CMD2012 - vetlana Skvortsova - Inessa Galaktionova - Market Area Russia

Capital Markets Day Inessa Galaktionova, Chief Commercial Officer Tele2 Russia Svetlana Skvortsova, Strategy Director Tele2 Russia

December 12, 2012

63 Tele2 Capital Markets Day 2012

Russia EBITDA CapEx Net sales 30% 42% 32%

• Continue to grow customer base and

maximize the 2G opportunity

• Evaluate possibilities to expand

carefully through new licenses as well

as by complementary acquisitions

• Make progress on technology neutrality

* Figures represent contribution to group; YTD Q3 2012


What has happened since last CMD?


Market share development

MTS

MegaFon

Vimpelcom

Tele2

Source: AC&M Consulting, Company data

4.3% 5.0% 5.6% 7.0% 8.4% 9.1% 9.3% 9.5% 9.7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2006 2007 2008 2009 2010 2011 Q1-12 Q2-12 Q3-12

SUBSCRIBERS MARKET SHARE PERCENT

2.7% 3.8% 4.2% 4.9% 6.0% 6.7% 7.0% 7.0% 7.1%

0%

5%

10%

15%

20%

25%

30%

35%

2006 2007 2008 2009 2010 2011 Q1-12 Q2-12 Q3-12

REVENUE MARKET SHARE PERCENT


Maintained ARPU expansion

MTS

MegaFon

Vimpelcom

Tele2


0.9

6

0.8

9

0.8

9

0.8

7

0.9

1

0.00

0.50

1.00

1.50

3Q11 4Q11 1Q12 2Q12 3Q12

REPORTED APPM RUB

204 201 220 223 218 229 234

0

50

100

150

200

250

300

350

400

2008 2009 2010 2011 Q1-12 Q2-12 Q3-12

BLENDED ARPU RUB


Margin improvement and CAPEX slow-down

MTS

MegaFon

Vimpelcom

Tele2


34% 32% 35%

39% 35% 37% 38%

0%

20%

40%

60%

2008 2009 2010 2011 Q1-12 Q2-12 Q3-12

EBITDA MARGIN PERCENT

22% 20%

9%

15%

12%

3Q11 4Q11 1Q12 2Q12 3Q12

CAPEX/Revenue PERCENT


Historical Data KPI Benchmarking vs Market

Source: AC&M Consulting, Corporate Reports

Internet Users penetration Consumption (Mb per User)

USB modem sales (‘000)

0

5

10

15

20

25

0

100

200

300

400

500

600

700

3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12

Market Mb per user Tele2 Mb per user

2,152

2,694 2,342

2,890 2,986 3,110

1,497 1,380 1,560

0

1,000

2,000

3,000

4,000

3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12

27%

30% 32% 32%

34% 35% 37% 37% 37%

36% 37% 37%

34% 34%

37% 39%

37% 36%

20%

25%

30%

35%

40%

45%

3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12

MTS Internet Users Tele2 Internet Users

96 99 106 107 117 122 120 114

125

0

50

100

150

3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12

Market Data ARPU, RUB Tele2 Data ARPU

Data ARPU

RHS

LHS

69 Tele2 Capital Markets Day 2012 Source: MA FDFgroup, 2Q11-1Q12, Tele2 Regions, Survey

Analysis Mason, Wireless Intelligence

• So far existing data products meet

customer expectations

• Usability is the major focus

• Absence of MBB will not be critical in

approx. 2 years

• >90% of data usage is social

networks, where EDGE speed is

enough for good user experience

Tele2 data capabilities

Smartphone Penetration total Russia

80%

90%

100%

0%

20%

40%

Tele2 MTS Beeline Megafon

VAS Usage Subs that use VASSatisfaction with VAS usage

0%

20%

40%

60%

80%

2010 2011 2012F 2013F 2014F 2015F 2016F

Forecast

91% 88%

89% 89%


• Monobrand channel development

• Increasing efficiency of local alternative

• B2B and online channels development (higher ARPU and lowest churn)

• Balance between Federal telecom channels and effective alternative

distribution channels

Distribution strategy

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Alternativedealers

MonobrandStands

Federaltelecomdealer

MonobrandModules

Localtelecomdealer

MonobrandShops

On-line

Life Time Value 2012 (RUR)

