Strategy

Key directions for Rostelecom development are focused on creating the integrated telecom leader in all the segments1 of the Russian market both in terms of revenues and subscribers

1 Excl. mobile voice segment
2 All market shares are calculated by number of subscribers

Our key strategic objective is to ensure our sustainable growth and to continue to deliver significant economic value to our shareholders. To achieve this goal, we plan to undertake a set of strategic initiatives in order to strengthen our market position in the most promising growth segments of the Russian telecommunications market, improve overall operational efficiency, and boost overall profitability by optimizing key business processes, upgrading infrastructure and improving labour productivity.

We plan to offer our services throughout Russia, including Moscow and St. Petersburg, as well as regions that are not currently covered by our licenses. We plan to accomplish our strategic initiatives by developing both organically and through M&A activity.

Our strategic initiatives include:

Utilising our existing backbone network to provide mobile voice and wireless broadband Internet services across Russia. We intend to develop our mobile voice and broadband Internet business across Russia, and increase our wireless broadband internet access market share. In order to achieve this, we plan to develop a nationwide multi-standard voice and data transmission network based on CDMA (450 MHz), GSM (900/1800 MHz), Universal Mobile Telecommunications Services (“UMTS”) (2100 MHz) and LTE (2300-2400 MHz) standards. We plan to utilize all mobile communications licenses and frequencies currently available to us, including GSM licenses in 40 regions of Russia and LTE licenses in 39 regions of Russia. We plan to participate in frequency allocation auctions announced by regulatory authorities and will seek to have allocated frequency bands reallocated for use in third generation wireless (“3G”) and 4G networks.

We believe wireless broadband Internet access is the key mobile service offered to customers. Our mobile coverage plans provide for high levels of quality and availability of wireless data services to users of all types of connection devices and across all transmission standards. In order to achieve this, we intend to reorganise our mobile communications business to create an integrated wireless operator, centralise technical and technological policies, ensure crossusage of backbone network infrastructure and integrate business processes in our mobile and fixed-line businesses. We plan on developing our nationwide multistandard voice and data transmission network in accordance with the following principles:

  • in large Russian cities (i.e., those with a population of more than 750,000), we intend to provide services based on LTE and UMTS standards;
  • in the administrative and economic centres of the Russian regions (i.e., those cities with a population between 350,000 and 750,000), we intend to provide services based on UMTS standard; and
  • in other urban areas (i.e., those cities with a population of less than 350,000) and in rural areas, we intend to provide services based on CDMA 450 standard.

Strengthening leadership in the fixed-line broadband Internet access segment We intend to develop our fixed-line broadband Internet access services by ensuring the availability of broadband Internet access services based on our multi-standard network throughout Russia. We plan on developing our nationwide broadband Internet network in accordance with the following principles:

  • in large Russian cities (i.e., those with a population of more than 750,000), we intend to develop a fibre optic network infrastructure, primarily through the acquisition of alternative telecom operators, and also through organic development;
  • in the administrative and economic centres of the Russian regions (i.e., those cities with a population between 350,000 and 750,000), we plan to organically develop our fibre optic network infrastructure;
  • in other urban areas (i.e., those cities with a population of less than 350,000), we plan to utilise the potential of existing copper wire infrastructure providing broadband Internet access based on digital subscriber line technology (“xDSL”) and to build fibre optic network infrastructure;
  • in rural areas, we plan to provide Internet access based on the existing copper wire network through xDSL technology and potentially through the use of Sky Link’s wireless CDMA network; and
  • across our entire network, including both trunk and last mile segments, we intend to deploy high-performance transmission equipment and maintain a high level of data transmission capacity to ensure connection reliability and high quality of service.

Attaining sizeable market positions in the Pay-TV segment. We plan to increase marketing of our Pay-TV, including internet protocol TV (“IPTV”), services to our existing subscriber base via bundled offerings with our broadband Internet access services. We intend to develop an integrated platform to deliver content to the end-customers; build a centralised content portfolio, including through leveraging our own content production, as well as enhancing the quality of the content portfolio by concluding exclusive contracts with leading content providers; launch and develop “over-the-top” TV services (i.e., providing video/TV content via wireline or wireless broadband network to our subscribers’ TV sets over the top of other operators’ cable networks); offer IPTV services to other operators’ subscribers; and retain and develop our cable TV business, while ensuring gradual migration of our existing subscribers to IPTV services as we modernise and upgrade our networks based on fibre optic technology.

