MTS ecosystem verticals and position in the Russian market

Key markets by verticals

Telecom

The largest mobile operator in Russia and a dynamically developing ecosystem.

• 80%+ of the population of the Russian Federation are in the LTE coverage area
• A total of 3 million sq. km covered by 2G/3G/4G networks
• 25+ pilot zones of 5G networks deployed in 10+ regions of the Russian Federation
• 35% of active base stations are 5G-ready
• Growth in the IoT connections amount exceeded 30%
• Coverage in 83 Russian regions supports NB-IoT
• In terms of market share of fixed-line services, MTS is second only to Rostelecom
  (MTS share is 11%)

FinTech

MTS Bank is a fast-growing digital bank focused on developing its own mobile apps as a communication channel or breakthrough financial services.

The MTS FinTech vertical includes the areas of MTS Bank, mobile commerce, insurance, factoring and credit broker.

• MTS Bank is a dynamically developing digital bank forming a part of the MTS ecosystem
• The main strategic focus segment is retail lending, e-banking
•  In 2021, almost 12 million users used the Bank’s products, of which 25% are clients of MTS Bank
• The share of online services for the Bankʼs main products (lending to individuals and servicing credit cards) exceeded 60% in 2021
• The MTS Bank Big Data capabilities allow using advanced credit scoring models to control risks, while keeping the share of bad loans within 10%

Media

Leading video streaming service (KION) and entertainment content provider MTS Media produces and distributes its own and licensed VOD and TV content via cable/IPTV, satellite channels and OTT platforms.

Priority areas for MTS Media development:

• Developing the KION streaming platform — deep integration into the MTS ecosystem, improving the quality of the content offered through high-quality own content and exclusive partner content
• Subscriber base growth in the OTT and IPTV segments at a faster pace than the market
• Using Big Data toolkit to improve the customized interface convenience and the quality of TV content recommendations and, as a result, to improve the subscriber’s lifetime value

Retail

All-Russian consumer electronics retail chain (B&M + e-commerce ) with a long-term strategy for sustainable rate of return. The largest telecom retailer in the Russian Federation (in sales of mobile phones). A strong brand built on trust and goodwill.

Vectors of the MTS retail chain strategic development:

• 100% omnichannel approach
• Delivery services
• MTS ecosystem entry point
• Expansion of the product range
• Expansion of financial services (+online)
• Introduction of the best industry practices

Entertainment

MTS Entertainment is a division within the MTS Group responsible for asset management and development of the Company’s entertainment projects. The management perimeter of MTS Entertainment included ticket services Ticketland and MTS Live.

In 2021, sales at MTS ticket windows grew by 84.5% year-on-year. The total number of tickets sold was 3.5 million.

Partnerships have been signed with major theaters and the MTS Live Hall in Yekaterinburg, the opening of the MTS Live Arena in Moscow and the launch of a network of its own concert venues in key regions are planned, investments have been made in our own productions and musicals. The hall and bar in the Moscow Youth Palace (Moscow) were rebranded.

MTS Live customers get access to all the benefits of the MTS ecosystem: from convenient authorization using MTS Login or easy payment for MTS Pay in a mobile application to special MTS Premium subscription offers and the ability to accumulate or write off MTS Cashback program points.

MTS Marketer

MTS Marketer is a service for independent targeted messaging and Internet advertising launch. The service is based on MTS Big Data: depersonalized data about the operator’s subscribers, which allow displaying advertising only to the audience that is most likely to be interested in the services or goods advertised.

2021 key MTS Marketer business results:

• Revenue growth amounted to +89%
• Growth in the volume of implemented advertising campaigns amounted to +211% year-on-year
• 3.7 thousand — customer base with at least one advertising campaign launched
• The Digital revenue share of MTS Marketer reached 40%

MTS Belarus

In Belarus, the 2021 revenue indicator reached BYN 1,357 million (an increase of 11.0% by 2020) mainly due to the growth of income from communication services and income from the sale of phones and accessories. OIBDA grew by 8.4%, reaching BYN 694 million in 2021. The main growth driver of the indicator is income from communication services. The subscriber base remained largely unchanged at the level of 5.7 million users at year-end 2021.

