to drive Russia's
Mikhail Gerchuk: A year ago we were just a
operator. Now we are a convergent operator
Mobile operator MTS is ready to start promoting
quadruple-play services to its customers across Russia,
following its acquisition of a controlling stake in fixed
network Comstar UTS.
Comstar is still officially an independent entity, but MTS
owns 62% and is in effective control, and the company is using
its shareholding to ensure that the management teams are
aligned so that Comstar and MTS are increasingly working
together, says Mikhail Gerchuk, the chief commercial officer of
Russia still has low internet penetration, at only 30%, says
Gerchuk, and broadband is just 8%. So the company believes
there is considerable scope to use MTS's outlets and market
presence to promote fixed services as part of the bundle. MTS
is using the motto 3I, he adds: "For internet, innovation and
At the same time MTS is continuing to build up its 3G
network. Construction started in May 2008 but the network is
now being expanded. Mobile data still relies largely on
2G-based Edge technology, at least outside Moscow. The company
is moving towards confirming LTE for its 4G strategy, even
though Comstar has some WiMax infrastructure within Moscow.
"Our bet is now 3G and LTE," says Gerchuk. "We launched 3G
in Moscow at the end of 2009. We now have it operating in 57
cities and we are actively building up coverage. There is still
a lot of work to do, but we plan to have 6,000 3G base stations
in place at the end of this year."
The company uses largely Nokia Siemens Networks
infrastructure, with a sprinkling of Ericsson and Huawei in
On the fixed side, MTS is looking to acquire a number of
small regional players to add to Comstar. "Fixed broadband in
Russia is very fragmented," says Gerchuk. In December 2009 it
bought Eurotel, a Russian long-distance network with 19,500
kilometres of fibre through the country, more than doubling the
size of MTS's backbone.
But the biggest innovation in terms of marketing has been
the creation of a network of more than 3,000 MTS shops across
the country, "and we've launched MTS-branded handsets", he
adds. "This is a significant innovation. There is no history in
Russia of operators selling their own handsets", and MTS is
unusual among Russian operators in having its own-branded
"Both of these moves have been successful," says Gerchuk.
"Our market share is growing, and we have 15% of sales through
our own shops. Our objective is 30%."
And MTS-branded handsets have accounted for 15% of handset
sales in those shops, he adds. "In December 2009 the MTS-brand
handset was one of the top 10 handsets in Russia, though it was
available only in those 3,000 stores."
The MTS stores will be a natural outlet for Comstar
broadband services, he indicates. Under the MTS brand? "That's
commercially sensitive information," he smiles. Gerchuk is a
member of Comstar's board, he notes. But 38% of Comstar belongs
to other shareholders, "so it is a separate legal entity" but
there is a board of directors and an integration committee
looking at such issues.
"There is a plan to launch bundles soon," says Gerchuk. "A
year ago we were just a mobile operator. Now we are a
convergent operator, with 3G, fixed broadband, fixed voice and
-- from Comstar -- TV services." A new TV outlet is MTS's own
site, Omlet.ru, which offers movies, music and games to the
Meanwhile MTS is attempting to move Russia into the credit
card era with a branded MasterCard, run in association with
Citibank, and a Visa card, with Raifeissenbank.
"Credit card ownership is low, and Russia is still largely a
cash economy," adds Gerchuk. As a result, MTS has evolved ways
of paying for online content on Omlet.ru via mobile bills, even
though content is viewed on the PC as well as mobile devices,
with a high degree of interoperability.
"We want to work with Comstar to produce a set-top box so
our customers can watch the content on TV as well," he adds.
The integration with Comstar, though still under negotiation
and a subject to some sensitivity, clearly has some advantages.
"MTS is the single most popular Russian brand across all
categories. We are one of the most powerful global brands, and
86% of our customers say they would trust MTS for fixed
broadband." MTS "is by far the strongest" and a deal "will
create a synergistic effect".
One unit that will not be rebranded is MGTS, the Moscow City
telephone company, which is owned by Comstar but has much local
loyalty. "MGTS stays as MGTS," he confirms.
But MTS "is uniquely positioned" in the Russian market,
where there is considerable potential. "It's one of the fastest
Meanwhile MTS is trying a loyalty programme, under which
customers earn bonus points for calls, texts and internet
access, that can be redeemed from a catalogue. "We're creating
an ecosystem of loyalty. You'll be able to earn bonus points
when you buy handsets and you'll be able to redeem your points
Russia has a huge appetite for internet access, he
concludes: any internet, whether fixed or mobile. "And MTS is
uniquely positioned," he concludes. GTB