Annual Report 2015



Innovative Products and Value Added Services

We are committed to the development of new products and continued enhancement of existing products, translating innovations and new technologies into convenient, useful services, and thus creating added value for both consumers and our business partners.

Our current offering includes a wide range of innovative products and value added services (VAS), specifically in M2M services, cloud solutions, mobile advertising, TV and other segments.

In 2015, MegaFon focused on developing and launching new services across several areas: video services, financial services, cloud solutions, convergent services, mobile advertising, M2M, and Big Data.

We aim to keep our focus on a limited portfolio of selected product initiatives, because this allows us to develop high-quality, well-designed products which consumers will embrace enthusiastically, which in turn helps us maintain MegaFon’s profile as a technology leader and lays a solid foundation for creating new revenue streams.

MegaLabs, our wholly-owned subsidiary, spearheads the development of most of MegaFon’s new products and services. Today, MegaLabs employs 160 technical experts and professionals working in project management, product marketing, application and system development, customer research and industry collaboration.

Video services

2015 marked a milestone in the development of our MegaFon TV product. During the year we implemented a new growth strategy for this service aimed at attracting new subscribers and reinforcing the loyalty of existing subscribers, as well as capturing revenue in the rapidly developing ОТТ services market.


active users of MegaFon TV

In May 2015, MegaFon TV launched a new content offer for subscribers to the ‘Vse vklyucheno’ line of tariff plans and options: 50 TV channels and up to four movies per month at no extra charge.

Today, the size of the Russian market for legal paid content is estimated at RUB 25 bn (according to a study by Ernst & Young); however, in 2015, the combined earnings of all players in this market were under RUB 7 bn. This was mostly due to the spread of online piracy, low awareness among customers of the benefits of using legitimate services, conservatism on the part of content owners, and high rates charged for content. MegaFon believes that, by providing its subscribers with attractive tariff plans and options providing access to movies and TV content, it can remove the obstacles to consumption of legal paid content by users and open up new opportunities for rights holders to monetise their content.

We ran an advertising campaign in December 2015 and January 2016, at the end of which over 400,000 subscribers had signed up to the MegaFon TV service, with 70% of them taking advantage of our special offer. By the end of January 2016, the number of active users from among our subscribers reached 330,000 (as compared to 30,000 active users at the end of 2014). At the beginning of 2016, the number of subscribers actively buying extra content via the MegaFon TV service reached 45,000. The growth of the user base was clearly driven by our subscribers to ‘Vse vklyucheno’ tariff plans and Internet options.

According to a service user survey, 70% of subscribers to ‘Vse vklyucheno’ tariff plans and options are satisfied with the special offer, including 61% of users who rated the MegaFon TV service as “good” or “excellent” .

Today, the MegaFon TV service offers a range of content unique in the market: over 130 TV channels including HD TV channels, movies by Russian and foreign production companies, childrens’ content, and a host of TV series. The service can be accessed on iOS and Android mobile devices, PCs, Smart TV, and Samsung and LG TV sets. Subscribers pay for content using their current accounts opened with the operator.

The Company’s plans to further develop the MegaFon TV service include continued expansion of the content library, extending the range of devices that can be used to access the service (including Apple TV, Chromecast, and Android TV television sets and set-top boxes), as well as providing access to exclusive content.

M2M and geo-services

We offer both universal М2М products for cross-industry applications and bespoke solutions to meet very specific needs. To bring innovative М2М solutions to market we collaborate with software companies whose technologies have been successfully tried and tested in the IT market. Despite the fact that MegaFon has started developing M2M services quite recently, MegaFon had more than 1.6 m M2M users (SIM cards) as at the end of 2015. Our share of the М2М services market accounted for almost one quarter of the market, with the total market size estimated at seven m users (at the end of 2015).


M2M SIM cards at the end of 2015

MegaFon’s M2M Monitoring platform targets large and medium-sized companies with five and up to several thousand employees and managing a pool of SIM cards that require online real-time M2M remote control and monitoring. M2M Monitoring enables them to transmit data between devices and gather information on their location, network activity, and traffic consumption. The platform can be adapted to any industry and provides flexible functionality and a user-friendly interface to meet the SIM card management needs of this business segment. During 2015, this solution was deployed across all MegaFon’s branches. In 2015, the M2M Monitoring service was significantly improved – its performance was enhanced; and the service was integrated with other MegaFon’s platforms, enabling integration with IT systems of our corporate clients via API. The enhancements gave the product a number of unique features, providing an edge over competition.

