Annual Report 2015



Infrastructure Development

Our infrastructure development is aimed at providing our customers with fast and stable connections, top quality communications and high speed mobile internet so that our subscribers can be closer to each other despite the distance separating them. Our strategy is focused on achieving the highest level of 4G services penetration, improving our 4G/LTE network quality and coverage, and continuing to upgrade our existing 3G network and improve backbone infrastructure.

In 2015, MegaFon continued investing actively in its infrastructure development. The Company is currently one of the leaders among Russian operators in terms of the number of base stations and the owner of one of the longest backbone networks in Russia.

In October 2015 and February 2016, the first auctions for LTE frequencies in the 1,800 MHz, 2,570–2,595 MHz and 2,595–2,620 MHz bands were held in Russia. MegaFon participated actively in these auctions and acquired these frequencies in a total of 40 Russian regions. Acquiring these frequencies will enable the Company to consolidate its competitive edge in certain regions, improve the quality of its services by increasing the network capacity and data transfer speeds, and roll out 4G/LTE networks at a lower cost.

4G/LTE networks

MegaFon is the winner COMNEWS Awards 2015

In 2015, MegaFon was the winner of a ComNews Award - as the rating leader in the “Biggest Number of 4G and LTE-Advanced Base Stations” category. ComNews Awards are presented annually based on analyses of quantitative and other data intended to measure companies’ effectiveness in the use of information and communications technologies. Last year, MegaFon won the award for the largest number of 4G base stations.

MegaFon was the first among Russian mobile operators to launch a 4G network in Russia.

During 2015, we focused our efforts to develop the Company’s 4G/LTE networks in the following two areas: coverage expansion through entry into new regions, and LTE network development and coverage quality improvement in the regions where MegaFon’s 4G services were already available. As a result, by year-end, the number of base stations grew 24% year-on-year, exceeding 23,000 units.

In 2015, MegaFon extended its 4G network coverage to an additional five regions. At year-end, MegaFon’s 4G services were available to 59% 1 of the Russian population (as compared to 51% in 2014) in 77 regions and in 14 out of the 15 cities with a population of more than one m.

4G/LTE networks in the regions where the Company operates were developed through expanding network capacity and improving coverage quality, including through improved penetration into residential and office buildings.





are covered
by 4G/LTE

(number of regions)

In 2015, MegaFon continued to roll out its LTE-Advanced network based on the existing 4G base station infrastructure. At the end of 2015, LTE-Advanced 4G high-speed internet services with the speeds of 150 Mbit/s–450 Mbit/s were available to subscribers in nine major Russian cities.

MegaFon plans to continue the geographical expansion of LTE, in particular by rolling out the network in cooperation with other major players. Specifically, in January 2016, MegaFon signed an agreement with VimpelCom to implement a large-scale joint project for the construction and subsequent operation of LTE base stations in ten Russian regions. MegaFon’s and Scartel’s integrated network has the widest range of frequencies in the 2,600 MHz band in the country, and the implementation of a joint RAN-sharing project with VimpelCom will allow us to enhance our infrastructure in the 1,800 MHz band in the most efficient way. With this project, we are going not only to improve the existing network significantly, but also to rapidly launch LTE in new locations in the selected regions at minimum cost.

3G networks

In 2015, MegaFon continued developing and modernizing its 3G network as this mobile data transfer technology remains the most popular among Russian users, even as the number of LTE users grows steadily each year.

The Company’s priority in 3G development in 2015 was to increase the network capacity and at the same time to improve communications quality and mobile internet speeds by adjusting the network’s functional composition. At year-end, the number of 3G base stations grew 11% year-on-year to more than 42,000 units. The new base stations have brought the benefits of even more stable connections across our coverage area and acceptable data transfer speeds irrespective of the load on the network.

Since the launch of its 3G network in 2008, MegaFon remains the market leader in terms of the number of 3G base stations and the network’s geographic coverage. At the end of 2015, the Company’s 3G services covered 83 Russian regions, reaching 89.45% of the population.

2G networks

During 2015, MegaFon was addressing local tasks to expand its 2G coverage, including in remote and hard-to-reach areas, as well as to improve coverage for corporate customers who signed contracts with the Company in the reporting period.

In 2015, we continued to participate in national projects designed to extend 2G mobile coverage to remote regions of the country and along federal highways. We also addressed improving coverage for corporate customers who signed contracts with the Company.

In 2015, the number of 2G base stations grew 3.5% year-on-year to almost 48,000 units. MegaFon’s 2G services cover 83 Russian regions, reaching 97.71% of the country’s population.