The principal development vectors are as follows:

• Optimized 4G investment pending 5G solution
• Continuing the strategy of maintaining leadership in the mobile business while strengthening the No. 1 position in retail
• Continued Cloud area development, as well as strengthening of the IoT and digital products (BATC, MAAS, Big Data) area
• Continued development of the products forming the ecosystem basis: My MTS, FinTech, Online cinema

MTS Armenia

In Armenia, 2021 revenue reached AMD 49.0 billion (an increase of 0.9% compared to 2020), which is mainly due to revenue from providing communication services. The OIBDA indicator for 2021 reached AMD 25.8 billion (an increase of 3.5% compared to 2020). The subscriber base volume at year-end 2021 amounted to 2.2 million users, which is approximately equal to the value a year earlier.

The priority development areas are Telecom, TV and Content, Cloud, partnerships, and financial services.

***

Throughout 2021, the Company was demonstrating strong growth in line with the previously approved CLV 2.0 strategy. The growth in revenue indicators was driven by positive contributions from all business segments, including Telecom, FinTech and Media. Over the past year, significant progress has been made in developing priority business areas.

In the Telecom vertical, strong and steady growth continues in the areas of mobile and fixed-line businesses. The priority vectors for developing fixed-line business are penetration into new households by building and upgrading our own network, as well as by launching sales of new equipment along with the classic service bundles (mobile+fix+TV), using new ways to attract customers: KION, Smart Home. At the end of 2021, about 11% of households in Russia used fixed-line services from MTS

Significant steps were taken in the Media areas: the launch of the KION platform, which is confidently strengthening its position through creating its own content, exclusive partnerships, vertical integration of production processes, distribution, management of all types of rights; as well as in the FinTech area (according to Frank RG, MTS Bank became the fastest growing bank in terms of loan portfolio growth in the unsecured lending segment — 83%. The Bank became the market leader in POS lending occupying the leading position in terms of lending and third place in terms of POS lending portfolio in 2021).

There has been a deepening of integration within the expanding digital ecosystem. One of the most important factors for successful implementation of a long-term corporate development strategy, in particular, is the growth of the lifetime value of the customer base. Within the interconnection of the products of the verticals, the Premium subscription was further developed and the conditions for the MTS Cashback loyalty program were improved.

MTS Premium and the services integrated (Music, Spam Blocking and KION) are a significant factor of the ecosystem base growth in 2021. Among the 2.9 million active Premium users, involvement in MTS products (MTS Bank, MTS Cashback, MTS Music, KION) is growing every month of their use.

MTS Cashback is yet another efficient tool to involve customers into the ecosystem. In 2021 , 4 million program participants have tried those Ecosystem products that were new to them. Cashback is natively integrated into all mart products and the main component of success is a constant influx of points from all product verticals, together with the implementation of a convenient bonus accumulation/write-off mechanism for all Ecosystem products.

The versatile Ecosystem mart is the My MTS app, which provides the customer with easy access to the entire range of ecosystem products and services (Premium, MTS Cashback, Telecom, Bank, etc.).

2021 Highlights

Corporate News

• Vyacheslav Nikolaev, who previously held the position of MTS First Vice President for Customer Experience, Marketing and Ecosystem Development, has been appointed President of MTS since March 13, 2021.
• In Q2 2021, Olga Ziborova, who previously held the position of MTS Ecosystem Marketing Director, was appointed Vice President for Ecosystem Development and Marketing.
• In June 2021, the MTS Board of Directors elected Felix Evtushenkov as Chairman of the Board of Directors of MTS PJSC.
• In 2021, the General Meeting of Shareholders approved the following:
  • separation of MTS tower infrastructure (towers and related assets) into a 100% subsidiary of MTS being Tower Infrastructure Company LLC (BIK LLC) with an authorized capital of RUB 25 million. Alexander Teremetsky, MTS Director for Tower Infrastructure development, was appointed CEO of the company;
  • separation of a significant part of the network and digital infrastructure of MTS (radio subsystem, switching, transport and fixed-line networks, data centers, cloud infrastructure) into a 100% subsidiary of MTS being MTS Web Services JSC (MWS JSC), which will be headed by Igor Egorov, MTS Vice President for Infrastructure Development.

