MTS delivers solid Q1 but provides cautious outlook

Russian operator MTS saw revenues grow 9% in Q1 but believes the whole-year performance is likely to be flat.

MTS has delivered a financially solid Q1 with a total revenue of RUB 119.6 billion ($1.7 billion), up by 8.9% year-on-year. The company’s OIBDA grew by 1.6% to RUB 51.5 billion ($730 million), while net profit improved 0.8% to RUB 17.7 billion ($250 million) compared to the same period of 2019. The strongest growth comes out of its mobile and fixed telecom services, but about half of the top line growth comes from the adjacent businesses, including fintech, digital services, and retail.

“…this is an unprecedented time that is impacting billions of people around the world, including millions of our customers and thousands of our employees,” Alexey Kornya, MTS President and CEO, said during the earnings call. “Connectivity has never been more critical and we are proud to be helping our customers stay in touch with their friends and family as well as colleagues and classmates.

“Overall, I am deeply proud of the MTS team and would like to express my appreciation for their professionalism in this challenging environment. Looking ahead, I am cautiously hopeful for the future, and our strategic focus is clear: supporting our customers today while not losing sight of our goals for tomorrow.”

As Russia entered COVID-19 lockdown only at the end of March, its impact was not reflected in the Q1 results. However, MTS does provide a glimpse into the impact on April and the first half of May.

Similar to other operators that have witnessed during COVID-19, MTS has seen increased traffic but a big drop in retail with many shops are closed. Meanwhile, the operator has seen and expects increased digital activities, in communication, media, and in financial product consumption. In mobile, MTS has received the regulatory approval to implement self-registration SIM cards through an app.

“Looking ahead, we plan to prioritize this channel at the key level to lower subscriber acquisition cost,” said Inessa Galaktionova, First VP for Telecommunications. MTS is “also broadening our SIM-based infection tracking across all of our sales channels.”

“Now more than ever, consumers are shifting to digital-first banking from online customer service to virtual cards and contactless payments,” said Andrey Kamensky, VP for Finance, on the earnings call, suggesting there could be greater benefit for MTS.

Looking at the full-year expectations, MTS’s management is more cautious. Citing concerns including reduced number of retail outlets as well as the impact of lockdown on roaming income, the operator projects a 0% to 3% growth in total revenues and -2% to 0% OIBDA move, compared with 2019.

MTS is the latest of telecoms companies to show that the industry has withstood the uncertainties from COVID-19 well enough especially when it comes to coping with surging traffic, but it is certainly not immune to the impact. Factors ranging from reduced retail and roaming income due to lockdown to overall economic weakness are beyond the telecom operators’ control, but have or will have manifested on telecom operators’ quarterly and annual numbers.

Ericsson’s 2020 African growth plans

President of Ericsson Middle East and Africa, Fadi Pharaon, tells Telecoms.com about the group’s strategy for growth on the African continent.

Africa represents a huge growth opportunity for Ericsson — from increased 4G coverage to future 5G rollouts and rising fintech adoption — the company is eager to grow its business and presence on the continent. This according to Fadi Pharaon, President of Ericsson Middle East and Africa, who chatted to Telecoms.com about the group’s strategy for growth on the continent.

  1. What are some of the key African insights to come out of the latest Ericsson Mobility Report?

Africa remains the fastest growing mobile market in the world. According to our Ericsson Mobility Report, by 2025, in Sub-Saharan Africa mobile broadband subscriptions will increase to reach around 70% of mobile subscriptions, with increased 4G coverage and uptake being the main engine. Driving factors behind this shift include a young and growing population and availability of lower priced smart and feature phones.

The continent has emerged as one of the strongest adopters of innovation, with the rapid rise in usage of technology and smartphones. Just look at how mobile money was initiated in Africa and is now surging all over the continent.

Moreover, Africa has come a long way in its digitization journey – from mobile telephony to broadband, and from connecting to digitizing key economic sectors, jobs, education, healthcare, government and society in general.

  1. What do you see as the greatest risk to African economic development, and what role could the telecoms sector play in mitigating this?

The risk is for sure the current slowdown in global trade caused by the COVID-19 restrictions. Add to that the presently depressed oil prices which could affect the GDP of certain oil exporting countries. That said, the continent’s median age is just 21 years. A young and growing African population with savvy digital skills and behavior could offset some of these adverse trends and indicate favorable growth for telecom and ICT services.

