Transcript Svyazinvest: new growth opportunities, June 2005

Svyazinvest: New Growth
Opportunities
Deputy General Director of
OAO Svyazinvest
K.V.Belyaev
June, 2005
SVYAZ
INVEST
Svyazinvest – new growth opportunities
I. OAO Svyazinvest in the telecommunications sector
II. VAS development
III. Corporate reform and business optimization
IV. Natural monopoly status and tariff regulation
SVYAZ
INVEST
JSC Svyazinvest: group structure
State
75% - 1 share
Mustcom
25% + 1 share
JSC Svyazinvest
JSC Rostelecom
MGTS
Other
Controlling stake
7 mega-regionals
Blocking stake
Company history:
• Svyazinvest foundation – 18 September, 1995
• Sale of a 25% + 1 share stake to Mustcom – July 1997
• Regional consolidation of companies – 72 regional telecom operators were merged into
7 mega-regionals in 2000-2002
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Svyazinvest Companies’ Geography
JSC CenterTelecom
6.2 m lines in service
market cap $813 mn
JSC North West Telecom
3.6 m lines in service
market cap $688 mn
JSC South Telecom
3.8 m lines in service
market cap $444 mn
JSC VolgaTelecom
4.3 m lines in service
market cap $1,274 mn
JSC Uralsvyazinform
3.8 m lines in service
market cap $1,568 mn
JSC Sibirtelecom
3.8 m lines in service
market cap $995 mn
JSC Dalsvyaz
1.2 m lines in service
market cap $171 mn
JSC Rostelecom extensive backbone network covers virtually all Russia’s territory. Its
total length approaches 200,000 km. The company’s market capitalization stands at $
1,963 mn
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Svyazinvest major economic indicators, 2004
Revenue and operating expense* 7.6
6.4
USD, bn
4.9
3.8
4.9
Operating income*
5.7
USD, bn
1.56
1.82
1.28
3.6
0.99
2.8
2002
2003
Revenue
2004 2005 (estimate)
2002
Expense
Installed capacity
34.9
Lines,
mn
2003
2004 2005 (estimate)
36.0
33.0
31.3
2002
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2003
2004
2005 (estimate)
* data include JSC MGTS figures
Svyazinvest – new growth opportunities
I. OAO Svyazinvest in the telecommunications sector
II. VAS development
III. Corporate reform and business optimization
IV. Natural monopoly status and tariff regulation
SVYAZ
INVEST
OAO Svyazinvest possesses substantial resources to
expedite VAS development
Infrastructure of Svyazinvest companies is unique
Svyazinvest companies have significant subscriber bases and access to end users
Svyazinvest companies’ geography spans the entire territory of the Russian
Federation
Svyazinvest companies’ marketing strategy sees the roll out of multi-service networks
as a major priority
Svyazinvest companies’ test facilities serve as platforms to try out new equipment for
multi-service networks
Development of multi-service networks will boost electronic commerce, facilitate
consolidation of branches and business partners into a single information environment
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Intelligent networks
Pre-paid universal card
Intelligent platforms of
various levels are used by
all mega-regional
companies
Televoting
Services
Extra-pay services
OAO Rostelecom provides
intelligent services
Russiawide
‘Hot lines’
In 2004, companies’ revenue generated from intelligent services rose 50% y-on-y
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Development of multi-media services
Services for residential
customers
Svyazinvest companies,
running NGN are able
to provide new
intelligent multi-media
services
Services for
businesses
•broadband Internet access
•video-on-demand (VOD)
•Internet-Protocol TV (IPTV)
•virtual private networks (VPN)
•virtual leased lines (VLL)
•IP Centrex –
virtual private voice networks
•video- and audio- conferences
•IP-contact center
OAO Uralsvyazinform was the first in Russia to build a commercial network based
on NGN technology
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Internet-Services and IP-Telephony
Revenues from Internet-services and IP-telephony
Internet traffic, TB
156
1 868
USD, mn
91
1018
61
2002
597
2003
2004
2002
2003
2004
2005 revenues from Internet and IP-telephony guidelines are $260 mn
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Svyazinvest holds a strong position in regional
cellular market
Subscriber base growth
(GSM-standard):
5 508
4 800
subscribers, th
Regional subscriber bases
(01.04.05):
2 367
1 908
subscribers, th
1 200
3 000
2 150
530
01.01.02
01.01.03
01.01.04 01.01.05
01.04.05
Sibirea
Volga
Urals
Svyazinvest provides cellular services in 20 regions of the Russian Federation.
Svyazinvest subsidiaries and affiliates pursue the policy of cellular business consolidation and its
integration with the fixed-line business.
In 2004 revenues from cellular services amounted to $519 mn, up 40% against 2003.