30% 31% 32%

21% 17% 11%

4% 8% 17%

14% 18% 20%

30% 23% 18% 2% 2%

0%

50%

100%

AC 2010 AC 2011 AC 2012

GI split by channels

Monobrands Monobrand stands On-lineFederal telecom dealers Alternative dealers Local telecom dealersB2B


Distribution strategy – Own shops

Tele2 Own Shops

• Franchising business model in all rebranded shops

• Full range of products and services

• Average GI increases by 15%

• Higher ARPU, LTV and lower churn

Total: >400 Total: >2000

Megafon

Total: >3000 Total: >4000

>60% GI 44% GI

Tele2 Beeline 42% GI

MTS

49% GI

44% Own Network

56% Agency Network

67% Own Network

33% Agency Network

0% Own Network

100% Agency Network

12% Own Network

88% Agency Network


Customer data

• Tele2’s own call centers

demonstrate highest customer

satisfaction

• Operational excellence based on

COPC customer service

standards

• World-class service program

across Russian regions

CUSTOMER SERVICE SATISFACTION OVERALL

85%

86%

88%

89%

85%

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

TELE2 MTS Beeline Megafone

Top-3 on 10 point scale

Source: Mobile Monitoring


Clear Business Goals Through Evolution

Region’s position Market Share EBITDA No. of regions Targets

Defender Leader in the region

(avg. 46%)

35%

(avg. 47%) 9

Retention,

ARPU protection

Challenger

20%

(avg. 31%)

< 35%

(avg. 31%) 21

Subscribers

acquisition, retention

Newcomer

< 20%

(avg. 17%) < 0 8

Subscribers

acquisition

Defender

Challenger

Newcomer


44

49

54

ARPU (SEK)

0

5,000

10,000

15,000

20,000

Subscriber Base (‘000 Subs)

0%

10%

20%

30%

40%

50%

Annualized Churn

Old Regions: Sustainable Growth of ARPU and

Subscriber Base +5% Q3’12

vs Q3’11

+3% Q3’12

vs Q3’11

0

100

200

300

400

500

600

Net Intake (‘000 Subs)


0

500

1,000

1,500

2,000

2,500

3,000

Revenue (SEK ‘000)

Old Regions: Solid Profitability Profile

59% 41%

Market share - Subscribers (Sept'12)

+8% Q3’12

vs Q3’11

Source: internal research, ACM data

0%

10%

20%

30%

40%

50%

60%

0

200

400

600

800

1,000

1,200

1,400

EBITDA (SEK ‘000) and EBITDA % +3% Q3’12

vs Q3’11

Tele2

Rest of the

market


0

10

20

30

40

50ARPU (SEK)

New Regions: Considerable and Sustainable

Growth

0%

20%

40%

60%

80%

100%

Annualized Churn +7% Q3’12

vs Q3’11

0

200

400

600

800

1,000

Net Intake (‘000 Subs)

0

2,000

4,000

6,000

8,000

Subscriber Base, (‘000 Subs) +22% Q3’12

vs Q3’11


-65%

-45%

-25%

-5%

15%

35%

-300

-200

-100

0

100

200

EBITDA (SEK ‘000) EBITDA %

0

200

400

600

800

1,000

Revenue (SEK ‘000)

New Regions: Solid Profitability Profile

+78% Q3’12

vs Q3’11

76% 24%

Market share - Subscribers (Sept'12)

+32% Q3’12

vs Q3’11

Source: internal research, ACM data

Tele2

Rest of the

market


Far East launch

* As of 04.12.2012

New Monobrand Shops

Field Connections

Events with Invited Celebrities

Launch Date Total Subs* Market Share

Sakhalin 05.10.2012 21 133 2.7%

Kamchatka 26.10.2012 13 798 2.5%

Magadan 02.11.2012 6 079 2.4%

Jewish Autonomous

Oblast

09.11.2012 8 271 4.8%

http://citysakh.ru/files/news/fotoreports/26967/original/61050.jpg


0% 20% 40% 60% 80% 100% 120%

MTS

Megafon

Beeline

Tele2

0%

50%

100%

150%

2009 2010 2011 2012

0%

50%

100%

150%

2009 2010 2011 2012

Tele2 Russia Cost Efficiency Customers per Employee Sales&Marketing costs / Revenue

