MTS India: Data Business Experience

1

May 08, 2012

MTS India is a joint venture between Sistema and Shyam Group of India

SSTL

SSTL – A joint venture between Sistema

(LSE:SSA) and Shyam Group(LSE:SSA) and Shyam Group

• Sistema (LSE : SSA)

–Largest public diversified corporation in Russia and

SSTL Ownership

CIS countries

–Manages fast growing companies operating in the

consumer services sector and has over 100 million

tOthersRussian

F d ticustomers

• Shyam Group–Has diversified interests in telecom, manufacturing,

56.68%

Federation

2.18%17.14%24.00%

services and fertilizers

–Essel Shyam Communications Ltd, a joint venture

between Essel and Shyam group, is a leading pan-

I di VSAT i

2

India VSAT service company

Data market has a huge potential in India with only 10% user penetration; 30%+ broadband growth in last 3 years

100Internet users % of population

India’s internet usage lowest amongst BRIC nations… Internet connections by type

CAGR (2008-2011)

MM

77 75 757175

Internet usage driven via multiple devices (~2.5) per

connection and multiple users ( 5)

19

815

13

22

9

BroadbandOthers20%

7%

50

multiple users (~5) per connection

118

713

6

713 34%

3832

24 2325

201020092008 2011

108

0

• Severe under penetration of broadband and significant latent demand – Less than 1% penetration

• Fall in PC and laptop prices and introduction of cheaper devices like

Key growth drivers of wireless broadband

Source: TRAINote: India Population 2011: 1.2B

net books

• Increased awareness levels and the desire to get connected and stay connected on the move

EV - DO a dominant technology in the market today with 80% share of WDS subscribers; likely to account for ~30% of market by 2015

EV-DO 2011

HSPA 20%EV-DO 80%

3G

LTE

Source: Team Analysis, Telecom customer survey 2012 (n=~85)

In line with market opportunity, MTS India adopted a data centric: voice enabled strategy in 2009

Vision

Differentiated top 3 player in the data marketProfitable top 5 player in high priority voice

markets

Data Voice CostsData

• Focus on subscriber acquisition

• Target ~30% market share

Voice

• Participate in select high potential circles

• Focus on ARPU

Costs

• Variable cost model–Intra-circle roaming–Outsourcing / Managed g

by 2014• Differentiated top 3 player

improvement• Move to open market

handsets

g gservices

• Aggressively manage handset costs

Best in class execution

High performance organization

MTS India’s EV-DO coverage today stands at 248 cities; First operator to provide HSD services on national highway

K G th E bl

Coverage• MTS India has already launched High Speed

Jammuand Kashmir

Total 248* cities across India

Key Growth Enablers

S d a as a eady au c ed g SpeedData (HSD) services in 248 cities

Captures 83% of total notional MPV

• MTS India is the first operator to provide HSD services on National Highway 08 (Delhi to Jaipur)

PunjabUttaranchal

Himachal Pradesh

UttarPradesh (23)Rajasthan

Delhi

Haryana

Chandigarh

Sikkim

Assam

Arunachal Pradesh

Nagaland

(5)(11)

g y ( p )and National Highway 04 (Chennai to Bengaluru)

Customers1 3M d t b ib t d f D b 2011

Pradesh (23)

Madhya Pradesh

j

Bihar

Meghalaya

Tripura

Manipur

Mizoram

Orissa

GujaratJharkhand

(23)

(27)

(7)

• 1.3M data subscribers at end of December 2011• 27% net additions share of HSD subscribers in

Q4 2011• 1X subscribers account for ~10% of the

t d t b ib b D b 2011

AndhraPradesh

West Bengal

KarnatakaGoa

MaharashtraDadra & Nagar

Haveli

Daman &Diu

Kolkata

Mumbai

“Own” networkICR network

(29)

(1)

(1)

(22)

(17)

aggregate data subscribers by December 2011

Key HSD FactsTamil NaduKerala

Pondicherry

ICR network(30)

(38)

(14)

# of HSD cities( )

• 10 of Top 10 cities• 19 of Top 20 cities• 86 of Top 100 cities

Note: 45 cities approved under Phase V of EV-DO coverage Source: Staretegy team 6

