Since 2019, MTS has been following the Customer Lifetime Value 2.0 (CLV 2.0) strategy aimed at building a sustainable digital ecosystem business on the solid telecom leader foundation. This wording means that the Customer, to whom we provide a wide range of digital services, is at the center of our value proposition. We strive to extend the customer’s “Lifetime” as much as possible (Lifetime is the time, during which the customer uses our services), creating and gradually strengthening emotional affection for the brand, and increasing the degree of satisfaction and customer loyalty. We focus on offering greater Value to the customer and at the same time we maximize the value that we will receive from the customer in the long run. “2.0” symbolizes our transition from the ideology of operating on a single telecommunications market (which we conventionally denote as “1.0”) to the ideology of a digital service environment with a comprehensive offer including products and services of different markets to meet the needs of the customers in various spheres of their lives.

We are confident that going beyond the boundaries of the telecom business to new markets, for example, the markets of financial services and media/entertainment, with the functional support of such digital areas as Big Data and AI, will allow us to transform into a multi-service digital company. We will build up a portfolio of digital products based on our own developments, as well as by involving independent developers and service providers as partners. These mutually beneficial partnerships will allow us to bring more value to the lives of our customers, offering them more innovative, diverse and convenient services. We are planning to gradually expand capabilities of our programs, increase the number of partnerships and become the best possible choice in the market for companies looking to expand their customer base and gain additional value.

The Russian digital service market is unique to a certain degree, since local players in most segments who successfully compete with global giants occupy leading positions. This situation is down to a number of fundamental reasons, ranging from consumer preferences and language specifics to regulatory requirements and the structure of the borrowed capital market. This allows large Russian business groups, representatives of areas such as the banking sector, retail, high-tech sphere and telecommunications, to actively develop new business directions in the digital environment, relying on the ecosystem approach in their strategies. In our opinion, the Russian market is now entering a new period of competition for the share in expenses and attention of the customer.

We are confident in the strength of our position in the context of this kind of competition. Our strong brand and deep customer knowledge, supported by powerful analytical tools based on AI and Big Data, will allow us to provide users with a seamless, deeply customized and personalized customer experience in a wide range of digital services. Even now, we are witnessing a significant synergistic effect from the joint offer of telecommunication, banking and media products, which allows us using marketing tools more efficiently and allows us to gain more and more knowledge about our customers. At the same time, the customers using several types of services bring us more value, demonstrate a greater brand commitment, a higher level of loyalty, and a greater degree of satisfaction. Our key priorities for developing the ecosystem in the upcoming years are: increasing the ecosystem customer base, developing and improving high-quality digital products and expanding the pool of partner companies.

In 2021, as the company’s operating structure was brought in line with the CLV 2.0 concept principles, the efforts of MTS’ senior executives and corporate governance bodies were aimed at finding the optimal “format” for key business verticals to ensure their efficient development and access to fair evaluation by the market. A comprehensive analysis helped us come to the conclusion that some of our business areas have reached such a scale and maturity level that allow them to become a driver of growth in the MTS Group fundamental value. Therefore, we intend to gradually allocate such areas into independent structures, separate companies that will freely operate on the market, raise external funding and become full-fledged entities for the investment community.

We are sure that such an approach will provide high motivation for teams of business areas, will allow to set up internal business processes in the best way and in accordance with the specifics of each of the areas, which, in turn, will ensure high dynamics in developing the products qualitatively corresponding to the level of market leaders. It will also simplify the process of raising external funding, allow new promising digital business lines to go beyond market valuation by telecom segment multiples and fully unlock the growth potential of their shareholder value. In this sense, we are striving to move away from the market seeing the MTS Group as a single inert entity to perceiving it as a “sum of parts”, where each part is evaluated fairly in accordance with the results of its operation and the multipliers accepted by the market for each specific area.

The first step towards the implementation of these strategic initiatives is the separation and, in the medium term, the sale of tower infrastructure, which is currently rather a passive element of our business not causing any significant impact on the ecosystem agenda. The funds from its implementation can be directed to developing dynamically growing business areas, in which we can count on a high return on investment.

In the next few years (depending on the situation in the financial markets), we aim to give independence to the FinTech area represented by MTS Bank, which has been demonstrating high dynamics over the past two years approaching the sector leaders not only in size, but, even more importantly, in a set of products and the degree of business digitalization in general. Other business areas, such as retail, media, cloud and infrastructure services, also have the potential to independently enter the open financial market and engage co-investors or strategic partnerships in the long term.

We would like to emphasize that the formation of independent companies does not mean our transformation into a holding of weakly connected businesses. We are still a Group and go on cultivating ecosystem links between individual areas. We see the following aspects as the main connecting forces: clear and detailed agreements on company interaction within the Group, common marketing and brand management (not necessarily unified), sharing knowledge about the customers, Big Data and AI mechanics, following the unified CLV logic, which remains decisive for all businesses, while maximizing CLV is their main strategic benchmark. In addition to ecosystem connections, in the Group, we pay special attention to the formation of competencies related to generating digital products and the ecosystem in general, as well as the mutual exchange of such competencies between areas and structural divisions of the MTS Group corporate center.