Mergers and Acquisitions

• In June 2021, MTS announced the closing of the transaction for acquiring a 100% stake in Interregional TransitTelecom OJSC (MTT), a federal provider of smart telecom and IT solutions for business, one of the top 10 largest telecom companies in Russia, for RUB 5.0 billion, excluding net debt. In addition to classic B2B and inter-operator telecom services, MTT occupies a leading position in Russia in providing smart services for business customers based on CPaaS communication platforms and API communication application programming interface.
• In December 2021, MTS announced the signing of binding documentation on the transaction to acquire VisionLabs B.V for RUB 6.5 billion. VisionLabs is one of the global leaders in the field of creating products computer vision- and machine learning-based products. The company has implemented more than 500 projects in the field of computer vision in 37 countries for more than 270 customers from the financial, telecom, retail, transport, and energy sectors. Over 1.7 million cameras worldwide use VisionLabs software. The 2020 revenue of the company exceeded RUB 1.1 billion.

Bonds and Loans

• In July 2021, MTS announced that it was raising a loan from Sberbank PJSC for RUB 30 billion. The loan maturing in 2024 was raised under a revolving line of credit from Sberbank opened in May 2018 with a total limit of RUB 150 billion. After the transaction, the total volume of the existing MTS loans raised from Sberbank will amount to RUB 115 billion.

Leadership in Telecommunications

• In February 2021, MTS announced construction of three private LTE networks: 1) a commercial private 5G-ready network for the steel and mining company EVRAZ; 2) a pilot underground LTE network to support mining operations of Russia’s Uralkali, one of the world’s largest potassium producers; 3) a network in the territory of the Kochubeevskaya wind farm of NovaWind JSC that unites wind energy assets of Rosatom.
• In February 2021, MTS deployed the NB-IoT network at Russia’s Antarctic Station “Progress” to transmit data from the device complex of the Arctic and Antarctic Research Institute. Trackers, multi-sensors and sensors powered by the network will make it possible to study glacier and snow movement, as well as to monitor the integrity of snow runways and the microclimate in living accommodations and working premises.
• In July 2021, MTS MediaTek, international semiconductor developer, and Ericsson demonstrated the world’s first two- carrier   frequency aggregation in the n79 band (4.8–5.0 GHz) in the 5G pilot network. As a result of testing aggregation of the 5G spectrum with a total width of 180 MHz combined with two bands of LTE 1800 (20 MHz) and LTE 2100 (15 MHz), a record-setting data transfer rate for the n79 band in Russia of up to 2.9 Gbps was reached.
• In July 2021, MTS and Ericsson announced successful testing of aggregating five carrier frequencies with a total bandwidth of 75 MHz on the LTE network in Ufa. Based on the test results, the data transfer rates of up to 1.4 Gbps were achieved on a 4G commercial network. The aggregation demonstrates the potential of the 4G MTS network after refarming the GSM 1,800 MHz and UMTS 2,100 MHz bands.