MTS India has a compelling data product portfolio to support its data centric strategy

K G th E bl

MTS range of high-speed data products in the last 24 months

Key Growth Enablers

R)

20,000

atin

g Pr

ice

(INR

15,000Pulse16K

Blackberry

Mar

ket O

pera

10,000

Ali

Ivory10K

Blackberry9.5K

5,000Alive6.3K

Buzz3.5K

Mi-Fi4.5K

2K

1.5KLivewire

4.0K

mTag5.5K

Sep’09 Dec’09 Mar’10 Dec’10 Mar’11

Launch Date

Sources: MTS India Devices team

Jun’10 Sep’10 Sep’11 Dec’11Jun’11

7

Data business growth has been enabled by several innovative products and partnerships (1 of 2)

K G th E bl• 1st in market to launch prepaid product for data

MTS has >50% share in prepaid high-speed data

• Sachet products: Offered sachet products to suit customer

Key Growth Enablers

Sachet products: Offered sachet products to suit customer needs and higher realized rates

• DPI based innovationsProducts specially designed for users base inclined towards surfing a set of URLs – A SNS pack STV provided giving unlimited access to a set of URLs

Products

SNS pack STV provided giving unlimited access to a set of URLs

• Dialer innovationsThe Smith Micro dialer used uniformly across all our data devices for a consistent “connect” experience for all data cardProducts experience for all data card Leverages MTS portfolio of applications and provide us IP-focused advertisement opportunities to augment revenue Dialer V2.0 integrates HTML5 programming for intelligent offline and online usage which magnifies consumer experience many times overmagnifies consumer experience many times over

• Landing page innovationsEach time a MBlaze user connects, they are presented with an Unique personalized “My MTS” page with useful content of their interestDisplay of product related information – Account balance in Rs / MB, product validityMost innovative customer convenience – Customer can do a STV deduction from main account balance and thus have more flexibility of recharge and we have lesser dependency on retailer balance

Data business growth has been enabled by several innovative products and partnerships (2 of 2)

K G th E bl

Products

• MyMTS Mblaze PortalWith this initiative we would be empowering our data Customers to choose the right product at any given point of time 24*7P d t i ti ill b i d t t d thi i t ifi d

Key Growth Enablers

Products Product communication will be superior and targeted, as this is very customer specific and personalizedThis platform will help us in offering customized / segmented Usage and Revenue enhancement product

• Differential charging: Offer 5 websites of choice free of charge

Pricing

• Unlimited data: 1st in market to launch unlimited HSD product for a flat fee of INR 999 per month

Data activations increased by ~25% within 30 days of launch of product

• Content t MTS

• Consumer brands: A i f R b k h

• IT OEMs: Offer di t HP

• Distribution partnershipith th taggregators: MTS-

Yahoo customized landing page for subscribersPartners

hips

pair of Reebok shoes free on purchase of a MTS data card

discount on HP PCs along with a MTS data card

with other operators: Vodafone selling MTS powered dongles in India

9

MTS India has customized its branding efforts based on usage depth

K G th E blData Card – Branding Market Context• Market dominated by EV-DO

brands: Tata Reliance MTS

Renewed Thrust in 2011Platform 1:

SpeedContinue to position in speed as the central benefit

Key Growth Enablers

brands: Tata, Reliance, MTS• Growing threat from 3G

players: Airtel, Vodafone, Idea

• Brands primarily positioned Until 2010 MTS

Platform 2: Value

Pl tf 3

Pricing led strategy with aggressively discounted product -acquisition oriented

Move out of generic speed/value b fit• Brands primarily positioned

on speed, with cues of power, instant-ness, excitement

Speed = numeric mbps value • Rationale

Until 2010 MTS MBlaze Was built on speed, value platforms and Alliances and

Platform 3: Usage Depth

benefitsSegmented offering to address specific need from a usage perspective

Speed numeric mbps value

Reliance Netconnect: Building on pure rational driverTata Photon: benefits of

– Need gap identified through usage behavior analysis

– Decline in usage towards month end, especially in student community

– Recharge balance gets exhausted towards month end

partnerships

Tata Photon: benefits of speed

• Relatively low differentiation, highly price and discount led

• Until 2010 Mblaze was built

– Disposable income constraints prevent full recharges

• Product Solution

• Innovative daily unlimited use product

• Campaign proposition

10

• Until 2010, Mblaze was built on speed, value platforms and Alliances and partnerships