Our Employee Monitoring service was further developed in 2015. The service is mostly used by credit institutions, production and service companies, and taxi services. The solution enables customers to easily pinpoint employees’ locations through interactive maps in the service interface. The Employee Monitoring service provides an option of tracking employees’ movements, with movement reports sent via email, including at preset time intervals. The service also allows selection of areas on a map (e.g. warehouses, offices, etc.) to monitor when individual employees visit these places. Customers can exchange text messages with their employees via the service interface. The service functionality enables customers to improve HR management and drive task performance. As part of our efforts to further develop the service, in 2015, we launched Tracker mobile app for iOS devices, which improves location accuracy for subscribers using the Apple products.

Our Car Fleet Monitoring service enables corporate clients to monitor and track their vehicle fleets in real time. Through a powerful combination of software and hardware, installed in vehicles and company control rooms, clients can monitor mileage, idle time and fuel consumption. Through this service our customers can save up to 30% of their costs due to reduced vehicle misuse.

Our Remote Device Management service is based on wireless control of networked, remotely located assets, e.g. payment terminals, retail vending machines, security and alarm systems, filling stations, and gas, heat or electricity distribution grids. The service permits the monitoring of the operation of remote devices and rapid detection of issues, collecting data from hundreds of various devices in real time.

In 2015, our biggest project in the M2M segment was the signing of a contract with RT-Invest Transport Systems for the supply of М2М solutions, which will be used to pay road tolls collected for road repairs on federal highways. Under the contract, MegaFon will supply up to two m SIM cards, which will be fitted into in-vehicle devices for trucks.

Our customer offering also includes geolocation services such as Radar, which is used by EMERCOM of Russia’s Liza Alert search-and-rescue volunteer group, which saves from danger more than 200 people a year. The Radar service enables subscribers to locate other subscribers both on their own and other networks. At the end of 2015, the Radar service user base reached 800,000 subscribers.

The solution is capable of tracking the geolocation of every member of a rescue team, networking all users, and enabling a team coordinator to give them more clear instructions, which allows a manifold increase in the efficiency of the rescue effort. Radar can also be used in personal life, e.g. parents can use the service on their phones to track their children in real time.

Big Data

Big Data technology provides advanced analytics tools for processing vast amounts of data to drive business efficiencies, develop new products, and improve overall competitive edge. Extracting information from big data sets delivers benefits that are not available with more traditional approaches to data analytics, e.g., through more accurate assessment of a product’s potential, more efficient CAPEX allocation, and providing a fundamentally different customer experience than that offered in traditional industries, all by smart solutions and services based on machine learning technology. Our clients in this business segment include Russia’s leading banks, transport companies, and retail chains.

Businesses, including banks, are increasingly using MegaFon’s Big Data geospatial analytics tool to drive their decision-making. This service enables clients to develop behavioural models for large groups of people, and provides an automated data processing solution based on mobile technologies to generate real-time analysis of data a client needs. Insights from such accurate analytics help businesses improve their understanding of customer preferences, reduce operating costs, and increase profit.

We also have strong relationships with municipal authorities, including the Moscow Government, which relies on MegaFon’s geospatial analytics services for effective transport planning and smart planning of real-estate development of new territories as part of the city development programmes. We also use Big Data solutions in upgrades of our own network infrastructure, in launching new points of sale, and generally in our cost-cutting efforts and analyses of investment efficiency across areas of our business.

In 2015, we expanded our range of Big Data analytics services, and introduced a new functionality that offers the ability to monitor passenger flow transport mode. This new solution enables transport companies to estimate the size and structure of passenger transportation markets for services both within and between cities, across all transport modes and without the need to install sensors or any other additional meters. Offering a level of detail down to a few minutes, the service enables accurate estimates of passenger flows across modes of transport – from air to road (cars and buses), and transfers between them. The operator’s systems record load data for base stations, which show changes reflecting subscriber flows. Transport companies can use insights from this data to allocate the share and volume of traffic to individual routes, estimate transfers to other modes of transport and carriers, identify weak spots in timetables, optimise route network, and reallocate resources.

In 2015, the contribution of Big Data services to MegaFon’s B2C revenue accounted for 1.7%.

Cloud and IT solutions

With the launch of MegaDisk, MegaFon became the first mobile operator in Russia to offer a secure and easy cloud solution providing unlimited data storage and syncing on PC, Mac, Android and iOS smartphones.


mobile operator in Russia to offer a secure and easy cloud solution

In 2014, this solution was deployed across all MegaFon’s branches, and in December 2014, unlimited data storage became available to all users of MegaDisk. In 2015, we continued enhancing the MegaDisk service. The service is free to all MegaFon clients and enables users to combine and access files across multiple internet-connected devices.

Over 2015, the number of users of MegaDisk service almost quadrupled compared to 2014, and exceeded 55,000 clients.