In 2015, MegaFon made the decision to spin off its tower infrastructure into a separate company. The tower company will be our new focus for tower infrastructure management, enabling faster organisational decision-making and ensuring efficient network development and communication quality improvement.

We also participated in the federal programme to overcome the digital divide in sparsely populated areas across Russian regions, implementing a number of projects including the launch of new 3G base stations in 27 villages and settlements in the Karachayevo-Circassian Republic and the active roll-out of own networks in the Rostov region.

Backbone and backhaul networks

Developing our backbone network is an integral part of our commitment to meeting the increasing needs of our customers. That is why further roll-out of our backbone fibre-optic communications line (FOCL) is a key element of our infrastructure development strategy. The extension of our FOCL helps enhance communication quality, increase our mobile network capacity and improve data speeds across 4G, 3G and fixed broadband technologies.

In 2015, the FOCL was further developed both through our own construction efforts and implementation of joint construction projects and fibre-optic line exchange programmes. Overall, during 2015, we increased the length of our backbone network by 4% year-on-year, or 5,000 km. The total length of our backbone FOCL exceeded 126,000 km. The share of urban base stations interconnected through FOCL was 64% at the end of 2015

Developing of our fibre-optic communications line (FOCL)

In 2015, MegaFon completed one of the largest FOCL development projects – the construction of our own fibre-optic communications line linking the north of the Sverdlovsk region and the Khanty-Mansi autonomous area. The project took an entire year and was completed in August 2015. More than 860 km of fibre-optic lines passed through 29 population centres across the region. The fibre-optic lines looped MegaFon’s high-speed network through the largest cities in the Urals: Yekaterinburg – Nyagan – Surgut – Tyumen – Yekaterinburg. The launch of this FOCL project brought improvements in communications quality and helped satisfy the growing demand of MegaFon’s subscribers for high-speed mobile internet.

The key development in our backbone network in 2015 was the implementation of new stages of MegaHighway, a 100 Gbps DWDM-based transit trunk line project designed to minimise traffic latency and reduce the cost of arranging channels. In 2015, the Moscow–St Petersburg and Voronezh–Rostov-on-Don sections were commissioned.

In 2015, in line with our backhaul network development strategy, we continued building up urban network capacity, migrating to 10GE-level capacity, and launching nodes with the capacity of 100GE and more. Our urban network development strategy is focused on maximising the penetration of 4G services, improving our 4G/LTE network quality and coverage, paving the way for 5G networks, and continued enhancement of 3G network capacity.


Network quality

In 2015, we implemented a number of measures to improve communications quality. We introduced solutions adding new functionality to our radio access network and optimised the parameters of backhaul network sections to improve the end-to-end quality metrics of our services.

We continued our efforts to reduce cut-off calls at specific locations and eliminate local network congestion. By the end of the year, we achieved progress against key quality indicators across all Russian operations.

A well-developed modern infrastructure, along with a significant edge in frequency spectrum, allow us to ensure high speeds of data transfer and excellent communications quality.

Based on the research carried out by Telecom Daily in November–December 2015, MegaFon was recognised as the best operator in Moscow in terms of voice communications quality, with the least number of blocked and cut-off calls.

Similar research in St Petersburg also confirmed our leadership in a number of areas. Specifically, testing showed that MegaFon delivered the highest quality of voice communication: no blocks or cut-offs were registered in the network, while MegaFon demonstrated the best call initiation time, as well as the best result in terms of maximum speed in 3G and 4G/LTE networks.

Global Network Operational Centre

In spring 2015, MegaFon completed its major project to set up the Global Network Operational Centre (GNOC). Investment in the project exceeded RUB 1 bn. It is one of the largest and most advanced facilities of its kind in Russia and globally. The GNOC’s key distinctive feature is that in addition to round-the-clock monitoring of MegaFon’s network status and quality across Russia, it also manages almost 300,000 active network elements, including voice and packet switching equipment, backhaul network equipment and service platforms.

The Centre’s functions are shared between two sites, in Moscow and in Samara. In case of an emergency, network operation can be fully consolidated at one site within 15 minutes. The GNOC is based on umbrella management and monitoring systems: Fault Management, Network Resource Inventory and Trouble Ticketing. Functional teams based in the Centre and in the branches are responsible for network operation in line with the target model, with overall coordination from the GNOC.

