Our strategy

The Company’s updated strategy was approved by the Board of Directors in December 2013 following the appointment of Mr Kalugin as CEO.

A key component of the updated strategy was to split the Company’s business into two parts – the fixed-line operations and the mobile segment – and to develop each part separately.

The strategy for developing the mobile business was to enter into a joint venture (JV) with a leading player in the Russian mobile market in order to maximise Rostelecom’s ability to realise value from its existing cellular assets. Tele2 Russia, who became the Company's JV partner, is strategically the best fit for the Company. Rostelecom’s attractive spectrum portfolio coupled with Tele2’s proven track record for establishing strong, competitive market positions by focusing on cost management are expected to make the new JV a major force in the mobile segment.

As for the Company’s core, fixed-line operations, Rostelecom aims to deliver the highest quality telecom solutions to its clients. We plan to achieve this by drawing on the following pillars.

NETWORK QUALITY

Construction of up-to-date, high-speed network infrastructure based on fibre technologies

One of the Company’s key competitive advantages is its vast network infrastructure, which covers all of the Russian regions and services millions of Russian households. There is an array of new innovative telecom solutions available on the market today as we transition to the next technological cycle. Given the current increase in demand for high-quality telecom solutions, it is crucial we maintain and enhance our technological edge. The Company’s goal is to speed up the process of modernising the fixed-line network in order to provide our clients with new, better quality services within a shorter timeframe. In particular, Rostelecom is currently implementing a significant project to upgrade the last mile infrastructure with the aim of passing 33 million households with fibre networks in Russia by the end of 2016. This will enable the Company to deliver a full range of ICT services to our clients at a speed of 1 GB per second.

Our progress in 2014
On the one hand, we expanded our fibre optic network at a faster pace, and covered an additional 6.6 million households with our fibre optic broadband network in 2014, highlighting Rostelecom’s leading market position. As a result, we now provide access to over 25 million households across Russia. On the other hand, we continued to invest in our backbone infrastructure and we increased its capacity by more than 40% to 10.6 TB/s as at the end of 2014. We also started rolling-out fibre networks as part of the Bridging Digital Divide project, which is financed by the Russian government and aimed at ensuring high speed internet in the country’s most remote settlements.

Multiservice Network Capacity IP/MPLS, TB/s


Households Passed by Fibre, million


Network Management Strategy: Top Priorities

Bridging Digital Divide Project

In May 2014 we entered into a large scale project with the state to bridge the digital divide across Russian regions. The 10-year project worth RUB 168 billion is aimed at constructing fibre optics to cover 13,800 rural settlements with a population between 250-500 residents.

The project implies providing broadband access via collective Internet access points at a minimum speed of 10 MB/s on a regulated tariff basis. This project enables to increase broadband penetration within the country and enhance our network capacity and length. On top of it, this project has some extra upside potential:

  • in the mentioned 13,800 settlements we can upsell clients with personal broadband and other services from the Company, which is expected to support our topline;
  • on the road to cover those rural areas we can catch up nearby towns which as a standalone case were not NPV positive before the Bridging Digital Divide project. But with this project on track those settlements become commercially viable;
  • the reduced maintenance costs due to the accelerated upgrade of existing copper lines to fibre infrastructure.

As part of the contract with the state, legislative changes were established, including appointing Rostelecom as the sole provider of universal communications services in Russia. The project is being funded out of the Universal Communication Service Fund which is put together out of the mandatory payments by the Russian telecom operators in the amount of 1.2% from their revenue.

Currently we assess that the capital expenditures for the project will amount to in between RUB 60-80 billion, approximately the same amount of RUB 60-80 billion we expect to be the operating expenditures. The detailed information on the project is presented in the investor relations presentation available on the Company`s web-site in IR section.

The project we are implementing to eliminate the digital divide is providing additional impetus to the development of our technological advantage.

PRODUCT DEVELOPMENT

Establishing unrivaled service packages and attractive tariff propositions

With its unmatched infrastructure and regional expertise, Rostelecom is a unique provider which is well-positioned to deliver a range of telecom solutions with the best value-for-money proposition on the market. Our packages bring about a sustained balance between the price and volume of voice, broadband Internet and IPTV services, bringing together high-speed data, high-quality and relevant content with excellent customer support. The scale of our operations enables us to develop and deliver unique and economically attractive products in cooperation with the content owners.

