Transcript Comstar: Growing in Moscow market via multi

Development of BBA Market in
Moscow
Alexander Gorbunov
Vice-President for Strategy & Development, Comstar-UTS
Conference «The Future of Fixed Communications»
24 May 2007, Moscow, Marriott Grand Hotel
0
Comstar: General Information
51%
LSE: CMST
Free float 35%
capitalization:
3bln.+
houses
50%
 DLD/ILD
 A holding with controlling
stock in 7 IRCs and
Rostelecom
 Revenue: $802 M
 Revenue: $236 M
 Traditional operator
 Alternative operator
 Major player on corporate 4,3 M lines
 Corporate
 Elite apartment
 Mobile
25%
67%
market
53%
52%




Revenue: $153 M
Dial up access
ADSL
#1 in BBA
 SMEs
 Operators
 Individuals
 Corporate
 Individuals
Moscow and Moscow region
Regions + International
 Revenue: $47M
 Alternative operators

in 5 RF regions
Foreign companies
(Ukraine, Armenia,
Greece)
Comstar is a universal operator generating the revenue of more than $1 bln
and having a strong position in the Moscow market
1
Comstar: Main Elements of the Strategy
 Getting a synergy effect from ADSL
development projects in Moscow and
regions
 Development of unique
market offerings based on
ADSL
 Optimization of sales and
maintenance channels
7
Svyazinvest
Integration
1
6
Restructuring
Convergence
5
 Use of wireless technologies to
develop BBA solutions for corporate
customers and high-end individuals
 Making installation, setting up and
maintenance procedures more
simple
2
Regional
expansion
 Bundled offers with tariffs for voice
services
3
 Development of ADSL
BBA
4
MGTS
Modernization
 Combined offer (IP-TV)
 Enhancement of Public DN core
 Pilot solutions in respect of
combined network for voice and
data
BBA is a strategic priority of Comstar development and concerns
most of strategic initiatives
2
Comstar: Position on the Moscow Market
Moscow market of fixed communications (Y2006) - $4,2 bln
18%
Growth 2006 27%
22%
7%
$0,86
$2,16
$1,18
100%
other
80%
RTC
other
(>500 companies)
other
(> 200 companies)
40%
MGTS
60%
Comstar
50%
RTC
Golden Telecom
20%
0%
Comstar
19%
Individuals
Corporate
• Three tariffs
• Growth in SME segment
• BBA growth
• Increased effectiveness
• DLD/ILD market liberalization
Comstar:
Individuals
• MGTS: 3,8 M lines
• Insignificant share of
DLD/ILD
• Comstar-Direct: >400K
ADSL lines
• New tariff structure
(possibilities for bundled
offers)
Corporate
RTC
Comstar
30%
• Merger of 3 leading alternative
operators
• Comstar-Direct: ADSL for small
businesses
Operators
Operators
• New regulatory rules
• Tariffs
• Comstar and MGTS services are
regulated
• Growth together with market
growth
Comstar Group of companies is the leader on a fast growing market of
Data source: Direct INFO
services for individuals
3
BBA Market in Moscow
Households (mln)
5
- BBA
4
3,8
3,8
-Dial Up
3,9
3,9
- PC without Internet
3,9
3,9
4,0
- without PC
4,0
2003
2006 2010E
PCs penetration
41%
69%
75-80%
Internet connections (% PC)
66%
68%
78-83%
3
BBA (% Internet)
11%
60%
92-97%
2
2,6 M
1
2007 is the year of the most
significant growth in
the number of BBA users
CAGR 2006-10 (19%)
~1,0 M
0
2003
2004
2005
Actual
2006
2007
2008
2009
Forecast
2010
Growth drivers:
• PCs penetration
• Internet connection
• Replacement of dial-up access
• Internet-content development
BBA market in Moscow goes through tremendous upgrowth on the wave of
increasing number of PCs and technologies
4
BBA: Main Questions for the Operator
2007
2008
2009
2. How to develop TV?
5. What supplementary services can
increase ARPU?