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Integration of fixed and mobile communications – new
development opportunities
OAO Uralsvyazinform is consolidating its subsidiary GSM assets, aiming to converge
traditional and value-added services
Integration of
products and
services
•Promotion of packet services
•Designing new products
•Unified marketing and sales strategy
Synergetic effect
from fixed and
mobile
communications
integration
Integration of
operational
functions
Integration of
network
infrastructure
•Unified call centers
•Consolidation of call centers
•Integration of back offices
•Unified network development strategy
•Software integration
•Integration of billing and IT services
•Single vendor equipment
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Enhancing competitiveness
•Creation of unified brand
Growing investments in VAS development in 2005
Dynamics of investments in VAS
Investment plan breakdown
464,0
USD
mn
USD 239 mn
298,6
USD 661 mn
159,6
USD 371 mn
USD 464 mn
Traditional
telephony
VAS and IT
technologies
SVYAZ
Development of
infrastructure
Other
INVEST
2003
2004
2005, target
Share of investments in
development of VAS will double to
reach 27% of the total investments.
Payback period will be 3-4 years.
Svyazinvest – new growth opportunities
I. OAO Svyazinvest in the telecommunications industry
II. VAS development
III. Corporate reform and business optimization
IV. Natural monopoly status and tariff regulation
SVYAZ
INVEST
ERP system – implementation results
financial planning and data consolidation
implementation of separate accounting
drawing up tax and management reports
Comprehensive
financial
management
management of payables and receivables
management of fixed assets
cash flow control system
management of investments and various financial instruments
personnel cost cutting
Efficient human
resources
management
fully functional HR management (staff list, payroll, training)
operational cost cutting
Effective
procurement
management
SVYAZ
equipment cost cutting
INVEST
Unified billing system – implementation results
Improved corporate governance
standards
Higher revenue
Modernization of
infrastructure
IMPLEMENTATION
RESULTS
Lower costs
Higher quality customer
service
The first phase of the billing system transformation is being successfully completed:
Major results:
- Existing billing systems and processes at all companies have been assessed
- Terms of Reference for automated billing systems have been worked out
- A 4-year high-level plan has been drawn up
- An in-depth model implementation plan has been designed for all companies of the holding
SVYAZ
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Operating risk management
Objective:
 to establish an operating risk management system, allowing to forecast risks and
reduce risk losses in RTO business processes
Tasks:
 to identify and estimate risks of a process at RTOs
 to uncover and rectify defects in the internal control systems and to work out control
procedures to confine, minimize or eliminate the outcome of risk events
 to create a system to monitor business processes in order to detect risks of a
process and to take the necessary measures
Results:
 Reduction of financial losses through minimization, localization and removal of risk
events
 Gaining additional financial benefits by improving management system
OAO Sibirtelecom and OAO STC are implementing pilot projects: key approaches to
risk management of a process have been developed, internal audit department
structures have been modified
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Headcount optimization
Lines per employee and local
network digitalization rate
Number of employees
500
Employees, th
102
60
450
400
Lines/employee
%
364,4
120
95
350,3
350
336,0
325,0
50
77
56.0
40
300
250
100
85
30
200
80
51.1
43.8
60
37.5
43,8 %
20
150
100
40
10
20
50
0
0
0
2002
2002
2003
2004
2003
2004
2005 (план)
2005
Local network digitalization
Lines per employee
The program of headcount optimization is under way in Svyazinvest Group of
companies
SVYAZ
INVEST
Svyazinvest – new growth opportunities
I. OAO Svyazinvest in the telecommunications sector
II. VAS development
III. Corporate reform and business optimization
IV. Natural monopoly status and tariff regulation
SVYAZ
INVEST
The need has arisen to review ‘natural monopoly’
criteria
‘natural monopoly – is market situation where from the technological point of view demand is met more effectively in the absence of
competition and there are no close substitutes for the goods produced by the natural monopoly holder…’*
Criterion № 1 – absence of competition
A drop in Svyazinvest revenue mix share points to a high level
of competition on Russia’s telecom market
Criterion № 2 – no close substitutes for goods
Dynamics of mobile
communications in Russia
Dynamics of installed capacity at
RTOs
Mobile cannibalization can be
observed on the telecom market
– mobile communications ousts
fixed-line one
SVYAZ
* Law ‘On Natural Monopolies’
INVEST
Tariffs for local telephone services
Average monthly rate, USD*
18.0
15.8
Average monthly rate for
mega-regional
companies is $6,9 per line
17.0
12.5
11.4
6.0
5.7
STC
6.3
6.9
VolgaTele Centertel Sibirtelec
com
ecom
om
6.9
NWT
7.8
8.7
Uralsvyaz Dalsvyaz Ceskyinform
Telecom
Matav
TPSA Lietuvos Lattelekom
Telecomas
Average monthly rate in Russia is still about 50% lower than in Central and Eastern Europe,
and is 60% lower than in Western Europe.
* CeskyTelecom, Matav, Lietuvos Telecomas, Lattelekom – Company estimates
SVYAZ
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The need to finetune regulatory policies
To enable the holding’s companies to work out flexible tariff plans
for different customer categories (that will become possible after the RF
Government adopts the resolution ‘On State Regulation of Tariffs for Public
Telecommunications and Postal Services’
 To
recognize competition in the fixed-line sector in large Russian
cities and to release these markets from tariff regulation
SVYAZ
INVEST
Thank you!
SVYAZ
INVEST