Interview with MTS CTO/CIO reveals growing connection between hardware, software

Russia’s mobile telephone market continues to be a bastion of fierce competition, with Mobile TeleSystems continuing to maintain a leadership position, though strongly challenged by the likes of Megafone and VimpleCom. This battle for supremecy is being waged in a market where mobile penetration is in excess of 150% and smartphone penetration remains shockingly low compared with other developed markets.
A recent report from Maravedis-Rethink noted the growing opportunity in the Russian market for LTE services, with the country hosting just over 10,000 cell sites across 50 regions of the country. MTS currently serves more than 100 million mobile customers across Russia, Ukraine, Turkmenistan, Armenia and Belarus, as well as offering fixed voice, broadband and pay-TV services.
Looking to tap into the growth opportunities available through higher-speed mobile networks as well as the increased reliance between information services and network operations, MTS earlier this year added the title of CIO to Andrei Ushatskiy’s ongoing roles of VP and CTO, with Ushatskiy now tasked with overseeing the firm’s information technology operations. Ushatskiy has been with MTS since 1996, handling various roles in the carrier’s network operations divisions.
Ushatskiy recently provided RCR Wireless News with insight into challenges currently facing MTS in its battle to remain No. 1 in its region, as well as how he feels the tighter integration of hardware and software will shape future operations.
RCR Wireless News: What are some of the biggest challenges facing MTS today?
Andrei Ushatskiy: Macroeconomic weakness and its potential impact on demand for our services is a factor that may limit revenue growth in the markets where MTS Group operates. So far, we aren’t seeing a slowdown in demand in Russia and our subscribers aren’t reducing their telecommunications spend. However, we may see some impact on our operations, in particular, decreasing disposable incomes might reduce consumer demand for smartphones, which is crucial for our business as customer migration from feature phones to smartphones is currently an important driver of our growth in data revenues. In Russia, operators can’t lock in customers to contracts and we don’t offer subsidies on phones – customers need to pay the total price for the phone upfront. To mitigate the risk of slower uptake of smartphones, we are using credit products to sell smartphones in partnership with MTS Bank in which we have an equity stake. We are also focused on promoting affordable smartphones to make data services available to all customers. Last year, we launched an MTS-branded smartphone priced under $60, which became the best-selling model in the Russian market.
Other challenges, given the scale and scope of our operations, range from introducing the world’s best practices in procurement to balancing marketing strategies in 83 of the Russia’s regions and four countries in the Commonwealth of Independent States to large-scale network build-out with a goal of installing 14,000 base stations in Russia by the end of 2014, in addition to G-PON construction in Moscow.
RCRWN: What impact has increased demand in mobile data services had on MTS’s operations?
Ushatskiy: Uptake of mobile data has been growing at a steady pace, which has allowed MTS to manage the network load systematically. We continue to modernize our networks and are upgrading our base stations to support HSPA+ dual carrier and are rolling out LTE in different spectrum bands so we have ample resources to meet the demand for data consumption. At the same time, equipment swaps have enabled us to realize cost savings as maintenance costs for newer equipment are substantially lower.
RCRWN: How has MTS handled spectrum needs and how are the governments in the markets where MTS operates handling the need to free up new spectrum resources?
Ushatskiy: We are constantly engaged with the regulators to find solutions that benefit customers and the industry. Russia, our key market, has sufficient spectrum resources for 3G and 4G networks. Most recently, regulators have allowed the re-farming of the 1800 MHz range to run LTE networks. This has enabled us to use our existing spectrum more efficiently. We are now testing LTE in 1800 MHz range and will launch the network later this year. We are also working with the LTE Union, a consortium of the operators building 4G networks in Russia, to clean up spectrum in the 800 MHz and 2600 MHz range.
RCRWN: How has MTS been able to tap into big data to drive more revenue from operations?
Ushatskiy: Big data is impacting our operations in many ways. We are focusing on three areas: customer experience management, [customer relationship management] analytics and new product development. We analyze network performance and optimize quality of service for each subscriber. On the level of customer service, processing big data has significantly improved efficiency of CRM and call centers as operators now can use the customer data to suggest a more tailored tariff plan or sell additional services, such as mobile payments or credit products. On the level of products, big data has transformed the mobile advertising industry giving a boost to this revenue stream. We are conducting event-based marketing campaigns using geo-location – for example, we recently conducted an SMS-based campaign for L’Oreal targeting women in a specific age category that live within 700 meters of the mall where L’Oreal products are sold.