1. How to increase
market share?
3. What will happen to
price and speed?
6. How to improve subscriber loyalty?
4. How to develop wireless
BBA?
BBA market evolution puts a number of key strategic questions before
an operator
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1: How to Increase Market Share?
2007
2008
2009
2. How to develop
TV?
5. What supplementary
services can increase
ARPU?
1. How to increase
market share?
• What determines a market share?
• What is the market share dynamics indicative of ?
• How to estimate the market share correctly?
3. What will
happen to
price and
speed?
6. How to improve
subscriber loyalty?
4. How to develop
wireless BBA?
• It is very difficult to determine the exact market share, estimates of different analysts differ
considerably
• Different subscriber accounting policy (in respect of accounting of non-paying subscribers)
makes the direct comparison of operators’ announced data approximate, all operators have a
natural tendency to maximize their indicators
• The share of “double counting” increases, the share of users who use several providers grows
(many users use dial-up access and Wi-Fi as a back-up Internet access)
6
Subscriber Migration Dynamics
Subscriber migration dynamics, thous. (March 2007, estimated
figures)
Akado, Corbina,CenTel
Home networks
~350
1
~200
1,4
2,8
2,3
2
2,6
3
4,5
~400
New
Internet users
4,4
~100
Reasons for choosing a
provider (ComstarDirect)
4,2
2,9
Dial-Up
~200
In-house
migration
2,0
3,6
Abandoned
Recommendations
Price
Convenience
4
Speed
5
No other provider
6
Availability of «double-play»
Source: Polling of
subscribers in sales
offices (April 2006)
At present the main drivers for subscriber base growth are
connection of new subscribers and conversion of dial-up access subscribers,
the mains factors influencing the choice of provider are price and convenience
7
Perception of Operators
Share of existing BBA users
100%
Comstar-Direct
92
90%
Corbina
85
Akado
80%
Centel
70%
Golden Telecom (WiFi)
65
Mostelecom
60%
50%
40%
44
39
34
33
30%
21
17
20%
9
10%
9
9
0%
Know by name
Consider to
be a leader
Have experience
of use
Use now
Source: Polling of BBA subscribers (April 2007 )
Competition grows. Comstar-Direct maintains the leading positions. From among
competitors Corbina is definitely perceived as player №2
8
Attraction and Retention (Comstar-Direct)
Attraction
• Programs, motivating transfer
from Dial-Up
• Programs with large retail
networks and PC
manufacturers
• Direct mail and direct calling
• Promo-actions with
companies of the group
Retention
• Automatic increase of speed
• More mild policy in respect of
subscriber disconnections
• Programs of more active work
with debtors
• Development of
supplementary services
• Analysis of reasons for churn
and development of actions to
eliminate them
As a market leader, Comstar-Direct can target different segments in order
to increase the number of subscriber connections and reduce churn
9
2: How To Develop TV?
2007
2008
2009
2. How to develop
TV?
5. What supplementary
services can increase
ARPU?
1. How to increase
market share?
3. What will happen
to price and speed?
6. How to improve
subscriber loyalty?
• What is Internet+TV service potential?
• How to form pricing for TV services correctly?
• What are an IPTV project economies?
4. How to develop
wireless BBA?
