Annual Report 2015



Customer Satisfaction

Our integrated approach to customer service ensures that we deliver high-quality service as we offer our customers a wide range of products and services and promptly respond to their requests and complaints. MegaFon is committed to driving performance across all sales and service channels, including owned-and-operated stores, call centres, self-service systems, commercial website and social media.

Controlled sales network

Through our subsidiary, MegaFon Retail, and our controlled sales channels, we are committed to developing our own sales network. This network of owned-and-operated stores is a hugely valuable resource for MegaFon, helping us to retain existing subscribers and attract new customers.

As at the end of 2015, our controlled retail network included 2,096 MegaFon Retail stores, 1,980 franchised stores operating under the MegaFon brand, and approximately 4,000 Euroset stores. Euroset is a nationwide retail chain in which we acquired a 50% interest in 2012.

In 2015, 72% of all new subscriber additions (both B2C and B2B) were acquired through our controlled distribution network, with approximately 40% of new additions coming from our own distribution channels. The share of franchised stores (branded retail) in the total number of new subscriber additions (both B2C and B2B) in 2015 was 18%, while Euroset stores accounted for 15%.


visitors of MegaFon's online shop

In 2015, as competition became more intense and consumer spending declined, we focused our efforts on boosting the performance of own retail network, improving service quality, promoting stores under the MegaFon brand as the place to buy mobile devices, and strengthening the overall appeal of our stores. We updated and improved our brand-book and point-of-sale signs, and developed and launched a new line of branded in-store and advertising equipment.

To drive service excellence across our own retail network and franchised stores, during 2015, we used regular customer surveys, including extended SMS surveys, to gather prompt feedback from customers, in particular regarding negative experiences. We also monitored our employees’ compliance with the customer service standards through mystery shopper exercises.

In 2015, MegaFon Retail’s MegaGuru service, which helps subscribers customise their equipment and provides technical advice on how to use their devices, continued to function. This service is currently available in 85 cities across Russia. MegaFon Retail employs 193 specialists, who processed 354,000 inquiries from subscribers in 2015 and over 73,000 customers had MegaFon’s proprietary apps installed (Client Account, MegaFon-TV) installed.

In 2015, the sales volume in the Russian handset and smartphone market fell in unit terms, while in revenue terms it grew, as smartphones were consistently replaced other phones in the equipment market. Accordingly, we focused our efforts on sustaining the volumes of smartphone sales which in MegaFon Retail stores in 2015 were up 25% year-on-year in unit terms (reaching 3.4 m units).

On the back of the growing popularity of data-enabled devices, in 2015, we continued to offer a wide range of smartphones and tablets in MegaFon Retail stores and were actively implementing programmes to stimulate sales. Specifically, in 2015, we offered our customers affordable smartphones and ran a number of marketing campaigns, e.g., in February–March, we promoted a budget MegaFon Login+ a 5.5-inch diagonal screen 3G smartphone for RUB 4,990 and in November–December, we offered budget 3G smartphones for RUB 1,990 and 4G smartphones for RUB 2,990. Special price offers for the equipment were only applicable if a subscriber made a prepayment of services and subscribed to one of the bundled tariffs in the ‘Vse vklyucheno’ line or a special internet option.

Our awards

  • MegaFon was the winner of the Customer Rights and Quality of Service 2015 award. The Company was recognised in the Communications and Telecoms sub-category within the Retail Services category. The principal purpose of the award is to recognise those companies that justify the trust placed in them by consumers.
  • MegaFon also won the No. 1 Brand in Russia 2015 award in the Mobile Operator category.
  • MegaFon was among the winners of Customer eXperience Awards Russia 2015 . The Company received awards in two categories: the Most Customer-Oriented Company in Russia (360° customer experience management) and the Best Multi-Channel Customer Experience.

As we developed our LTE infrastructure, in 2015, we expanded the range of 4G-enabled devices. The share of 4G smartphones in combined smartphone and tablet sales via MegaFon Retail stores in 2015 grew by 12% in unit terms (up 6 p.p. year-on-year).

One of the drivers of smartphone and tablet sales was the offering of introduction of affordable modern devices. In 2015, MegaFon Retail offered over 400 models of smartphones and more than 120 models of tablets (including models in different colours), of which over 80 smartphone models and 6 tablet models were in the budget category (under RUB 3,500). At the end of 2015, the Company’s portfolio comprised 50 models of MegaFon-branded devices, including ten smartphone models and three tablet models.

