8 Jun 2009

Are cost effectiveness and customer-centric business models enough for Russian operators to get out of the economic downturn?

The economic downturn was on everybody's minds at the Russia & CIS Com congress in Moscow last week. Russia was already a highly competitive market, with three major operators sharing the majority of the subscriptions, while a number of regional operators battle for a space in the market. Mobile penetration passed 100% as early as 2006, ARPU levels have been declining, and the imminent entry of MVNOs should make the market even tougher. It's no wonder that operators are getting worried about the impact of the economy on the market - but some players are faring better than other in a difficult context.
As in other sectors, companies specialising on discount have a better chance of survival when consumers are tightening their belts - or "being clever with their spending", as Donna Cordner, CEO of Tele 2 Russia, put it in her presentation at the congress. Ms Cordner, speaking in the opening keynote of the event, gave a master class on the discounter model as applied by the Scandinavian-owned operator in Russia. Tele 2 operates in 17 regions, with a further 18 to be launched. Its business model is based on that of discounters across various sectors (retailers such as Ikea and Aldi and airlines such as Ryanair to name but a few). The model's main strategic points are: a low-cost operation, a small portfolio of products, efficient management of vendor relationships, and good communication with the customers. It is proving particularly popular with customers who look at managing their budgets more efficiently, not just the lower income segment.
When faced with such competition, Russia's major operators have to be more creative to keep their leadership of the market. Among them, MTS has put in place a detailed sales and marketing strategy based on customer-centricity, as was presented by Garrett Johnston (Group Director of Strategic Marketing) in a lively talk. His main message was that operators need to understand their customers in order to deliver services they need, rather than products that suit the operator. He didn't just go over classic business manual theory, but gave concrete examples of how to get to know customer behaviour, and how to apply the learnings within an operator's sales strategy.
Among the other operators present at the congress, the main focus was how to keep costs under control in order to retain heatlhy margins. Cost-effectiveness is a priority for most operators across the world, but it seemed event more of an issue in Russia. The light at the end of the tunnel for operators investing in the region should be seen in CIS countries rather than Russia: emerging Central Asian markets, with their low penetration levels and improving economies and network, offer more potential than the already developed Russia.