MTS Digital Ecosystem

• In April 2021, MTS introduced KION, a new online cinema, the catalog of which includes more than 200 TV channels, thousands of films, series, cartoons and documentary projects. The online cinemaʼs own original films and series, as well as a new content format being film stories, became an important aspect thereof.
• In June 2021, MTS announced investment in the TalkBank FinTech platform by the MTS Corporate Venture Fund. The total investment in the round will amount to RUB 218.36 million. The share of MTS investments exceeded a half of the total amount in the round.
• In June 2021, MTS launched the MTS IoT HUB Internet of Things platform. The service allows developers, startups and large companies creating their own products and IoT solutions based on a ready-made set of tools. MTS IoT HUB operates on the PaaS (Platform as a Service) model and makes it possible to connect any IoT devices, monitor their status and manage them, as well as collect data from third-party platforms. The solution is compatible with any communication networks and protocols, including MQTT, TCP/IP, CoAP, NIDD.
• In June 2021, MTS AI launched the MTS GROM supercomputer whose performance reaches 2.26 petaflops, making it the third most powerful supercomputer in Russia. MTS will use MTS GROM for the digital ecosystem development. The supercomputer will accelerate the creation and market launch of products in the field of machine vision and industrial analytics, natural language processing and smart video surveillance. Universities, large scientific and medical centers will be able to use MTS GROM in their research involving the modeling of complex processes.
• In August 2021, MTS opened a representative office of the MTS StartUp Hub, an innovation and investment center, in Nizhny Novgorod. The center will select, test solutions and accelerate tech companies and startups in the Volga Region for their further scaling at the regional and federal levels.

Partnerships

• In January 2021, MTS launched a partnership program to search for startups for third-party companies. Scouts from the MTS StartUp Hub innovation and investment center will select projects which take advantage of the 5G technology to offer their developments to partner corporations. Selected startups undergo an incubation program at the MTS 5G Center at VDNKh (Exhibition of Economic Achievements), which provides them with training, test sites, access to API, as well as other development tools, based on the company infrastructure.
• In June 2021, MTS President Vyacheslav Nikolaev was elected a member of the Global GSM Association Board for 2021–2023. The GSM Association Board consists of 25 representatives of the worldʼs largest carrier groups, such as AT&T, China Mobile, Deutsche Telekom, Orange Group, TURKCELL, Verizon, and others.
• In June 2021, MTS and Avtodor Group of Companies signed an agreement on cooperation in constructing a telecom infrastructure and providing mobile communication services along federal high-speed toll roads, including the M-4 Don, the Central Ring Road in the Moscow Region, the M-12 Moscow — Kazan and its continuation from Kazan to Yekaterinburg. Under the terms of the agreement, Avtodor Group of Companies will install antenna-mast structures and arrange entrances to them providing power connection to communication facilities along the entire length of high-speed roads, while MTS will place communication equipment on the telecom infrastructure constructed.
• In June 2021, MTS and FSUE Morsvyazsputnik, operator of the transarctic FOCL, signed a strategic partnership agreement for planning and implementing infrastructure projects based on the construction of an underwater transarctic fiber optic communication line along the Murmansk-Vladivostok route with exit points along the Northern Sea Route (Polar Express project).
• In July 2021, MTS, jointly with the Moscow Institute of Physics and Technology and the SKOLKOVO Business School, launched the Digital Technologies in Business masterʼs program for technical degree bachelors of the Russian universities. The two-year masterʼs program combines obtaining technical and managerial knowledge and skills with an internship at MTS and working on real business issues as part of term papers and theses.
• In November 2021, MTS joined the 5G Future Forum (5GFF) international association of telecom carriers, whose task is to develop specifications and introduce advanced solutions based on 5G tech and edge computing (Multi-access Edge Computing — MEC). 5GFF was established in January 2020 by América Móvil, KT Corporation, Rogers, Telstra, Verizon, and Vodafone to develop common specifications, share best practices, manage intellectual property and participate in R&D projects aimed at implementing and globally scaling commercial solutions based on 5G and MEC technologies.
• In February 2022, MTS and KT Corporation (KT), a leading company in the field of information and communication technologies in the Republic of Korea, signed a memorandum of strategic cooperation in developing new business areas, including the establishment of data centers and creation of joint AI-based solutions, as well as media content.

Cloud and Digital Solutions for Business

• In January 2021, #CloudMTS provider launched a line of cloud project solutions for business with MTS experts providing strategic IT advice services, designing the digital environment of an enterprise and drafting a roadmap for business development based on cloud technologies (customer cloud journey), as well as implementing complex infrastructure projects.