The current COVID-19 restrictions have demonstrated the benefits of a digitized economy, facilitating working from home as an example. This could prove to be an opportunity for Africa to accelerate its journey towards raising the role digital and telecom services play in a socio-economical context.

  1. So, knowing both the opportunities and challenges, what is Ericsson’s primary focus in Africa?

Africa represents a world of opportunity for us at Ericsson and we are eager to grow our business and presence in the continent. We see a real potential in African markets when it comes to 4G and fintech adoption. To address that, we focus on supporting our customers in the African markets with relevant and cost-effective 4G solutions and services, all while adapting to Africa’s requirements.

  1. 5G is a hot topic globally. What is the state of 5G roll-out by Ericsson in Africa?

Ericsson is continuously working with our partners to identify and create 5G use cases relevant to the market in question. One of our first major steps towards rolling our 5G in Africa was the announcement in November 2019 that Ericsson had been selected by MTN South Africa as a 5G network modernization vendor. We are still a few years away for any major 5G deployment in Africa, although the application of fixed wireless access, meaning using 5G as a way to offer high speed broadband to homes, could be suitable for those markets.

  1. You’ve previously mentioned that it is important to Ericsson to ‘show value towards customers’. What do you mean by this?

Ericsson focuses on assuring best performing networks, while also offering the best digital services and solutions to our customers. Our aim is to create a unique customer experience evolving from networks adopting automation, artificial intelligence and analytics. One of our focus areas also is reducing time-to-market and flexibility in launching services for our customers towards their subscribers. From an operations perspective, we focus on driving service delivery efficiency through adoption of advanced tools.

  1. Mobile money has historically been very successful in Africa. Does Ericsson have a role to play in this space?

According to a recent study by GSMA, mobile money is central to the mobile industry’s contribution to 15 of the 17 United Nations Sustainable Development Goals. At Ericsson, we have been incredibly proud to see Ericsson’s mobile money services introduced by our customers to several African communities to address challenges faced by unbanked communities. We believe that easy access to Mobile Money can make a tangible difference in the lives of unbanked communities. We will continue our focused growth of mobile financial services so that our service provider partners reach out to more communities across the continent.

  1. You’ve operated in South Africa, and across the continent, for decades now. What success stories can you share with us?

Our work in South Africa is a great success story example. Ericsson has been a proud partner to one of South Africa’s largest mobile network providers since 1994. However, our South African success story is not just a commercial partnership; we believe we have made a tangible difference to South African society. When former President Nelson Mandela called on the private sector for help in developing education in marginalized communities in the 1990s, Ericsson heeded the call and we have been active ever since.

Our Connect-to-Learn program is positively impacting South African girls in schools today. In Diepsloot, a disadvantaged community outside Johannesburg, Ericsson has built an e-hub that brings together entrepreneurs, innovators and society. Just this year, we introduced robotics in the hub. This is what we mean when we say we’re committed to giving back to society.

  1. What role do you play in the area of managed services in the Africa region?

Many of our customers across the globe choose us to run their networks and IT operations on their behalf and that is what we call “managed services”. In Africa, we see a big potential to expand our managed services business across the continent. With an increasing complexity brought by advanced technology, paired with ever higher expectations by the end-users, our managed services could bring to bear all of our global best practices to the service providers’ networks. Proudly we have a large managed services footprint with key customers in Africa such as MTN, Orange, Moov and Airtel. Our investments in managed services will continue and will pave the way for continuous high-performance services to African service providers.

 

— Fadi Pharaon, President, Ericsson Middle East and Africa

Visa drops $5.3 billion on Plaid in bid to future proof itself

Financial services giant Visa is acquiring fintech app enabler Plaid in an apparent bid to ensure it doesn’t get left behind in the app economy.

Despite the $5.3 billion price tag, few people will have heard of Plaid. That’s because its sole function is to act as the plumbing in linking together apps with bank accounts, mainly in the US. It’s easy to assume that Visa and Mastercard already controlled nearly all of this but it seems not, with a quarter of Americans using Plaid to link their bank accounts with apps such as Venmo.

“We are extremely excited about our acquisition of Plaid and how it enhances the growth trajectory of our business,” said Al Kelly, CEO of Visa. “Plaid is a leader in the fast growing fintech world with best-in-class capabilities and talent. The acquisition, combined with our many fintech efforts already underway, will position Visa to deliver even more value for developers, financial institutions and consumers.