The budget category (under RUB 3,500) accounted for 43% of vendor smartphone sales in MegaFon’s retail network 1 , while in 2014 this share was just 30%. The share of A-brands (devices by first-tier manufacturers) in total smartphone sales declined considerably: from 43% in 2014 to 17% in the reporting period, with none of the models popular in 2014 being found among the best sellers in 2015. The following B brand devices proved the most popular with consumers visiting our stores: ZTE, Micromax, Alcatel, Lenovo and Fly (in 2014, Fly, Samsung, Nokia, Lenovo and Alcatel smartphones accounted for the largest share of sales). The average price of vendor smartphones fell by 18% in 2015 to about RUB 5,500.

In 2015, tablet sales dropped in unit terms. This was mainly due to a high level of saturation in the tablet market. In 2015, sales of tablets via the MegaFon Retail network fell by 47% year-on-year in unit terms. The average price per tablet of vendors in 2015 amounted to about RUB 4,500, which is 30% lower than in 2014. Budget vendor devices (under RUB 5,000) represented over 70% of tablet sales, with a third of this share coming from tablets in the price range of under RUB 2,000.

In 2015, the share of MegaFon Retail in the mobile telecommunications equipment market changed. MegaFn Retail's share in the smartphone market in unit terms grew from 9.9% in 2014 to 11.3% in 2015; however, its share in tablet sales fell from 7.7% in 2014 to 6.2% in 2015.

In 2015, MegaFon continued active development of its online sales channels and online shop, which offers a wide range of retail services including the sale of equipment and accessories. During the year, we adapted the online shop website for all types of mobile devices and computers; launched online purchases that permit paying for a purchase with a bank card via the online shop website; introduced technical improvements; launched an e-mail marketing tool to provide subscribers with information about promotions and relevant offers; and implemented a system for the comprehensive promotion of MegaFon’s products and services on the internet.

In addition, we opened pick-up points at the online shop warehouses in four cities and carried out integration with our partners’ websites (Yandex.Market, Wikimart). Customers can now process their orders directly on external platforms without the need to go to MegaFon’s online shop website.

In 2015, MegaFon’s online shop had 16.5 m visitors. We fulfilled over 300,000 orders, acquired over 271,000 new customers and sold over 159,000 smartphones, mobile phones and tablets (including 13,600 customised devices), and almost 19,000 modems and routers.

As in the previous year, smartphones were the largest contributor to sales. The main difference from 2014 was a sizeable growth in the sales of budget devices. The total turnover of MegaFon’s online shop in 2015 amounted to RUB 1.3 bn.

Other retail sales channels

In addition to controlled points of sale, we have a number of external retail channels through which we sell our products and services to customers.

In 2015, our independent dealer network included over 45,000 points of sales, including stores of local dealers, multi-brand electronics retail stores, Russian Post outlets, as well as 2,750 stores of the federal retail chain Svyaznoy, with whom we signed a new dealership agreement. Starting from April 2015, all Svyaznoy stores offer an extended range of MegaFon’s products and services, including commission-free mobile top-up.

As MegaFon is mostly focused on the expansion of controlled retail channels, in recent years, we have seen a decline in the number of uncontrolled retail points of sale. The share of subscriber additions (both in the B2C and B2B segments) coming from uncontrolled retail decreased from 29% in 2014 to 28% in 2015. This was mainly due to the shrinking of the multi-brand network both because of its waning business appeal and competitive pressure from federal players, and more rigourous enforcement of Federal Law No. 103-FZ dated 3 June 2009 On Activities of Payment Agents Related to Accepting Payments from Individuals .

In 2016, we plan to increase the number of new additions via Svyaznoy retail stores, which comprise a well-developed chain across Russia, with high-ARPU customers, to promote sales, as well as continuing to promote sales via major retail chains, including digital retailers.

Call centres and subscriber services

MegaFon’s call centre operators provide comprehensive information and technical support to our subscribers, advising them on various communications-related matters, such as: service activation/cancellation, tariffs, tariff plan change, technical issues, etc. At the end of 2015, we had eight call centres operating from 13 separate sites. We have kept the average cost per one minute of service at our contact centres at RUB 7.