Enhancing leadership positions in the business to business (“B2B”) and business to government (“B2G”) segment. We intend to establish a separate organisational and functional business line to serve B2B customers. We plan to increase our service offerings to all types of corporate customers, including national corporations, large businesses and SMEs. We intend to accomplish this by utilising our highly qualified sales managers, able to efficiently conduct direct sales; improving our IT infrastructure, including centralising our billing system and implementing a customer relationship management, or CRM, system; unifying and centralising all business processes, including sales and marketing and provision of services; and establishing an integrated product portfolio for corporate customers, including IP VPN services, satellite communication services and infrastructure services including data centres. We also plan on leveraging our unique nationwide infrastructure to become the unparalleled leader in the provision of a full range of services to large corporate clients with operations throughout Russia.

As part of this strategy, we plan on establishing commercial relationships with B2G clients, providing them with telecommunication and IT infrastructure, which will enable them to provide public services online. As part of our B2G business, we plan on implementing the “Electronic Government” project, launched and supported by the Russian Government. We intend to leverage our expertise gained from implementing the “Electronic Government”, including the Software as a Service (“SaaS”) model, to provide a broader range of services to our corporate customers. We also plan to partner with third parties to enable provision of their services through the public services portal, developed as part of the “Electronic Government” project.

Enhancing leadership positions in and further developing our operator business. We intend to establish a separate organizational and functional business line and leverage our nationwide telecommunications infrastructure to serve telecommunications network carriers. We also intend to aggregate the most popular Internet content in Russia at our data centres to enhance the quality of our IP traffic transit services. We plan on increasing network connectivity by expanding peering agreements with the largest network infrastructure operators in Russia while increasing traffic exchange with international carriers.

Maintaining leading positions in the traditional fixed-line telephony business. We intend to limit the impact of the trend of fixed-line traffic and subscribers shifting to mobile networks in order to preserve our fixed-line telephony revenues. We plan to increase the scope of our tariff plans with respect to local, intra-zone and DLD/ILD services through the introduction of new tariff offers attractive to different segments of our customer base. We also plan on centralising our fixed-line churn management business processes and applying international and Russian best practices to protect fixed-line traffic and subscribers churn, including the introduction of session initiation protocol, or SIP, telephony, bundling fixed-line telephony services with broadband Internet access and Pay-TV, or triple-play, as well as with mobile telephony as part of our fixed to mobile convergence package, or quadruple-play.

Realizing the potential operational efficiencies resulting from the completion of the Reorganisation. Following the Reorganisation we plan to reengineer our key business processes, which account for a major part of our operational expenses, and optimize our management structure. In particular, we intend to achieve multiple operating synergies by removing network overlaps and ensuring the centralised development of our network and IT resources based on unified standards; reorganising our sales network and reengineering our marketing processes; unifying remote marketing and customer support by launching an integrated call centre; launching a single portal to market services and customer support; centralising procurement functions, including network equipment purchases; transitioning a significant portion of our fixed-line telephony subscribers in remote towns to wireless access technology; removing duplicative administrative and support functions and optimising our personnel structure; and eliminating internal competition between the Company and the IRCs in the wholesale (operator) market.

Development of innovative services. We intend to develop and launch a variety of innovative services, including:

  • cloud computing;
  • content delivery networks (“CDN”);
  • large government-sponsored projects involving the use of our telecommunications infrastructure, such as Electronic Education and Electronic Medicine;
  • remote applications;
  • web portal providing paid access to third party content providers and solutions for social networks, niche web-sites and search engines; and
  • outsourcing services and IT functions, managing clients’ networks and equipment maintenance.

Re-branding. We intend to gradually introduce the “Rostelecom” brand across the entire Group while terminating use of the brands the IRCs used prior to the Reorganisation. We launched a promotion campaign of the new brand at both the national and regional levels.

We aim to become a truly integrated operator and to increase our overall market share to 26% by 2015 from current 22%.

History

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