“This acquisition is the natural evolution of Visa’s 60-year journey from safely and securely connecting buyers and sellers to connecting consumers with digital financial services. The combination of Visa and Plaid will put us at the epicenter of the fintech world, expanding our total addressable market and accelerating our long-term revenue growth trajectory.”

“Plaid’s mission is to make money easier for everyone, and we are excited for this opportunity to continue delivering on that promise at a global scale,” said Zach Perret, CEO and co-founder of Plaid. “Visa is trusted by billions of consumers, businesses and financial institutions as a key part of the financial ecosystem, and together Visa and Plaid can support the rapid growth of digital financial services.”

Visa and a bunch of its competitors were early investors in Plaid, so it seems to have the blessing of the financial services establishment. It looks like the price paid was around double the valuation implied by Plaid’s last round of funding, so Visa had to compensate its peers generously to have it all to itself. Investors didn’t seem that bothered either way, however, with Visa’s share price barely acknowledging the news. Here’s a slide from Visa’s presentation summarising the thinking behind the move.

Thiel’s new investment demonstrates the importance of security

Valar Ventures, the venture capitalist firm run by Peter Thiel, has pumped an additional $30 million into Petal, a credit card company which vets individuals’ digital-self during applications.

As a business, Petal is certainly an interesting one. Most credit companies assess an individual’s credit history before agreeing to lend any cash or offer financial products, however this potentially creates a problem; how do people get credit when they’ve never had it? The most fiscally responsible person might not be able to get a loan because they have not applied for credit services in the past.

Instead, Petal using various artificial intelligence applications to assess an individual’s digital financial profile, not simply a credit score. This is likely to give a much more complete picture of said person as it assesses the flow of cash in and out of the persons life. In theory, some people who have been turned down credit would now be applicable.

Although this idea is not necessarily mainstream, the concept is not new. Orange is another example of a company which is taking an alternative approach in finance. Using data collecting through its core telco business, the new banking venture can paint a picture of customers. For example, the ability to consistently pay mobile phone or broadband bills on time and in full, could contribute to understanding the risk associated with an individual applying for a personal loan.

Of course, an idea is only good as its success, and Petal has had a strong start in the FinTech world. There are currently more than 100,000 potential applicants, users who signed up during the beta test, while this $30 million fuel from Valar Ventures is the second funding round. Thiel’s firm also led the company’s $13 million series A round last year. With the new cash Petal’s CEO Jason Gross hopes to expand the customer base, hire new talent and bring new features to the product.

“Over the past two years, we’ve focused on building both an amazing team and a special product,” said Gross. “Now, with new funding and new leaders onboard we’re ready to meaningfully scale our business and team. We’re thankful for the support of our investors and partners and look forward to helping millions of people build credit with Petal.”

But over to the security element. This is where security breaches could start to make an impact on the world. The more personal information on an individual which is cruising the digital highways, the greater the likelihood of identity fraud. The world might be suffering from a bit of data-breach fatigue, but many are ignoring the issue because there hasn’t been any significant consequence.

As soon as stories about identity theft start emerging, the world will become much more aware and sensitive to the threat. In this case, when Petal is assessing the worthiness of a person the AI might come to some incorrect conclusions. We’re really starting to use this data effectively and now we just need to be sure we can protect it.

As an industry, it is important that this point is never realised, but this means proactive investment in security research and products. Security cannot no longer be considered an afterthought or a bolt-on as the implications are starting to become real. As long as Joe Bloggs is living in ignorance of the dangers of the digital economy, the industry is doing its job.

Innovating change: How FinTech and Blockchain will impact the mobile market

Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece Freelance Technology Journalist Kate O’Flaherty argues that value added services are the key to new revenue streams for mobile operators and MVNOs.

At a time when margins are under increasing pressure, operators and MVNOs are looking to recoup revenues through value added services. An area offering growing potential is the technology enabled by the financial sector – including micropayments, loans and even full banking services.

Indeed, Orange Bank, launched in November 2017 following the operator’s purchase of a 65% stake in Groupama, is an interesting example of a mobile operator entering the FinTech space. The operator’s online banking unit, which is targeting two million customers, had already reached 50,000 users by the end of last year.

“This is the chance for Orange to get into a new area,” says Kester Mann, Analyst at CCS Insight. “Their target is everyone, but the service will be attractive to the young market who have been brought up with mobile and would trust them”.

It is with this in mind that financial services are also being offered by MVNOs. Take, for example, the GiffGaff game plan in partnership with peer-to-peer lending platform RateSetter, which offers financial services to its users. In addition, ethnic MVNOs such as Lebara offer money transfer services to customers.