MegaFon continues working on its project to create a call centre operations management hub. As part of the process of billing solution integration, we are developing a distributed single customer service queue, which will expand simultaneously with the growth of our subscriber base. Specifically, in 2015, we focused on the elaboration of the Single Queue project based on a “Greenfield” concept and we completed the tender procedures for all of our call centre solutions. We expect to integrate our call centres by 2018, when we expect that the majority of our subscriber base will have migrated to our “Greenfield”


calls proceeded daily by 24/7 virtual consultant ELENA

To continue further expansion and centralisation of our telemarketing functions, in 2015, we implemented a pilot project to introduce online telemarketing and opened a federal telemarketing hub in Tula. The launch of the new site was yet another step towards the development of personalised service for our subscribers. Tula became the third city, after Rostov-on-Don and Novosibirsk, to host MegaFon’s federal telemarketing hub. The growth of our telemarketing capacity enabled us to increase the number of processed calls from 11.9 m in 2014 to 19.4 m in 2015. As at the end of 2015, telemarketing sales reached 5.5 m services, up 1.5 m year-on-year.

In 2015, we decided to focus our efforts on improving customer service quality in call centres on repeat calls, and implemented a number of initiatives in this area. This enabled us to improve our FCR (first call resolution) rate from 78% to 82% and achieve the CSI (customer satisfaction index) growth in the “Consultant’s ability to resolve the issue on the first call” category from 64% to 67%, which is the best result achieved among the “Big Three” operators.

It should be noted that there is a current trend in the customer service industry for customers’ calls to move from voice channels to multimedia channels (e-mail, SMS, online chat). Customers increasingly strive to resolve issues on their own - and in response we are actively developing self-service options, such as our online service and self-service channels (24/7 virtual consultant ELENA and Online Client Account service).

ELENA uses speech recognition technology to solve customer problems bypassing a keypad menu. The first version of this virtual consultant was launched in summer 2014. Since then, the service has evolved dramatically. ELENA is now able to keep up a conversation on over 60 subjects, and responds to loosely structured questions. The service is fully integrated with our billing system, which means that ELENA can provide details of the current balance, remaining minutes, active tariffs or services, and give advice on paying bills. We expect that very soon ELENA will be able to process some 70% of customer queries, allowing human employees to concentrate on more complex, non-routine enquiries that require an individual approach. In the future, ELENA’s capabilities will be enhanced through deeper integration with business systems, as well as pre-programmed self-education algorithms. As of the end of March 2016, ELENA was processing on average up to 22,000 calls per day. So far, the virtual consultant is only available to customers in the Moscow region, but in 2016 we intend to roll out the service on a federal scale. In addition, in 2016, we plan to implement a text version of the service (via SMS, online chat, and mobile messaging services).

As for the Online Client Account service, it has already been scaled up to the federal level. During 2015, it became available in all Russian regions. In December 2015, its monthly audience exceeded four m users. At the end of 2015, the Client Account app for Android, iOS and Windows Phone was installed on more than 3.5 m devices. The app’s user-friendly interface helps easily resolve the majority of subscribers’ most common issues. The most popular functions with the users of mobile Client Account were services and options management, requests for itemised bills, and MegaFon Bonus programme management.

Social media remain an essential tool for customer service and promotion of the Company’s products and services. MegaFon provides customer service via a monitoring system covering the VKontakte and Twitter social networks, MegaFon’s official communities on FaceBook and LiveJournal, as well as other blogs. In 2015, MegaFon’s customers generated about 30,000 queries via social media.

Subscribers’ protection from unsolicited messages and fraud

MegaFon pays serious attention to the security of its customers and their protection from unsolicited and suspicious messages. The fight against spammers and fraudsters was made more efficient with the introduction in October 2014 of amendments to the law On Communications, which enable operators to block any unwanted mass messaging.


SPAM messages blocked by MegaFon in 2015

Our network currently contains several effective safeguards against spam and fraud. In particular, in 2013, MegaFon was the first among the “Big Three” operators to adopt requirements to mass messaging via SMS protecting subscribers from unwanted information, to implement the federal Anti-Spam system, and to start blocking SMS spam.

