Rostelecom meets new year of 2013 with actualized strategy

RUSSIA: OJSC Rostelecom announced that at its meeting on December 26, 2012, the Company’s Board of Directors approved an updated strategy blueprint of the Company development for 2013-2017, prepared pursuant to requirements of the Federal Agency for the State Property Management (Rosimuschestvo).

Ivan Rodionov, chairman of the Board of Directors, said, “We have actualized the Strategy taking into account the market dynamics and focusing on growth segments like fixed and mobile data, Pay TV and innovative services. In legacy segments we are more focused on cost optimization.”

The newly approved strategy takes into account market trends and updated launch dates of the Company’s UMTS networks, including those in Moscow and St. Petersburg.

The updated strategy emphasizes the difference between managing Rostelecom fixed-line business (fixed-line communications, as well as fixed broadband access, IPTV, VPN) and the Company’s key growth drivers (innovative cloud services and mobile business, primarily Wireless Broadband (WBB). The fixed-line business currently accounting for significantly more than half of the Company revenues is expected to decline over the five year term, as well as its profitability. Fixed-line telephony revenues dynamics are expected to be offset by revenue from broadband and IPTV.

According to the strategy, growth in innovative cloud services and WBB will enable Rostelecom to growth in line with the Russian telecom market (CAGR over the period 2013-2017 is expected to be around 6 percent) or slightly over the market. This forecast is in line with the previous high single digit revenue growth guidance.

The business growth will be facilitated by focusing CAPEX on developing broadband access, Pay TV and transport network (accounting for 60 percent of the total CAPEX over 2013-2017), and on the mobile segment (24 percent of the total CAPEX over the same period). The remaining CAPEX will be spent on innovations etc. The average over 2013-2017 CAPEX to revenue ratio is expected around 14 percent, mainly due to the finalization of roll-out of IT systems and passing the investments pick in innovations segment after 2014.

The second ambitious goal for the years to come is cost cutting in the fixed-line segment. The ultimate goal for 2017 is Group OIBDA margin at level of 39 percent.

The cost cutting will be achieved by modernization of networks and avoiding overlaps, centralization and reduction of management levels in the Company, releasing real estate and cutting its maintenance costs.

Earlier the actualized strategy was discussed at a meeting of an extended Strategy Committee of the Board, attended by the Strategy Committee’s members, other Board members, and representatives of Rosimuschestvo and the Ministry of Communications and Mass Media of Russia.

The Board of Directors also approved the Risk Management Programme (RMP) for 2013. Currently, the RPM is focused on the most significant risks, primarily commercial risks and risks of changes in regulation. The identified risks were evaluated in details down to business segment level, services, and also across regions, down to specific cities in some instances.

An essential component of the RMP is pragmatic measures put in place to mitigate risks, while the RPM for 2013 contains primarily project measures. Management responsibility for risk management system is reflected in motivation programme. These initiatives were supported by the Board of Directors. Risk management reports are to be submitted quarterly to the Board of Directors for review.

The Board of Director also approved Rostelecom budget for 2013.