RCRWN: How does MTS view the move toward network virtualization and what benefits/ challenges remain in that move?
Ushatskiy: We consider network virtualization as one of the biggest trends in telecom that is bringing a variety of opportunities such as [capital expenditure/operating expenditure] savings and time-to-market reduction. We are working diligently to benefit from this trend; the virtualization rate in our IT data centers is more than 80%. We are in the process of migrating to the virtual desktop infrastructure) platform. At this stage, we are integrating desktop computers into the VDI, but going forward we will replace desktop devices with “thin clients,” which reduces maintenance costs and greatly improves security. We are also working on creating a platform for selling cloud services to corporate customers. In April, we opened a data center in Moscow that will be used both for our internal needs and for offering corporate customers such services as virtual hosting, dedicated server and collocation. Telco cloud (network function virtualization) is another application of network virtualization. We were among the first operators in the world that rolled out virtualized IMS test zone. And, we have plans to continue the NFV trials with all major vendors later this year in order to consider the start of the first commercial implementations of NFV in 2015.
RCRWN: What are some of the challenges you expect to tackle in your new role as CIO at MTS?
Ushatskiy: New technology development is resulting in the convergence between traditional telecommunications and IT. We think that further communication network evolution will rely heavily on cloud technologies to help reduce the costs of keeping our own infrastructure and providing MTS with more effective instruments to manage and develop our network. To achieve the maximum advantage from the utilization of these technologies, we are creating a unified infrastructure allowing us to provide both telecom and IT services. This is the primary objective of our technical and IT departments merging and it will stay on top of my agenda as CTO and CIO of MTS.
RCRWN: Market penetration across MTS’s service areas are generally well above 100%. Does MTS continue to expect market penetration levels to grow, or will future revenue opportunities come from garnering more spending from its current base?
Ushatskiy: Penetration of mobile services in Russia is indeed well above 150%, though this reflects prevalent multiple devices usage and usage of dual SIM phones. More importantly, smartphone penetration stands at 34% in our active base and at roughly 20% for the market overall. We still see significant market growth by transitioning customers from voice to data services.
In the fixed-line business, where we have a presence in 180 cities in Russia, we have significant potential in up-selling customers to tariff plans enabling higher speeds as we modernize our networks. We are also in the process of migrating customers from analogue to a digital TV platform, which also boosts the average bill by 20%. Our most capital-intensive project is connecting Moscow households and offices to G-PON with speeds up to 1 gigabit per second, an unrivaled offering in the Moscow market. We are now halfway through the project, having wired over 2.3 million households and, though the uptake is still low, the first results of the customer migration are very encouraging with a 50% increase in [average revenue per user] upon migration from ADSL to G-PON.
The opportunities for growing revenues in our markets are many; the key is to leverage our networks and our assets – including retail – to differentiate ourselves from our competitors and offer products customers want.
RCRWN: Which market segments does MTS see short-term/long-term growth opportunities?
Ushatskiy: The fact that mobile data revenues are growing at a rate of over 40% per year is the key growth opportunity for MTS. MTS is historically the leader in the corporate market in Russia and we leverage this advantage to sell value-added-services from VPNs to cloud services to M2M solutions. Last year, we made a big push to expand into financial services, offering POS loans on smartphones and credit cards in our Monobrand retail chain, which includes over 4,000 stores. We are also developing our mobile payment application, which processes payments to more than 25,000 merchants. Russia is an unbanked economy with credit card usage twice lower than in China, and MTS – with its 70 million mobile subscriber base, extensive retail chain and strongest brand in Russia – stands to capture the growth in financial services.
RCRWN: Is MTS looking at expanding into new geographic markets?
Ushatskiy: This question arises from time to time given the competitive dynamics we see in neighboring European markets, but for now, MTS is focused on its existing footprint and, in Russia in particular, expanding into complementary products and services (e.g., mobile payments, e-commerce) to increase customer value.
Bored? Why not follow me on Twitter