The SMS-Control service, launched in May 2014, enables users to add senders of unsolicited messages to their personal blacklist. In addition, the Company put in place an automated system to collect and handle spam complaints (free short number 1911).

During 2015, MegaFon blocked over 700 m spam messages, thus achieving a tenfold decrease year-on-year in the number of complaints regarding unsolicited and suspicious messages. The number of fraud complaints also reduced almost by half.

Since 2014, MegaFon has paid special attention to protecting its customers from malware targeting Android mobile devices. We have implemented special tools enabling detection of infections affecting user devices. In April 2014, we launched an alert service to notify our subscribers via SMS about potential infections. In 2015, we sent out almost 1.5 m of such SMS alerts.

MegaFon’s network also has a system alerting subscribers to a potential threat when they attempt to access internet resources containing malware. During 2015, the Company identified and entered in the system over 6,000 malicious resources, six times more than in 2014.

These efforts, along with prompt detection and neutralisation of infection sources in the internet and botnet management tools, enabled us to considerably reduce the number of affected subscribers.

To strengthen financial transactions security when using m-commerce services the Visa Qiwi Wallet application was developed specifically for MegaFon’s subscribers.

Subscribers can report suspected fraud on the dedicated “Safe Communication” portal (, where they can also find information about the latest fraudulent schemes and ways to protect themselves against them, download and install anti-virus software.

Brand and marketing

In 2015, we focused our marketing efforts on growing the number of active subscribers, retaining and expanding our existing customer base, and stimulating higher data usage.

To build up our subscriber base we implemented a number of initiatives, including modification and upgrade of existing products and launches of new offers. We were also focused on stimulating voice traffic on our own network. For this purpose, we upgraded and actively promoted our ‘Perekhodi na O’ (‘Switch to Zero’) tariff with free on-net calls within the region of residence.

To promote the use of bundled tariffs and encourage subscribers to switch to these tariffs we reduced the price of the “junior” bundled tariff of the ‘Vse vklyucheno’ (‘Everything included’) line; in March and November–December 2015, we ran marketing campaigns featuring special time-limited deals on different bundled tariffs; and in November 2015, we amended bundled tariffs to abandon call billing for on-net calls and increase the amount of data traffic available in the bundle.

To drive customer loyalty we introduced free access to MegaFon TV as part of the usage of bundled tariffs and internet options. As a result, our subscribers got access to 50 TV channels and up to four movies. In addition, there is no Internet traffic billing for “senior” bundled tariffs and internet options.

To make MegaFon’s services even more user-friendly we continued to actively develop and promote the “Pay When You Can” service allowing subscribers to stay connected even if they run out of credit.

To stimulate the use of data-enabled devices and higher data usage we implemented a number of marketing initiatives, including active promotion of and special deals on data-enabled devices bundled with our services. We also encouraged our voice-only users to start using mobile data.

In 2015, MegaFon changed its brand positioning. The new positioning is based on the idea that MegaFon is committed to improving communication quality day by day so that people all across Russia could feel at any time that they are close to their loved ones even when they are far apart. The new communication platform, “Truly with You”, will help us build a stronger emotional bond with consumers and enable MegaFon to engage with customers on a more intimate level. The changes affected all brand-related external communications.

As part of the new positioning, we changed our advertising format: we now make our videos in the form of short movies (novels). These videos show real-life situations illustrating how mobile communications help people always stay in touch with their loved ones.

The new positioning drove our advertising recognition up 60% year-on-year, while the effectiveness of advertising in communicating the key message grew 50% year-on-year.

To support the new positioning we organised a major music festival, MEGAFONLIVE, to showcase what it means to truly stay connected and how high-quality communications can bring people and whole cities closer together. The festival attracted 420,000 spectators and about 590,000 online viewers.

Along with the MegaFon brand, we are actively promoting the Yota brand, which primarily targets active users of mobile internet.

According to a survey covering subscribers of four leading mobile operators in Russia, as at the end of 2015, MegaFon’s key unique brand attributes included “high communication quality” and “commitment to improving communication quality”. At the same time, the key attributes of the Yota brand were “innovative operator, operator of the future” and “developing new technologies”. We will continue to capitalise on these strengths in 2016 to achieve our strategic objectives.

1  Net of Internet and wholesale sales.