• Income level in Moscow allows the majority of BBA users to connect pay TV services; however,
this does happen because of reasonably great supply of open channels, numerous alternative
leisure opportunities are complex/costly connection technologies. IPTV is not the best technology
to provide traditional TV (without Internet) and is in low demand among consumers
• IPTV gives consumers more interactive TV novel to user
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Double-Play Potential Among Comstar-Direct Subscribers
40%
Availability/Interest in
Pay TV
33%
40%
Internet + TV
Package Selection
Trends in Subscriber
Base
35%
34%
30%
400
30%
30%
300
Intend to
connect
Internet
31%
34%
20%
20%
200
32%
10%
Available at home
29%
Internet + TV
10%
100
Archived plans
0%
Existing Potential
BBA Users
0%
Expensive TV Inexpensive TV
Pricing Scenario
0
07/06
10/06
01/07
04/07
Subscriber Base Structure
At Month End
Statistics and polls show 30-35% of subscribers
interested in Internet + TV package, this share not varying noticeably
with the price for TV package
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Double-Play Economics
Churn (April 2007)
Economics
6%
5.6%
-55%
• Additional ARPU comparable to license
fee payable to content copyright holders
• Leased STB installation on soft terms
4%
• Additional dealer’s fee
-30%
2%
2.5%
1.6%
1.2%
If Loyalty and Growth Potential
Excluded, VOD Economics Lose
to Pure Internet Economics
0%
Internet +TV
Current Tariff
Plans
Internet +TV
Archived
Tariff Plans
Provision of double-play Internet+TV service changes insignificantly subscriber
marginal yield, but improves noticeably its loyalty to operator and generates
potential for VoD growth
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3: What Will Happen to Price and Speed?
2007
2008
2009
2. How to develop
TV?
5. What supplementary
services can increase
ARPU?
1. How to increase
market share?
• What speed level subscribers regard as
acceptable/optimum?
• Are subscribers willing to pay for speed?
• Is there a business case for speed increase?
3. What will
happen to
price and
speed?
6. How to improve
subscriber loyalty?
4. How to develop
wireless
BBA?
• Vigorous growth of BBA market has already led to an increase in average speed up to 1 Mbps,
the level currently regarded as sufficient to the majority of subscribers
• Massive investments made by operators in the solutions allowing to offer higher speeds. At the
moment, the majority of households have several providers to choose from.
• The number of operators that can co-exist profitably on the market and ensure ROI depends on
competitive pattern.
13
Factors Determining Consumer Behavior
What speed meets your current
needs?
100%
100Mbps
What amount you spend/willing to spend
on BBA (rubles/month)?
100%
<500
100Мбм
80%
60%
3-10Mbps
1-3Mbps
1-3Mbps
60%
512kbps
40%
512kbps
0%
<512kbps
<512kbps
Do not
know
Existing
BBA
Users
<500
500-700
40%
20%
80%
700-1000
20%
Do not
know
Potential
BBA
Users
500-700
700-1000
1000+
1000+
0%
Existing
BBA
Users
Potential
BBA
Users
85% of consumers are satisfied with speed up to 3 Mbps, at that the majority of
users are ready to spend 20-30$/month, yet would like to reduce these payment if
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possible
Consumer Choice and How Price/Speed Influences It
Choice among existing market offers
100
Choice among market offers with reduced prices
100
Plan
price ($/month)
Plan
price ($/month)
50
50
«Too
expensive»
20
10
«Too
expensive»
20
• Irrespective of tariffs
speeds up to 1 Mbps
are considered to be
too slow
«Too
slow»
5
10
• With tariffs reduction ~50%
prefer to reduce charge and
maintain the speed
• 30% reduction of price
results in 20% reduction of
ARPU
«Too
slow»»
5
0.1 0.2 0.5 1
2
5 10 20
Downstream Speed
50 100
0.1 0.2 0.5 1
2
5 10 20
50 100
Downstream Speed
The most salable product - 1Мbps, further reduction of price has a negative impact
on ARPU
15
Market Evolution Scenarios, Moscow
Competition due to supplementary
services and customer care.
• Competition due to supplementary
services, convergence/bundled offers
2005-2007
Increase of speed
Price reduction
• Encouraging connections while
maintaining ARPU
• Transfer from low speeds (up to 1
Mbps) to optimal ones (1-2 Mbps)
Fast market growth
(subscribers,revenues)
?
