Since 2019, MTS has been following the Customer Lifetime Value 2.0 (CLV 2.0) strategy aimed at building a sustainable digital ecosystem business on the solid telecom leader foundation.

We strive to extend the customer’s “lifetime” as much as possible (the time, during which the customer uses our services), creating and strengthening emotional affection for the brand, and increasing the degree of satisfaction and customer loyalty. We also transit from the ideology of operating on a single telecommunications market to the ideology of a digital service environment with a comprehensive offer including products and services of different markets to meet the needs of the customers in various spheres of their lives.

We are confident that going beyond the boundaries of the telecom business to new markets, for example, the markets of financial services and media/entertainment, with the functional support of such digital areas as Big Data and AI, will allow us to transform into a multi-service digital company. We will build up a portfolio of digital products based on our own developments, as well as by involving independent developers and service providers as partners. These mutually beneficial partnerships will allow us to bring more value to the lives of our customers, offering them more innovative, diverse and convenient services. We are planning to gradually expand capabilities of our programs, increase the number of partnerships and become the best possible choice in the market for companies looking to expand their customer base and gain additional value.

The Russian digital service market is unique to a certain degree, since local players in most segments who successfully compete with global giants occupy leading positions. This situation is down to a number of fundamental reasons, ranging from consumer preferences and language specifics to regulatory requirements and the structure of the borrowed capital market. This allows large Russian business groups, representatives of areas such as the banking sector, retail, high-tech sphere and telecommunications, to actively develop new business directions in the digital environment, relying on the ecosystem approach in their strategies. As a result of recent changes in the geopolitical situation, global digital players have significantly weakened their presence or left the Russian market altogether, turning it into a field of competition for local companies and business groups.

We are confident in the reliability of our position in the context of this kind of competition. Our strong brand and deep customer knowledge, supported by powerful analytical tools based on AI and Big Data, will allow us to provide users with a seamless, deeply customized and personalized customer experience in a wide range of digital services. Even now, we are witnessing a significant synergistic effect from the joint offer of telecommunication, banking and media products, which allows us using marketing tools more efficiently and gaining more and more knowledge about our clients. At the same time, the customers using several types of services bring us more value, demonstrate a greater brand commitment, a higher level of loyalty, and a greater degree of satisfaction. Our key priorities for developing the ecosystem in the upcoming years are: increasing the ecosystem customer base, developing and improving high-quality digital products and expanding the pool of partner companies.

In 2022, as the company’s operating structure was brought in line with the CLV 2.0 concept principles, the efforts of MTS’ senior executives and corporate governance bodies were aimed at finding the optimal “format” for key business verticals and efficient allocation of financial flows among them to ensure their dynamic development and access to fair evaluation by the market.

A comprehensive analysis helped us come to the conclusion that some of our business areas have reached such a scale and maturity level that allow them to become a driver of growth in the MTS Group fundamental value. Therefore, we started to gradually allocate such areas into independent structures, separate companies that will freely operate on the market, raise external funding and may become in the future full-fledged entities and attractive assets for the investment community.

We are sure that such an approach will provide high motivation for teams of business areas, will allow to set up internal business processes in the best way and in accordance with the specifics of each of the areas, which, in turn, will ensure high dynamics in developing the products qualitatively corresponding to the level of market leaders. It will also simplify the process of raising external funding, allow new promising digital business lines to go beyond market valuation by telecom segment multiples and fully unlock the growth potential of their shareholder value. In this sense, we are striving to move away from the market seeing the MTS Group as a single inert entity to perceiving it as a “sum of parts”, where each part is evaluated fairly in accordance with the results of its operation and the multipliers accepted by the market for each specific area.