Our progress in 2014
Our packaged solutions became increasingly popular in 2014 as we sought to better meet our clients’ needs. Rostelecom broadened its product portfolio and started offering its customers new products, including Russia’s first national TriplePlay promotion and the Multiscreen service.

Key Operational Projects

BEST IN CLASS CUSTOMER CARE

Improving the quality of customer care

Enhancing customer care is one of our key priorities. Our objectives here include offering user-friendly services and 24/7 customer support on multiple platforms (through Rostelecom offices, call centres, multimedia channels and self-service facilities).

The Company monitors best practices in customer care and plans to implement up-to-date standards of service level agreements (SLA) to reduce the time it takes to subscribe to services or reach technical support. The planned modernisation of the operational and business support systems (BSS) will enable the Company to view key data more easily, such as capacity and traffic, which will help the Company to optimise tracking and planning. It will also help us to improve our efforts to counter fraud and protect customer data. Furthermore, our BSS applications enhance our ability to support operator business processes, particularly in relation to billing and customer relationship management (CRM).

Our progress in 2014
Rostelecom made tangible progress with regard to improving client service. The number of repeat calls to third line support halved over 2014, with customers’ issues being solved three times more quickly at the second line support. In addition, the share of trouble tickets handled by technical support without needing to make on-site visits has doubled. To ensure superior customer experience online, we upgraded our web portal to make it more customer-oriented and easier to navigate by launching 30 additional service operations that can be handled via the client area. As a result, the number of subscribers using the client area almost doubled in 2014 and reached five million customers. We have now caught up with our competitors in practically all areas of customer service and, in some cases, we are outperforming them.





3rd line of technical support: Customer & repeated calls

EFFICIENCY IMPROVEMENT

Ensuring a high level of internal efficiency

The ambitious goal for the coming years is to reduce costs in the fixed-line segment. Cost cutting will be achieved by modernising the infrastructure, eliminating overlay networks, centralising and decreasing management layers, vacating some premises, thus reducing the maintenance costs associated with real estate. Rostelecom has been running a large scale project to increase internal efficiency and bring the Company in line with the best-in-class players. As a result, the Company expects to save up to RUB 15 billion during the 3-year period.

The Company has also transformed its procurement system by:

  • Unifying and standardising the procurement processes at the Headquarters and macro branches level;
  • Centralising procurement by key product lines to extract maximum economic effect;
  • Increasing competition due to widening the base of alternative / identical equipment and substitute products;
  • Monitoring and controlling independent procurement at the macro branches level;
  • Standardising and controlling consumption.

Centralising procurement procedures is key to increasing operating efficiency. Rostelecom aims to streamline procurement in all of the Company’s divisions to enhance the level of economic efficiency and transparency. The activities of the procurement commission and transparent tenders have already resulted in dozens of percentage points’ worth of savings.

Our progress in 2014
We actively improved the efficiency of our business in 2014. By optimising our procurement policy, we managed to achieve savings of RUB 16.8 billion last year. Our large-scale project to increase internal efficiency within the Company led to savings of RUB 2.5 billion in 2014.


Procurement savings (RUB billion)Revenue per employee (RUB million/person)
& Number of employees (thousand)

Project result: +1-2% OIBDA margin increase by 2017

Total savings breakdown

BUSINESS TRANSFORMATION

Establishing a client-centric approach and increasing employee engagement

An important area for further enhancing growth and efficiency is the quality of administration. Rostelecom believes that making significant improvements to business processes, simplifying the management structure and increasing employee engagement are all key to meeting the Company’s strategic goals. We will also pay great attention to developing our personnel and recruiting highly-qualified staff.

In 2015, we plan to realise the final phase of our ‘Staff transformation’ project, which is aimed at implementing a new organisational culture and improving the level of employee engagement. This project will be instrumental in helping to underpin a client-centric approach within our Company, which is one of our key areas of focus for the year ahead.

Our progress in 2014
Streamlining our organisational structure was one of our key priorities in 2014. Together with Bain & Company, we developed the structure to best suit our targeted business model, which is that of a modern, digital service provider. As a result, we started to transition to this new structure in early 2015. Some departments are being consolidated to reduce the layers of management in the business and to increase all departments’ responsibility for their net result, with a segmented approach also being introduced to improve commercial performance.

Organisational transformation

My Annual Report

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