Maintenance of revenue growth
Moderate growth of subscriber base
«Price war»
• Aggressive price offers at high speeds
from aggressive emerging competitors
• Forced reduction of prices for 1-2
Mbps by Comstar-Direct
Fast growth of subscriber base
Stabilization/fall in revenues
Market evolution scenarios will depend on rationality of emerging
competitors’ pricing policy
16
Market evolution scenarios, Moscow
Competition through additional offerings
and customer care
30
«Pricing war»
Ratio
Capex/monthly ARPU (times)
25
Ratio
Capex/ monthly ARPU (times)
• Payback of new entrants
projects largely depends
on achievable penetration
20
• «Unsound» price competition afflicts
economically all operators, but is
most painful for those with low
penetration rates.
15
10
Comstar-Direct
Comstar-Direct
5
0
10%
20%
30%
40%
50%
Subscribers- % of flats in a house
(new entrants)
10%
20% 30%
40%
50%
Абоненты - % квартир в доме
(new entrants)
With a current ARPU level, the operators investing in FTT should connect 25%-30%
of households in a building, to recoup theirs investments.
17
ADSL penetration into homes.
Current penetration ADSL (%)
30%
ADSL
25%
FTTx
24.5%
• 100-150 $ per subscriber
• Individual access
• Speed up to 6 mbps
for 90% of users
• Scaleable CAPEX
20%
17.2%
• 40-50 $ per household
regardless of penetration
• Speed up to 30-50 mbps
• HDTV option
15%
12.2%
10%
8.0%
4.6%
5%
1.7%
0%
2,1
3,2
6,2
7,4
4,6
2,4
Quantity of houses with 50 to 500 MGTS numbers (‘000)
As for FTT investment, Comstar-Direct has an advantage of selective approach
to houses with a large number of ADSL subscribers
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4: How to develop the wireless broadband access?
2007
2008
2009
2. How to develop
TV?
5. What supplementary
services can increase
ARPU?
1. How to increase
market share?
3. What will happen
to price and speed?
6. How to improve
subscriber loyalty?
• Who will be the key players on the wireless broadband
market?
• Which technologies best suit to different segments
(WiMax, WiFi, 3G)?
4. How to develop
wireless BBA?
• Cellular operators obtained licenses for 3G services and intend to actively deploy their
networks as early as this year 2007.
• Mobile WiMax is expected to appear in 2008-2009, likely to become a new breakthrough
access technology
19
Basis for BBA growth
For BBA users
Surveys show:
wired&wireless Internet access is a hit
package demanded from integrated operator.
80%
Awareness of WiFi technology
60%
Laptop
PC+Laptop
40%
39%
34%
32%
25%
22%
20%
16%
22%
19%
17%
8%
0%
16-20
Interest in mobile
access from notebook
(% of owners)
25%
21-25
26-30
31-35
36-40
41-45
46-50
Revenue ($/person)
Age
16%
24%
16%
<600 600-1000 >1000
23%
19%
5%
21%
9%
23%
High penetration of notebooks breeds interest in having a wireless access as
well, seen by many as a matter-of- fact extension to wired access.
20
Current offerings:
wired and wireless access
Average traffic per active user (end of 2006)
100 GB
New level (wired)
20$ (0,2c/MB)
ADSL (unlimited)
10 GB
Old level (wired)
10$ (0,5c/MB)
Experience learns:
- Consumers tend to
use all inclusive
minutes
- Fixed tariffs
became «unlimited»,
price difference is more
than 10х
ADSL (traffic)
1 GB
20$ (7c/MB)
EVDO-CDMA
5$ (20c/MB)
100 MB
Dial-Up
GPRS
Wireless level
10 MB
10
20
50
100
kbps
Source : Comstar assesments
200
500
1
2
Downstream speed
5
10
20
50
100
mbps
The take-up is driven by speed and price, and in both theses aspects the wired
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technologies are lagging seriously.
