MEGAFON Annual Report 2016


In 2016, MegaFon started developing a new strategy based on substantial changes in the economy and telecoms industry. In the coming years, the Company will focus on fostering its digital growth.

In 2015, MegaFon successfully completed its three-year strategic cycle designed to achieve sustainable growth. The Company focused on striking a balance between a higher market share and stronger cash flows. MegaFon was able to achieve its objectives for the period by strenghtening its market position and building a platform for strong business growth in a rapidly changing market.


In 2014–2015, MegaFon, as all other industry players, was challenged by the depreciating rouble, lower household incomes, tougher market competition, and a swiftly changing landscape of telecom services consumption. Digitisation became the most important trend that included an upsurge in demand for mobile data and OTT services, the wider use of smartphones, and boost in mobile content consumption.

2016 was an extremely competitive year. The Russian mobile market plateaued for the first time in its history, due to the absence of gross subscriber additions. This led to service price reductions as the main tool to compete for customers. Given the high churn levels typical for prepaid markets, these efforts resulted in subscriber base ARPU erosion without visible redistribution of market shares. At the same time in Q4 2016 mobile penetration was at 179%(2), one of the highest rates in the world.

Furthermore, tougher government regulation of the industry became another important trend, which also required changes in the Company’s strategic approaches and operations.


Increase market share

From 2012 to 2015, MegaFon had a 1.5 p.p. increase of market share by revenue among top four operators

Develop second core segment

The share of the second core business segment in MegaFon’s revenue rose from 15.7% in 2012 to 17.5% in 2015, through tapping into the full potential of its corporate segment, boosting revenue from fixed broadband and launching new digital products, including MegaFon.TV

Deliver best-in-class efficiency in business management

For the period of 2012–2015, MegaFon demonstrated the highest OIBDA – Capex / Revenue margin among Russian telecom operators


With a half of the world’s population being online(2), data transfer penetration keeps growing. Russia is no exception. As of today, Internet penetration in Russia exceeds 70%, with two thirds of Internet users utilising mobile data.(3) Nine of ten Russian intern users are connected to social media, spending an average of two hours per day on such services.(4) Unlike most other countries, Russian users watch online videos more often than TV.(5)

The digital trend is already affecting user behaviour, which is now mainly focused on having multiple devices and multitasking. Users surround themselves with multiple devices and smart appliances, number of which is expected to grow even further in the future.

The digital trend can be seen through the global digitisation of the economic system. Important drivers of digital growth include the spread of the Internet of Things and its extended concept of the Internet of Everything, which brings together devices, processes and people. Experts estimate that smart keys, vehicles, fridges, houses and entire cities will become a reality as early as 2020. For ordinary consumers, this means the automation of routine processes such as cooking or indoor temperature control, while for businesses, this means the optimisation of logistics and management costs, savings on resources and considerably enhanced performance of all processes.


Driven by such drastic changes in the industry, MegaFon decided to transform its business and re-design its corporate strategy. In 2016, our team set an ambitious goal to maintain the Company’s growth while supporting the market’s recovery. Each and every employee should aspire to become a leader in their area of expertise and work towards success for all.

Therefore, MegaFon has redefined its approach to business to be driven mainly by customer-centricity, management model agility and flexibility, ability to turn challenges into opportunities, and an open and proactive approach to partnerships.

The Company’s new strategy is now focused on digital clients, i.e. subscribers who consciously use mobile data services. We intend to offer products and services that will best meet the needs of digital clients throughout their life cycles.

The Company is preparing to enter a new strategic cycle – towards digital growth that can be brought on only by sharpening MegaFon’s historical competitive advantages, which include technology leadership, a balanced distribution network, a diversified portfolio of strong brands, and an experienced and bright team of professionals.

As part of revising our approach to business organisation and realization of business performance enhancement targets, we have initiated a commercial and operational transformation. Already in 2016, we re-designed our organisational structure by dividing our business into Commerce and Operations. We launched a Shared Services Centre to simplify and speed up all operating processes and launched a largescale transformation of our IT infrastructure. In line with the industry’s digitisation trend, we substantially reinforced our portfolio of digital services, including new smart business solutions and IoT-based services.

The acquisition of a stake in Mail.Ru Group proved to be an important step towards MegaFon’s new strategy, which will enable us to offer mould-breaking solutions and services in the near term, by drawing on the strengths of both companies.


Seeking to cement its leadership in a rapidly evolving industry, MegaFon revised its goal and objectives to come up with a new mission. Today, our mission is not only to create opportunities for communication – as one of the key players in the industry, we are also helping to create the new digital world to make life better for each subscriber.

MegaFon helps to create a modern world to make your life better in every aspect

PROVIDING OPPORTUNITIES<br /><span>MegaFon helps to create a modern world
to make your life better in every aspect</span>

Focus on connection

MegaFon is connecting Russia, removing the barriers and developing communications to become a natural choice

Focus on service

MegaFon helps to create a modern world, that will improve all aspects of your life



Our new corporate mission and vision are ambitious and set the tone for MegaFon’s new strategy. Inspired by them, we came up with four key strategic principles.


Offer products and services that create value for customers instead of maximizing gross adds and expanding the PoS network

In today’s mobile business, adding new subscribers becomes more and more costly, while cash flows from gross adds are gradually drying out. The large, expansive retail network in the Russian market is therefore redundant. We intend to refocus from increasing our subscriber base to increasing the loyalty of our existing client base. This means creating products and services that will offer real value to customers and which they will be willing to use for as long as possible.

Focus on digital customers and expanding the digital trend to our own base

To increase the loyalty of our own subscriber base, we will focus on understanding and meeting the needs of digital subscribers. They currently account for 31% of our unique customer base and for 58% of revenue. We will continue designing new products and services that will cater for these customers. Meanwhile, we will also seek to maintain the penetration of the digital trend into our wider customer base. We will promote new digital opportunities among our regular customers to digitize them.

Build a unique ecosystem of services and partnerships that digital customers would be willing to spend more time with

Creating high-end digital services that are genuinely attractive to digital customers requires relevant capabilities. The deal with Mail.Ru Group, an absolute leader in digital customer coverage in Russia, works towards this end. We have joined our efforts to build a unique digital ecosystem of services enhanced by partnerships with other digital players. The stronger it becomes, the deeper our customer relations will be.

Provide the best perceived quality for digital customers through total technology leadership

Through consistent strategic investment in its network, MegaFon has built the country’s best telecom infrastructure both by number of base stations and by frequency spectrum. Our next challenge is to transform our technology leadership into leadership in perceived quality for a digital customer.

(1) GSMA report, The Mobile Economy 2017.
(2) According to AC&M.
(3) Report by Broadband Comission, 2016.
(4) GFK study, Internet Penetration in Russia: 2016 Results, January 2017,
(5) Romir study, April 2015,
(6) Millward Brown study, 2015,