Campaign proposition– The power of the internet: Change your life in one day

Departure from generic undifferentiated speed platform

– Leverages the opportunities and possibilities of the internet

As a result, MTS is one of the top 3 data operators, has the highest data coverage in top 100 cities and has the highest data revenue % of total revenue

HSD Market (MTS active circles of operations) Relative placement vs. competition

In ‘000 HSD coverage in top 100 cities

5,000

6,000

21% growth

5,175K

4,282K

86 8153

4,006 3,000

4,000

,

3,356

2,000

27% net adds share26%

Data revenue as % of total revenue (Q4 2011)

24

14 14

926 1,168

0

1,000

Q3'11 Q4'11

adds share in Q4’11

26% growth

14 14

Q3 11 Q4 11

Others MTS

Note: RCOM subscriber base for EV-DO estimated based on intelligence inputs and past performance Source : Business Intelligence; MTS estimates 11

Overall subscriber base has grown by 1.6x and quarterly revenue by 1.5x in the last 12 months

Quarter on Quarter subscriber growth Quarter on Quarter revenue growth

18 0

In Millions90 0

In US$ M

15.115.8

14.0

16.0

18.0

74 9

81.180.0

90.0

10.0

11.7

13.4

10.0

12.0

62.3

71.774.9

60.0

70.0

4 0

6.0

8.0 52.3

40.0

50.0

0.0

2.0

4.0

Q1'11 Q2'11 Q3'11 Q4'11 Q1'1220.0

30.0

Q1'11 Q2'11 Q3'11 Q4'11 Q1'12

Note: 1) Total subscribers in Millions (Wireline, Wireless Voice and Wireless Data); 2) Total revenue from MTS India operations (Converted to US$ using average exchange rates for respective quarters; 3) Average INR to USD exchange rate in Q3’11 was at 45.79, Q4’11 was at 50.81 and Q1’12 at 50.24Source: MTS Finance

Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12

Talent and organization structure key internal challenges; Weak CDMA eco-system and regulatory support key external challenges

Internal factors External factors

L k f l i ll f d W k & h i ki t• Lack of talent especially for data business

L k f i i l hi &

• Weak & shrinking eco-systemDevices

• Lack of experience in launching & selling data products

DistributionPricing

• Vendor management complexities

• Poor perception of CDMA operatorsPricingTesting

O i ti l t t & f

• Speedy development of advanced technology for voice and data

• Organizational structure & focusInability to turn focus fast enough to data

businesses

• Lack of regulatory support

13

Long term strategic framework focused on achieving leadership in high growth data market and smart voice play

Leadership in Leadership in data led wireless market & smart voice playdata led wireless market & smart voice play

Transformational

Business as usual

SME excellenceB ndled ser ices to

M-enablementH lth Cl d

Targeted MDS2

• Accelerate smartphone market share by– Launching quality Android

WDS1 2.0• Strong customer lifecycle

management (CLM)• Ramp-up acquisition via

B CManaged services play in select

areas

D

• Bundled services to SMEs

• GTM model to address sales & service

• m-Health: Cloud based managed service coupled with OEM device partnerships

• m-Commerce:

Launching quality Android handsets

– Compelling pricing plans– High quality experience– Expanding distribution

channels

Ramp up acquisition via– improving connect rate

with OEMs– Focus on enterprise

channel– targeted retail initiatives m Commerce:

P2P remittances, bill payments and merchant tie-ups

– WiFi based tablet play– Fixed wireless solutions

Smart Voice• Get to required scale in "Win" circles – target 4-6% end of period SIM share• ICR led play in low "Option" circles – focus on ramping up sales and distribution in micro markets• 2 carrier data strategy in selected metros (if operationally feasible) – offer smartphones with voice on ICR

A

14

Delivering a high quality customer experience

With a culture of Innovation

Best in class execution (including alliances)

High performance org w/ lean cost/capex

1. Widescreen data services (WDS) 2. Mobile Data Services (MDS)