Interview: Mikhail Gerchuk of MTS

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With 51% of fixed provider Comstar, MTS is preparing to sell bundled services through its own outlets. Mikhail Gerchuk hints at the new strategy

MTS looks for integration with Comstar to drive Russia’s internet penetration

Mikhail Gerchuk: A year ago we were just a mobile
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 MTS.

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 integration.”

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 some locations.

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 retail system.

“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,, which offers movies, music and games to the public.

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 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 growing markets.”

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 against handsets.”

Russia has a huge appetite for internet access, he concludes: any internet, whether fixed or mobile. “And MTS is uniquely positioned,” he concludes. GTB