Administrative costs / Revenue

• Optimization of organization structures

• Legal & Tax structures optimizations

• New opportunities

• New sales channel development

Base level 2009

Base level 2009

-15%

-37%

Sales & Marketing costs are 15% more efficient in 3 years

Administrative costs are 37% more efficient in 3 years


Russia

Best-in-class employee

engagement

Yearly survey ”MyVoice” shows

record high engagement levels

and employee satisfaction

2,768 employees

0%

10%

20%

30%

40%

50%

60%

Employee engagement index

Tele2 RU

Global Benchmark


Current LTE allocations not fully available 1800 MHz offers great potential

700/800 MHz LTE FDD

1800 MHz LTE LTE

2300 MHz LTE TDD

2600 MHz LTE TDD LTE TDD

LTE FDD

LTE FDD

GKRCh

decision

required

Deployed Limited Deployment 2012 LTE Tender Allocations

Source: Russian business press publications

http://kavkaz.megafon.ru/download/~federal/~federal/partners/brandguide/MegaFon_4colour_vertical.png

http://www.info-altai.ru/news/sites/default/files/imagecache/500_230/3220111249_1.jpg


Global trends for LTE 1800/Technology Neutrality

• LTE on 1800 MHz ensures the quickest start of 4G

• Closes “digital gap” between cities and rural areas

• Technology Neutrality is the most cost-effective way of launching

LTE

• 1800 MHz is the most widely used band for LTE deployments

Source: GSA

130 LTE 1800 devices announced

26

22

8 44

29

1

Phone Module Mobile Tablet

Router Dongles Femtocell

0

10

20

30

40

50

1900 MHz 900 MHz 850 MHzb5

2100 MHz 800 MHzb20

AWS 700 MHz 2.6 GHz 1800 MHz

LTE deployment


Global trends for LTE 1800/Technology Neutrality

Tele2 succesfully

tested LTE in 1800 MHz

Competitors asked

for permission to

test LTE

Regulator requested

trial results in 3

regions June 1, 2013

Pending question

is when to

implement LTE


MNP – Mobile Number Portability

MNP is expected to be implemented in

Russia from December 1, 2013

The possible Mobile Number Portability

introduction end of 2013-2014 may allow

Tele2 to benefit from new customer

inflow

There are varying estimates of potential

MNP service user base on the Russian

market


Existing network support

Significant growth of voice and data

traffic continues and drives

investments both in voice and data

capacity

40% annual

growth

16

17

18

19

20

21

22

23

Jan Feb Mar Apr May Jun Jul Aug Sep

Subscribers, mln

2011

2012

3,000

3,500

4,000

4,500

5,000

5,500

6,000


Voice, mln minutes

75

95

115

135

155

175

195


Data traffic, TB

2011

2012

18% annual

growth


Network capabilities

* Source: ROSKOMNADZOR highways coverage measurements 01.10.2012 (for

TELE2 license territory)

Tele2 continues to invest in

coverage improvement to

increase quality perception 86%

87%

88% 88%

85%

86%

87%

88%

89%

Beeline MTS Megafon Tele2

Federal highways coverage*, %

24% 25% 27% 28% 29% 30% 31% 31% 32% 32%

0%

10%

20%

30%

40%

2Q'10 3Q'10 4Q'10 1Q'11 2Q'11 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12

Territory coverage

86% 87%

90% 90% 91% 92%

92% 93% 93% 94%

80%

84%

88%

92%

96%

2Q'10 3Q'10 4Q'10 1Q'11 2Q'11 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12

Population coverage


LTE network readiness

Tech Neutrality tested in 2 regions No impact on 2G service quality

LTE data speed up to 80 Mbps

• 58% of base stations LTE ready

• Transport network 67% LTE ready

All network investments since 2009

are LTE compatible


Summary • The fastest growing company on the

Russian mobile market

• Unique discounter positioning

• Efficiency KPIs continuously superior to

competition

• Excellent user experience of 2G Voice and

Data

• Good progress towards Technology

Neutrality

CMD2012 - vetlana Skvortsova - Inessa Galaktionova - Market Area Russia

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Transcript of CMD2012 - vetlana Skvortsova - Inessa Galaktionova - Market Area Russia