Going one step further, there is also the potential for banks to start their own MVNOs. It has been rumoured that Standard Bank in South Africa is poised become the second bank in the country to launch an MVNO after FNB Connect entered the market in 2015.

Indeed, there are already MVNO banks in Africa and others are planning to enter the space, says Ian Streule, Partner Consulting at Analysys Mason. “They know this gives them a way of offering financial services to users through the end device, benefitting from security and authentication through a mobile. MVNOs are good at innovating and creating new services”.

This is especially relevant in emerging markets, according to VP Marketing at Juvo, Jacquie Amacher: “Subscribers in cash-based societies who lack access to formal credit can instead use financial services through their mobile provider.

She points out: “Mobile service providers are uniquely positioned – they have the distribution to provide access. It’s about creating an identity-based relationship and moving them up the pathway to financial inclusion by offering them mobile financial services for the first time.”

By providing ongoing access to otherwise unattainable mobile financial services, MVNOs can boost engagement, dramatically reduce churn and increase average revenue per user (ARPU), says Amacher.

Blockchain in Mobile

At the same time, the technology commonly known as the distributed ledger that enables cryptocurrencies such as Bitcoin, blockchain offers further potential for both mobile operators and MVNOs.

For example, Deutsche Telekom’s recently-launched City Pass is based on blockchain technology. Replacing the membership passes usually found in someone’s wallet, City Pass can be used via a smartphone app or physical card.

More broadly, blockchain can be built into a variety of mobile apps. At the same time, the technology has the ability to improve internal efficiencies including operator to MVNO wholesale billing and cyber security.

According to experts, the application of blockchain is in its early stages, with most mobile players merely considering the technology and working out what it can do. But there is much more to come as the area matures.

Csilla Zsigri, Senior Analyst, Cloud Transformation and Blockchain at 451 Research explains: “Blockchain can be built into all sorts of mobile apps, from financial to public services and retail. One use case is where people without bank accounts can make mobile payments using apps”.

“Another example would be to have a network that verifies your identity using a mobile app –  your identity data is on the device itself –  and this can be used for services such as getting a driving license or opening a bank account”.

VP of product management at Juvo, Jason Robinson agrees, saying: “Emerging solutions around decentralised, digital identities provide a path for those who lack a formal financial identity to gain access to a broader set of services”.

Meanwhile, says Zsigri, airlines are working on blockchain-based mobile loyalty apps as part of a digital wallet. She adds: “Even blockchain powered app stores are being talked about.

AppCoins is an app store protocol under development that aims to power advertising, in-app purchases and app approval with blockchain technology. It ultimately acts as a medium of exchange between developers and end users”.

MVNO and Mobile Operator Solutions

Taking this into account, Garry Partington, CEO of Apadmi thinks Blockchain will offer multiple additional use cases to both operators and MVNOs. He cites the example of an MVNO solution for removing international call and data roaming charges.

In addition, according to Partington, there is potential for products offered by blockchain-based solutions such as Ethereum, which allow for the distributed exchange of ‘smart contracts’.

He explains: “A smart contract is a piece of software that’s run as part of a transaction in a distributed computing environment. It works by validating the transaction and storing the record on the open ledger, in a ‘block’. When a block is full, a new one is created, and they’re chained together through a link – creating a blockchain”.

So how does that translate into a real-life use case? Global Security Strategy and Blockchain Leader at Aricent, Shaan Mulchandani says: “The smart contract aspect of blockchain can be used to establish and validate wholesale billing rates between operator and MVNO”.

It is true to say blockchain has huge potential, but the technology is still very new. In contrast, the impact of financial services on MVNOs and operators is already starting to be felt.

For now, according to Andy McDonald, VP, Merchant Retail EMEA, ACI Worldwide: “The most innovative convenience-enhancing solutions are the ones that connect the dots quickly, particularly between customer and payment. Think peer-to-peer transfers via Facebook chat, or the millions of Chinese WeChat and Alipay users who pay for products by scanning QR codes from newspapers, online adverts or smart TVs”.

He advises: “To make the most of opportunities, telcos need to position themselves as the hub of the emerging digital marketplace: As an integrator for devices, applications, methods of mobile payment and customer identity management”.

 

Join us at the MVNOs World Congress 2018 in Madrid, 23 – 26 April, and hear from the industry leaders, including Andy McDonald and Ian Streule, on how FinTech and Blockchain will impact the MVNOs market.