Our mission and strategy

If you ask anyone today in Russia what MegaFon is, the vast majority would say it’s a mobile operator. Would they be right? Yes, especially if you look back at the last 25 years, which is how long we have existed as a brand — a brand that it would be no exaggeration to say is a household name in Russia.

But would it be right to call us a mobile or telecom operator when talking about today? Or when talking about what MegaFon will become in future? Probably not.

Our company helps people communicate, ensuring high quality voice services and the fastest mobile internet. With the most extensive network in Russia, we are always there with our clients and MegaFon is available in even the most remote corners of the country.

We rarely think about it, but what yesterday seemed impossible, is today part of our lives. Technology has changed, and along with it our requirements and habits: we expect that any service, any information and the possibility to see, obtain, read, listen to, send and save it should be available anytime, anywhere. And it’s doesn’t matter if we’re talking about photos from a certain event, a like on social media or a financial operation.

MegaFon has changed with technology. Today we are not just a telecom operator. Step-by-step we are becoming an operator in a much broader sense: an integrated digital communications company.

It sounds imposing and serious but what do we actually mean? Let’s have a look.

When we talk about communication, we mean the entire spectre. Communication means interaction between people, the fabric on which any society is based. There are many tools for human interaction, from the personal, close and trusted form, through to mass communication, reaching millions.

Communication tools are constantly developing — from inscriptions on clay tablets to letters, radio, telephones and telegraphs, TV, text messages, chats and email. Thanks to new technology we have cut the distance between cities and countries to fractions of a second.

The most popular means of communication today are social media and messengers. Tomorrow there will probably be new ones that we possibly can’t even imagine yet. Whatever they are, we will work with them. Today the MegaFon group includes Russia’s largest internet company, Mail.ru Group, which owns the largest Russian-language social networks, Vkontakte, Odnoklassniki and Moi Mir. Mail.ru Group products are used by 90% of Russian internet users each month. Together with Mail.ru Group, we are working to create radically new digital services for our clients, uniting our communication capacities with the resources of a major internet company. So clearly we are much more than just a high quality mobile channel; we are a digital communications company in the broadest sense.

But why digital and integrated communications?

Because the focus of our attention is digital clients. Today they comprise roughly a third, tomorrow they will be the majority and in the not-too-distant future everyone will be a digital client. These clients are smartphone owners, active mobile internet users who communicate through messengers, social media and prefer online services to traditional “paper-based” ones. People for whom a smartphone or tablet connected to the internet is their main method for communication with the world, allowing them to be mobile and have access to the information they need anywhere.

Aside from voice services and the fastest mobile internet, we are ready to offer such clients services that make their life more convenient: helping them instantly find out the news from their phone, share information with friends, order a taxi or lunch to the office, buy cinema tickets or watch a film on the go. We believe that the future lies in integrated solutions that not only unite mobile services, social media and the possibility to communicate and share information with services but also creating unlimited opportunities to interact with each other. Interaction with others is, essentially, what makes up our lives and human society overall.

We are changing with a transforming world and providing new opportunities. We are becoming an integrated digital communications company. Over the next four years we will work to do this better than others and to become the first choice for clients in Russia”.

Our strategy is called Driving the Digital World

Mission: Providing Opportunities

Vision: Your first choice and partner for life

Aim: Drive an increase in client Lifetime Value (LTV). This means encouraging a rise in revenue from clients throughout the entire period of their interaction with MegaFon by offering the best and most useful services that cover every aspect of their life.

We believe that to return to growth, the telecommunications market needs to stop competing on price. We will work to make sure that our digital clients are satisfied with our offerings and service, that they understand the value of our products and spend as long as possible on the MegaFon network and use a large amount of services.

Key elements:

1. Focus on digital clients
   Digital clients rely on smartphones and actively use mobile data. They prefer apps on their devices, communicate on messengers, use their phones as wallets and consume a large amount of data each month. Today such clients make up one third* of our subscriber base but in the near future they will comprise the majority.

   *As of Q1 2017, 32% of MegaFon’s client base was digital clients.

2. Products
   We will launch products that create value for digital clients. We will not be chasing the number of downloads or winning new clients by cutting prices; instead we will attract clients by offering better quality and useful services. These include MegaFon.TV, MegaFon.Card and Life Control. To better communicate with clients, we will develop a portfolio of brands in the MegaFon group. For example, for users of the social network VK, we created a separate VK mobile product, in which we included services that are relevant for this audience, such as unlimited data in the VK app, cashback on content purchases within the social network and VK music subscription.
3. Big data
   Using big data analysis, we can better understand the desires of each individual client so as to offer them the services they need. We aggregate available data about client values, requirements and behaviour from different sources. By analyzing this data, we create better products for new and existing clients.
4. Sales and support network
   We will endeavour for better access to high-yield digital clients at minimum cost. We will promote services in our own stores and through our online channels. In multi-brand sales offices we will endeavour to increase our base of high-yield clients through non-price competition. For example, in our work with dealers we look at “contribution margin”, which takes into account not just profit from connecting a new client but also the additional services the subscriber uses throughout the month. This encourages our partners to sign up “high quality” clients instead of simply chasing new connections.
5. ICT and IoT
   We have built up a significant base in the corporate segment, demonstrating faster than market growth in both the mobile and fixed line business. In 2016, we were No. 2 in the mobile segment on the corporate market. Further growth in the corporate segment will be supported by the launch of valuable bundle offerings and Information and Communications Technologies projects, including complex integrational projects based on connectivity. We will be actively involved in “digitalization” of the Russian economy by developing integrated mobile solutions for government and business. By creating a partnership ecosystem, we will offer our corporate clients comprehensive sector-based solutions, such as the Fiscal Data Operator Service, the Transport and Industrial Facility Monitoring System and Smart Meters for Utility Services.

Our competitive advantages:

1. Digital ecosystem
   MegaFon is in the best position to create the largest digital ecosystem in Russia for digital clients. As a result of the deal with Mail.ru Group, MegaFon gained access to the majority of users of the Russian section of the internet (Runet) and to skills for developing and monetizing digital services. Nowhere else in the world is there a partnership of this scale between telecommunications and internet companies. This gives us an undeniable competitive advantage on the telecom market. We will also create partnerships with global digital brands.
2. Infrastructure and spectrum
   MegaFon’s leadership in digital services for clients will be built on the company’s existing advantages in terms of technology, infrastructure and spectrum. Our objective is to be the first choice for digital clients by the perceived quality of services by 2020. We will continue to be a technology pioneer, drawing on our four-time advantage in the 2600 MHz range, which is vital for the development of 5G, and also our leading position in the number of base stations.
3. Continuous efficiency improvements
   MegaFon is actively implementing projects to boost operating efficiency. These include creating the First Tower Company — into which tower infrastructure has been spun off with the possibility for a future sale — uniting support functions into the PIKTA Universal Service Center and rolling out Single Convergent Billing.
4. Management model
   MegaFon is switching to a new management model. To implement the new strategy, business and process management has been centralized in the Head Office. At the same time, we have also moved to a cluster-based management model in the regions, to ensure that the strategy is implemented through initiatives that are relevant to local markets. This has allowed us to strengthen operating flexibility and speed up local decision-making. To implement the strategy, we are rolling out new skills: we are developing Customer Value Management, moving to process management based on big data analysis and boosting project team effectiveness.

Predicted results
Given successful implementation of our new strategy, our management aspiration is to achieve average annual growth up until 2020 of 2 — 5% for group level revenue and 3 — 6% for OIBDA. Our target debt to OIBDA ratio is 2.0.