In 2015, we continued to develop user-friendly, convenient and flexible products to enhance customer experience and maximise customer satisfaction. At the very start of 2015, our Online Conferences service was made available to customers across all branches of MegaFon, offering a seamless experience of video conferencing and webinars. The service rapidly gained in popularity due to its user friendly and intuitive interface, flexible pricing and the ability to apply it without installment of any additional software.

In September 2015, we launched a fully updated version of our Virtual Office. This cloud-based telephony system solution for small and medium-sized companies enables deployment of a corporate virtual network in the office space in a few minutes, call distribution to employees’ desktop and mobile phones, integration with the CRM system, call recording option, etc. As companies seek cost optimisation opportunities, MegaFon is focusing on the phone functionality that can boost sales, such as call history, data visualisation, individual performance reports, integration capability with any IT systems a client may have, telephone event notification, etc.

As part of our B2B Online Cloud concept, we seek to make MegaFon’s services even more user-friendly. With this objective, in late 2015, we launched a service enabling the electronic completion of contracts for mobile services. Customers can now prepare and sign documents online, using an electronic signature, a solution used by companies in Russia to submit reports to the relevant public authorities. We have already received many positive responses from our customers, and will continue developing the B2B Online Cloud services in 2016.

Financial services

MegaFon’s mobile financial services and products enable our subscribers to conduct a wide range of personal banking and accounting tasks through their mobile phones and tablets.

Our financial services allow MegaFon’s customers to use their mobile phone accounts to make easy and secure payments for goods and services in over 5,000 online shops. The list of participating online retailers is constantly increasing, with more and more customers benefiting from moving their payments online, including internet, utility, TV, and telephone bills, traffic fines, bank loan repayments, and money transfers, all directly from a mobile phone account.


unique users of MegaFon's mobile payment solutions

In 2015, we continued enhancing our financial services offering, increasing the number of unique users of our mobile payment solutions to ten m, with the average number of users of mobile payment services reaching approximately three m at the end of the year. In 2015, the number of mobile payments made via our financial solutions increased by almost 14% year-on-year.

In 2015, we implemented a number of mobile commerce offerings, with the expectation of realising significant benefits early in 2016.

The launch of our Mobile Ticket service marked a milestone in the development of payment capabilities provided by a mobile phone account. The product initiative was implemented in conjunction with the Moscow Government’s Transport Department and the Moscow Metro. Starting from September 2015, owners of NFC-enabled (Near Field Communication) smartphones and SIM cards can pay their fare on any public transit system in Moscow by simply tapping their device on a ticket gate validator. The fare is charged to the subscriber’s Mobile Ticket account at the rate offered by Troika transport e-cards (e-wallets). The Mobile Ticket account is topped-up automatically from the subscriber’s mobile phone account. Over 7,000 people have already used the service in the few months since its launch, and their numbers are growing.

In 2015, we continued expanding our own terminal payment network. This project was scaled up to the federal level, with the number of terminals increased to 1,754 units (twice as much as in 2014) and payment volumes growing 93% year-on-year. Now that a payment terminal is available in almost every one of MegaFon’s own retail stores, we no longer need to use third-party terminals, and can save on payment processing fees and get the extra benefit of using the terminals as an additional tool to promote our own services and products. In implementing this project we mostly focus on expanding the list of services customers can pay for using our payment terminals. The technical integration of the processing system and the 1C system of MegaFon Retail enabled us to launch a bank loan repayment service. We have also made it possible for subscribers pay for other popular services such as payment of utility bills and traffic fines, etc.

Mobile advertising

In 2015 MegaFon continued to develop its Mobile Advertising and Mobile Notification services. These services enable our corporate clients to reach their target audience of MegaFon subscribers quickly and reliably to inform them about new offers via SMS.

For our clients in the financial sector we launched the Status option, a security solution protecting subscribers against fraud. This option provides an extra layer of protection for remote banking, as well as for any other service that uses customers’ mobile devices (email systems, social media apps, e-wallets, etc.). The service provides clients with information about the current status of various customer identifiers (SIM card change, registering on the network, etc.). In 2015, our total revenue from our Mobile Advertising and Mobile Notification services was over RUB 4 bn.

Converged services

MegaFon’s converged services have also gained in popularity in 2015, with the total number of their users growing 20% year-on-year. Our convergent (FMC) services, primarily focused on corporate clients, are available in all regions of Russia and provide solutions which facilitate the management of voice calls, call forwarding, and the use of other communications technologies. These solutions include: mobile call termination on fixed-line networks or calls over IP connection, short codes, hotlines, quick dial codes, ‘8-800’ free call numbers, MultiFon and Virtual PBX services.