The GNOC’s launch resulted in much faster localisation of network problems (by over 60%), development and implementation of new business processes, and significant gains in operational performance. Throughout 2015, the GNOC processed on average more than 15 m notifications and messages and solved around 5,000 defects a day. During the year, the GNOC handled 221,000 requests from mobile subscribers and 72,000 requests from corporate customers.

The GNOC was actively involved in a number of high-profile events, most notably the summit meetings for the members of the Shanghai Cooperation Organization and the government representatives of the countries referred to as the “BRICS”, as well as the 2018 FIFA World Cup draw.

Federal umbrella systems are planned to be refined in 2016 to increase the level of automation and enhance the GNOC’s performance.

Unified billing

In 2015, MegaFon continued to implement its Unified Billing project. The project will enable an overhaul of the billing architecture to transform it into a unified solution for subscribers of all branches, and ensure the high quality billing and customer service. The project completion is expected in 2018.

The main objectives of the Unified Billing project are to reduce the timelines for launching new and modifying existing products; to centralise the process of launching new business initiatives; to enhance customer service quality and customer experience; to launch new functionalities to better differentiate MegaFon from its competitors; and support overall business transformation initiatives.

The project is based on a “greenfield” - concept that involves building a separate, single business support system (BSS) from scratch, integrating it with the existing Legacy BSSs and adjacent systems using umbrella solutions, launching new sales in the new BSS, and a phased migration of all subscribers from Legacy BSSs.

The key developments for the project in 2015 included the development of the Unified Billing architecture in line with the original roadmap, creation of a subscriber migration strategy, a pilot launch for retail customers (B2C) in the mobile communications segment in December 2015, and a commercial launch for corporate customers (B2B) in the fixed-line communications segment in August 2015.

Information technologies

The development of our IT capabilities is vital to helping us address a large number of business issues and increase the Company’s operational efficiency. In 2015, MegaFon implemented a number of initiatives aimed at improving our IT systems and infrastructure.

In particular, in the reporting period, the IT Department “federalisation” was carried out, covering the IT infrastructure, corporate systems, business analytics and reporting systems, with the aim to improve the manageability and quality of IT operations. The completion of the “federalisation” of the IT Department’s business systems section is scheduled for 2016.

In 2014, we developed a Unified Accounting Report Library based on our Corporate Data Warehouse (CDW). In 2015, the use of the CDW enabled us to run a unified procedure for financial period closings and to centralise reporting to the Head Office.

During 2015, we implemented a set of measures to improve information security, including the deployment of an anti-virus protection system based on a Kaspersky Lab solution and a system to run pre-launch audits of applications at workstations, introduction of management and protection mechanisms for local privileged accounts and a Mobile Device Management system that ensures monitoring and protection of mobile devices (both company- and employee-owned) of staff with access to sensitive information, as well as enhancement of data encryption reliability on insiders’ mobile PCs.

We initiated a range of projects to improve the efficiencies of our business processes and reduce operating costs. In particular, we launched the INZHIR project designed to introduce SAP in our own MegaFon Retail network. The key objective of the project is to achieve optimum stock levels in points of sale through planning and forecasting. Its implementation will drive cost cutting, boost the efficiency of key processes and make systems operation more transparent. The pilot is scheduled to be launched in 2016. Also, in 2015, automated workstations for consultants were introduced at the Federal Centre for Corporate Client Services.

In 2015, MegaFon continued implementing IT projects to enhance customer service quality. In particular, a project of migrating to a new PCC architecture was initiated to enable quality improvements in packet data transfer; the project to create the ‘virtual consultant’ service ELENA completed at Stolichny Branch has enabled much faster customer service; and the Online Telemarketing project was implemented to target our subscribers with well-timed offers for them not to miss out on attractive new options as they become available.

Developing of our fibre-optic communications line (FOCL)

In May 2015, MegaFon placed in operation the Barnaul – Kosh-Agach section of the Altai Territory – Republic of Altai fibre-optic communications line. Total length of the route exceeds 860 km. This commissioning of the Barnaul – Kosh- Agach backhaul network will not only provide subscribers with access to highspeed internet via smartphones, tablets and USB-modems, but also allow public and municipal customers to switch and connect their departmental and other networks to the FOCL. This will bring them the benefits of even faster access to the public services portal and sharing of information in their daily workflows. Along with an increase in the speed of existing 3G and 4G networks, the new line will also enable further construction of LTE sections in the Republic of Altai and districts of the Altai territory.

1  Adjusted data. Calculated based on the national census conducted in October 2010.
2  Verified data.
3  Russian population as of the latest census in October 2010.