In 2022, we adopted a new logic for structuring the Group’s business on two levels: “Core” and “Growth Areas”. The first element of the structure is the Core, which includes a number of areas: B2C and B2B telecom (our historical core competence), as well as ecosystem and technological infrastructure, digital ecosystem products and functionality that ensures the connectivity of ecosystem elements. The Core is an indivisible whole, over which we will maintain direct control in the long term. As the second structural element, we identify 10 product areas of various scales and maturity levels operating in the markets adjacent and complementary to the Core, which we consider as points of growth and value creation. The youngest areas (for example, “Smart Home” and “Travel”) have great growth potential, but at the current stage their scale is not yet material at the Group level. Larger areas (for example, “Fintech” and “Media”) are already tangible and have independent value for investors.

In the next few years (depending on the situation in the financial markets), we aim to give independence to the FinTech area, which has been demonstrating high dynamics over the recent years approaching the sector leaders not only in size, but, even more importantly, in a set of products and the degree of business digitalization in general. Other business areas, such as media, cloud and infrastructure services, also have the potential to independently enter the open financial market and engage co-investors or strategic partnerships in the long term.

We would like to emphasize that the formation of independent companies does not mean our transformation into a holding of weakly connected businesses. We are still a Group and go on cultivating ecosystem links between individual areas. As the main binding forces we see:

• clear and detailed agreements on interaction between the Group’s companies;
• general marketing and brand management (not necessarily a single one);
• sharing customer knowledge, Big Data and AI mechanics;
• following a single CLV logic, which remains decisive for all businesses, while maximizing CLV is their main strategic guideline.

In addition to ecosystem connections, in the Group, we pay special attention to the nurturing and strengthening of competencies related to generating digital products and the ecosystem in general, as well as the mutual exchange of such competencies between areas and structural divisions of the MTS Group corporate center.

We are closely monitoring the dynamics of internal conditions (including economic, legal and regulatory ones) developing in our target markets in Russia, as well as the impact on our business of external factors related to access to technological equipment, provision of financing and debt servicing, and fulfillment of obligations to external and internal counterparties. In this context, we consider our strategy relevant to the current moment. Nevertheless, we pay increased attention to risk mitigation, and on the other hand, we are ready to promptly use dynamically opening windows of opportunity. Such opportunities, in particular, include a significant weakening of the positions of foreign players in Russia, a general weakening of competition, and an expanding field for M&A activities.

It is worth noting that taking into account the current conditions, we see with even greater clarity the fundamental role of partnerships in the formation and development of the product content of the ecosystem offer. We will strive to ensure the long-term sustainability of the most significant partnerships, for which we are ready to make the necessary investments in partner companies, participating in them as a minority shareholder.

Implementation of the Strategy in 2022

In 2022, MTS confidently demonstrated stable operation and efficiency of its core business in a rapidly changing external environment. In the current situation, we were focused primarily on the uninterrupted provision of high-quality services for our customers, as well as on ensuring the long-term continuity of our activities and maintaining positive dynamics due to key growth points.

It is important to emphasize that our consistently implemented strategy for the development of a customer-oriented ecosystem of digital services based on a strong telecom has once again confirmed its relevance. MTS ecosystem revenue by the end of 2022 increased by 67% and amounted to more than RUB 100 billion, and the number of ecosystem customers increased to 13.5 million people, which is 52.7% higher than the same indicator last year. Average number of ecosystem products per customer increased from 1.43 in the Q4 2021 to 1.6 in Q4 2022. The number of monthly active users of the My MTS application (MAU) increased by 5% and amounted to 26.4 million.

We continued to improve the main ecosystem tools that provide more value to our customers and encourage them to use new offers in addition to the existing products of the MTS ecosystem. The growth of users of a single ecosystem subscription for all key MTS Premium services amounted to 71%, and registered users of the loyalty program aimed at strengthening ties between verticals of the MTS Cashback ecosystem became 2.3 times more — 37 million.