Wireless access technologies in Comstar
Wired
ADSL
Access
еconomics:
• 100-150 $ per subscriber
• Individual side
• Speed up to 6 mbps
for 90% of users
•Scaleable CAPEX access
• Cost of access
~0,05 c/MB
Cost-effective •Typical Internet user with
•average income level
for:
Nomadic
Wireless
WiMax vs. 3G:
- Comparable
economics in the
Wi-Fi
Wi-Max
network part
- Constraints in
• 70-150K $ на BTS
• 500-600 $ per hot spot
roaming and mobility
• Shared access
• Shared access
+ Integration in one
•
Speed
up
to
0,5-1
mbps
(multiple users)
chip with WiFi
for most users
• Speed of 1-2 mbps
+ High level of
• Scaleable access
for users
penetration into
• Effective when connected СAPEX
laptops
• Cost of
via ADSL
(in longer run)
access
~5
c/MB
• Cost of access
~0,5 c/MB
• Public places
(HoReCa)
• Access anywhere
as«premium»
service.
• Alternative access
Different technologies vary a lot in terms of access cost and will coexist as
complementary. WiMaх will potentially surpass 3G in the field of wireless
access for laptops
22
Future access models
Wireless extension «Common» subscriber :
• WiMax outdoors
to ADSL
Express cards to pay for access
on a by-session basis.
Cost of
access 10 c
(per MB)
• WiFi (where possible)
as cheaper option
WiMax
ADSL
1c
WiFi
0,1 c
«Easy» subscriber :
• By-session access
• No need for special
equipment
FTTx
0,01 c
100 MB
1 GB
10 GB
Monthly usage
Viewed by typical user all three technologies should coexist
(due to a strong difference in cost of access)
23
Typical user of Comstar (2010)
Comstar WiMax citywide network
~5c/MB
Home WiFi modem
~15$/month
ADSL
WiFi network
in public places
~1$/hour
Comstar-Direct brings freedom, the Internet and direct access to new avenues.
24
Investment story of Comstar in Moscow
Voice
Revenues from residential (as illustration)
3,8
7,4
х
• 2%/ up per year
200%
• Steadying
New services
180%
WiFi/WiMax
160%
2003
2006
2011
2003
2006
2011
ADSL
19
100%
• Higher bit rate and
service activation
2006
80%
60%
0,36
2003
ADSL
120%
• Penetration up
х
140%
2011
2003
2006
2011
20%
WiFi/WiMax
0%
2003
• Growing use
• Equipment
penetration
Voice
40%
1
2
2004
3
2005
4
2006
5
2007
6
2008
7
8
9
2009
2010
2011
х
• WiFi (and WiMax) has low entry barriers, allowing an
explosive growth in users and usage volumes.
2003
2006
2011
Subscribers (M)
2003
2006
2011
ARPU ($)
Wireless access opens new potentialities,
enabling further growth in total revenues from residential users.
25
5-6: Questions for mature market
2007
2008
2009
2. How to develop
TV?
5. What supplementary
services can increase
ARPU?
1. How to increase
the market share?
3. What will happen
to price and speed?
6. How to improve
subscriber loyalty?
4. How to develop
BBA?
• More revenues and loyalty are produced by services “tied to operator” and not existing on their own in the
Internet.
• There is no one “catch-all” service, different subscribers use different services.
• Most services have impact on loyalty and sign-up rates at the same time.
Operators with largest customer base will evidently benefit the most from
development of additional services.
26
MAIN CONCLUSIONS
• The market share presently depends on subscriber acquisition efficiency in broadband and
conversion of dialup subscribers along with efficiency of retention program. Data showing
market share are altered by different accounting policy and double counting.
• IPTV is an additional service for a third of subscribers, significantly strengthening their
loyalty.
• A mass BBA consumer is wiling to pay up to 20$ for bit rates beyond1 Mbps, and further
price-cutting is most likely to bring down ARPU and deteriorate economic conditions for all
operators present on the market, affecting most the FTT operators x
• The BBA market will generate a new growth wave. ADSL, WiFi and WiMax are
complementary, enabling operators to offer the best ratio price/quality to subscribers
• Operators with the biggest customer base will have a vital competitive edge
development of additional services when the market comes to maturity.
in
27