Implementation of the Strategy in 2021

In 2021, the efforts of MTS were focused on developing priority digital ecosystem areas, which we perceive as the main source of growth for our business. As a result, the target levels for all key performance indicators were achieved, which confirms the correctness of the approach we have chosen and the efficiency of our strategy.

While striving to ensure long-term sustainable business growth, MTS implements the CLV 2.0 strategy and continues to build an ecosystem of digital services based on the core telecom business. At the current stage, the key strategic tasks for us are to expand the ecosystem market offering to provide more value to the customers and increase the ecosystem customer base.

The MTS Premium subscription is an important marketing tool with which we encourage our customers to use the new services in addition to those they used before. With product offer expansion, the value a subscriber receives expands as well, and we are pleased to note that our customers understand this. This is evidenced by the fact that during the year we saw a twofold quarterly increase in the amount of paid subscription users.

As for the product offer expansion, the most striking event in 2021 was the launch of the updated KION online streaming platform, which contributed greatly to the growth in the Media segment in terms of all key indicators: number of users, viewing volumes and revenue. It may be noted that in Q4 2021, 30% of the new KION users became MTS Premium subscribers and users of convergent products, which again testifies to the customer awareness of the value of the MTS subscription model and their readiness and desire to use the capabilities of our growing ecosystem more comprehensively.

Ключевые индикаторы деятельности Компании

	2021		2020		2019
Indicator (MTS Group)	Target	Actual	Target	Actual	Target	Actual
Change in revenue, %	High-single-digit growth+	+8	>3	+5.22	+6–7	>74
Change OIBDA, %	≥6	+6.61	до +2	+1.72	+4–5	>44
СAРEХ, RUB billion22	~110	111	~90	91.63	~90	90.7

¹ The adjusted OIBDA for 2020 does not include a loss from depreciation of non-current assets in the amount of RUB 2.088 billion.

² Taking into account NVision Group deconsolidation. The adjusted OIBDA for 2020 does not include a loss from depreciation of non-current assets in the amount of RUB 2.023 billion.

³ Including cash receipts under swap contracts related to the changes in foreign exchange rates against the ruble.

⁴ Revenues and adjusted OIBDA include the estimated impact for the 12 months of 2019 of the Group’s operating activities in Ukraine based on the financial results for 11 months of 2019 and MTS internal forecast for December 2019.

The number of MTS ecosystem customers — those actively and consciously using two or more of our services — reached 8.8 million at year-end 2021 being an increase of 40% as compared to 2020. The average number of ecosystem products per customer increased from 1.31 in 2020 to 1.43 in 2021. The growth of the ecosystem customer base, just as we expected, impacted revenue growth positively, while concurrently lowering the impact on our cost level — due to higher costs of ecosystem customers, along with lower churn and high NPS.

The past year has become a milestone for us in a sense, since new digital segments not being a part of the telecom jointly provided more than half of the revenue growth of the entire MTS Group. The largest contribution to this growth was made by the FinTech area represented by MTS Bank, largely due to the consumer lending portfolio growth. In 2021, the sales of credit products more than doubled, with the share of disbursements in digital channels of credit cards and general loans exceeding 60%. At year-end 2021, the number of MTS Bank customers reached 3 million and the monthly number of active users of the MTS Bank mobile app amounted to 1.8 million, with 51% of Daily Banking customers using other products of the MTS ecosystem.

In September 2021, within the implementation of the strategic asset spin-off principle, we received shareholder approval to separate a significant part of the passive and active network infrastructure into separate legal entities. This decision is aimed at finding new opportunities for MTS Group capitalization growth and concurrently it will increase the operational target of the core business, focus more on the customer, the product offer expansion and improvement of producibility of business operations, including through digital tools. such as AI and Big Data.

In 2021, we continued targeted M&A activity in order to strengthen the telecom core and expand our presence in the promising areas, in particular:

• acquired 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;
• completed the second stage of the transaction to acquire the assets of Green Point Group of Companies, which provides broadband Internet access and digital television services in 12 cities of Russia;
• acquired GDC Energy Group LLC, which owns GreenBushDC, one of the largest data centers in Russia;
• and also entered a number of high-tech digital projects: VisionLabs is one of the world leaders in the field of creating products computer vision- and machine learning-based products; Factorin is a high-tech blockchain platform for trade funding; Academy of Change is an educational online platform; KonnektU is a customer data management platform.

It shall be noted that we are selective about the level of our participation in new companies and projects, we do not prioritize control over the asset, but rather the long-term possibility of expanding our product portfolio with high-quality services. We understand that in many cases participation as a partner or a minority investor is the best format for ensuring dynamic independent project development with a fair sharing of risks.

Partnerships are the most important tool for us to fill the ecosystem offer, increase the business scale and the value received by the customers, partners and MTS. We are building a partner program being guided by the principles of openness and freedom in interaction with other companies and ecosystems, as well as striving for mutually beneficial cooperation. Currently, we are interacting with more than 1,000 partners who have engaged more than 10 million customers through MTS marketing channels over the past four years. A well-deserved assessment of our efforts in this area is the fact that nine out of ten companies are ready to recommend MTS as a business partner.