Despite the high level of external uncertainty, we are recording a steady growth of our digital verticals. The number of users of the MTS Media OTT platform increased by 63.4% to 6.6 million as of the end of 2022. The total number of pay TV subscribers (satellite, cable, IPTV, OTT) increased by 32.6% to 11.1 million. The significant strengthening of our position in the media market confirms the successful experience of developing the KION streaming platform with the aim of deep integration into the MTS ecosystem and strengthening the offer through original content and exclusive partnerships — 55 titles and 62% of viewers watching KION Originals.

Revenue from financial services in the Fintech area increased by 40.4%, reaching RUB 68 billion. The number of MTS Bank customers increased by 19.4% to 3.5 million, and the number of active users of payment and digital services is almost 12 million at the end of 2022. The share of sales of basic products (consumer loans and credit cards) through digital channels exceeded 80%.

We also note the success of new area and products in 2022. For example, “MTS Lines” — the growth of MAU after restarting by 3.8 times, the average time of using the service — 2.5 hours per week. MTS Entertainment — achieved a twofold increase in ticket sales. MTS Marketer — revenue growth by 22%, the number of registered customers — by 73%, and the number of launched advertising companies in Digital — by 115%.

In turn, we continuously invest in such areas as MTS Travel, Smart Home, cybersecurity.

In 2022, to strengthen the telecommunications core, we used a balanced approach to investing in the development of our networks, using artificial intelligence (AI) at the planning stage. This allowed not only to remain the largest player in the mobile market, but also to ensure a 17% growth in the convergent base. As a leading provider of digital infrastructure and cloud solutions in Russia, MTS has strengthened its leadership in B2B telecom. We have completed the deployment of the largest federal network of the NB-IoT standard for the Internet of Things in all regions of its presence. The company holds the largest market share of M2M/IoT connections and publicly announced Private LTE projects — 15 major contracts.

It is also necessary to note our successes as the strongest technology brand in Russia (according to Brand Finance Russia 50 2021) in the development and implementation of our own technology platforms — The Platform, which combines all end-to-end IT solutions of the MTS ecosystem, the launch of the AppBazar app store for Android OS, in which Russian and foreign developers can host, promote and monetize their services, as well as the transition of MTS IoT Hub to its own software, completely replacing foreign solutions when creating NB-IoT products.

In 2022, we conducted a number of selective M&A transactions and investments to further scale new promising areas of our ecosystem:

• we invested 740 million rubles in the capital of “Urent” — the market leader in short-term rental of scooters in Russia in order to expand the range of services of the MTS ecosystem — MTS Premium, MTS Cashback;
• through the MTS corporate venture fund, 72 million rubles were invested in the Bartello online food and beverage ordering service for subsequent integration with MTS Live and MTS Bank applications;
• we acquired for RUB 2 billion 58.38% of shares of Gulfstream Security Systems JSC (the Gulfstream brand), one of the leaders of the Russian security market, for the comprehensive development of the new MTS Smart Home business vertical;
• we acquired 100% of the Bronevik Group — one of the leaders of the Russian online hotel booking market for the development of a new business line of MTS Travel in the field of travel and tourism;
• we acquired a controlling stake in the Webinar Group, the largest Russian developer of solutions for video meetings, webinars and online events;
• we acquired 50.85% of Navitel Group, a Russian provider of navigation and mapping solutions, for RUB 690 million. As a result of the transaction, MTS will be able to form its own geoplatform for the development of ecosystem services and transport solutions.

We use partnerships as an effective way of retention of MTS customers in the ecosystem, as well as attracting new ones. The key success factors for us remain mutually beneficial cooperation, availability of an ecosystem for building deep integration of partners, efficiency and consistency of goals at all levels, regular analysis of partner projects, and a long-term approach to maximizing LTV. Therefore, over the past four years, we have earned more than RUB 50 billion with our partners and more than 10 million customers have used the products of our partners through MTS channels. 74% of companies recommend MTS as a partner for business development with other companies.

Our ability to provide high-quality communication services in the context of our historical core business, as well as the comfortable presence of the client in the MTS ecosystem due to the expansion of the service portfolio is the basis for business sustainability in conditions of severe economic constraints.