Series of competitive analysis works (part 1)

I'm begining the series of MNOs corporate strategy overview. They are made on my own observations and open sources of information (and a little bit of rumors :-) ). You are welcome to make your additions - I will be glad to post your thoughts.

The first part is short introduction to Vimpelcom (based on SWOT - I believe that it is very usefull way of short description of the company) which is pretty interesting to look at now because of its extraordinary situation.

Click to enlarge.

And below you may find current operational focus of Vimpelcom (from 3Q results presentation):

•Cut all non-essential costs
•Execute hiring freeze and identify further headcount optimization opportunities
•Aggressively re-negotiate contracts with key vendors
•Put on hold non-critical CAPEX orders
•Scale back CAPEX plans going forward
•Protect against currency volatility exposure through hedging

Second short overview is about MTS.

Click to enlarge.

Current publich strategy of MTS is following (called "3+2"):

1. Provide better subscriber experience. Differentiate network quality. Optimize CAPEX. Develop monobrand retail network.
2. Develop data traffic and content based services. Balanced development of 3G and EDGE.
3. CIS and developing countries expansion. M&A only in CIS in case of financial ability.
4. Effective expenditures. Optimize OPEX. Switch CAPEX to strategic projects maintenance.
5. MTS group development. Optimize business processes. Optimize organizational structure.

And finally, Megafon. This company seems to be the major threat for previous two MNOs.

Megafon has cost optimization activities but not so global as Vimpelcom and MTS. They don't have ambisious investments in foreign expansion, big retail network. They are very focused on cost effective proposal (MVNO "Prosto" - http://www.prostozvoni.ru/). At the moment they are performing restructurization (getting into the one company from several regional companies) but still active in their spendings on new solutions. It worths mentioning that Megafon is a closed company and not so limited by getting strong financial results. They are able to concentrate on subscriber base growth rather than USD revenue.

You may find pdf sources at the bottom of the page.

Thanks,

Denis.

Small portion of analisys

Yesterday MTS announced financial results. Consolidated net income down 6.8% due to non-cash FOREX loss through US GAAP translation of US dollar-denominated debt. This caused significant fall of its shares on NYSE (more than Vimpelcom). MTS was first of MNOs who published 2008 financial results. This loss is highly dependant from debt value which is more than Megafon debt but much smaller than Vimpelcom one. It is simply to predict that Vimpelcom results will be much worse and this will cause significant drop in its shares. At this point I advice to buy MTS shares after Vimpelcom financial results announced (it will cause chain effect and fall of MTS shares) but in 6 month perspective it is clear that MTS should be a leader in financial results. MTS has strong and aggresive market strategy - they are trying to attract new subscribers from different networks (its churn rate rose but I believe Vimpelcom churn should be higher) and develop poor market segment, but not so good as Megafon. MTS's spendings on advertising on the same level of quality from subscriber point of view. MTS started playing with tariffs and GPRS-internet traffic counting policies (increased since March 26th counting edge from 5kb to 100kb).

Vimpelcom due to Golden Telecom managers invasion to all relevant position is in very bad situation (frankly speaking, 2 debts from SberBank and icreased tariffs influence too) - bad corporate climate, big debt will cause much higher non-cash FOREX loss, new top managers will spend time on restructurization on Golden Telecom managers moving to relevant positions. At the moment I see that almost all strategy development of Vimpelcom is stopped - they are trying to survive in recession (as example MTS is cutting budget, looking for cost-savings and Vimpelcom is trying to find where it is possible to spend money from previous plans). Bad financial results and internal problems will have synergetic effect in shares drop. I believe it is good time to sell Vimpelcom shares. Their shares will be interesting in 6-9 months. It will be the time for effective actions of new management (maybe in worst case even some kind of nationalization), new experienced manager will have to decide strategy and find a way for business development. TV shows famous russian show man Fomenko with advertising of new lottery. Very interesting way of loosing subscribers - let's take last money from them - not far from stealing.

In same time Megafon is silently aquires new subscribers becuase of country wide feeling like Megafon is the cheapest MNO (recently it launched low income subscribers targeted MVNO called "Prosto" in russian sounds like "Simple"). I think its results will be good enough (don't forget that their debt is much smaller and they don't spend a lot of money on buying retailers businesses - I believe they are waiting for cheaper prices and hence for much more effective purchases).

I think Tele2 should be mentioned too. They began as discounter and unfortunatelly weren't allowed to be in Moscow but in other areas they are well presented. It is like magic time for them. Low income segment is incredibly fast growing (amount of subscribers in this segment). In case Tele2 is able to provide similiar range of essential services they will win from this crisis. It could be well seen from corporate segment - this segment replies first on hard time.

Thanks,

Denis.