You're reading: MTS calls in Vodafone to take on competition

Two Russian-owned mobile operators in Ukraine are battling it out for the top spot in the country’s telecoms market, and one of them has brought in a big British brand to help in the fight.

On Oct. 16, 2015, the Ukrainian unit of Russia’s Mobile TeleSystems leased the brand of the world’s second largest mobile telecommunications group, UK-based Vodafone Group, for an undisclosed sum.

The move means the British multinational telecommunications giant now has a presence, at least in name, in 80 countries around the world.

And it means MTS Ukraine, the nation’s second largest wireless carrier with 23 million users, has expanded the scope of its strategic partnership with Vodafone, which started back in 2008.

MTS Ukraine hopes to use the Vodafone brand to beat its main competitor, Russian-owned Kyivstar, which at present leads Ukraine’s mobile services market in terms of subscriber numbers.

Vodafone “is a famous brand that does its best to satisfy its clients,” Vodafone Ukraine CEO Olga Ustinova told the Kyiv Post. “So instead of reinventing the bicycle, it makes sense just to take a good bicycle, change the seat, add some features, and use it here.”

U.K. Ambassador to Ukraine Judith Gough also sees Vodafone’s entry as “important because it sends a message of confidence.”

Vodafone’s rules

Leasing the brand obliges the Ukrainian company to start abiding by a very strict list of Vodafone rules that regulate almost all technical and operational processes.

“There was a long discussion about whether we were ready to change all the processes in the company to comply with Vodafone’s standards,” Ustinova told the Kyiv Post.

Vodafone Ukraine CEO Olga Ustinova speaks with the Kyiv Post at her company’s Kyiv office on May 24. Ustinova hopes the Vodafone brand will help improve her company. (Anastasia Vlasova)

The most important requirement was to ensure the security of personal data, the development of the broadband network, and the transparency of the business.

“We went through a very serious audit before signing the agreement,” Ustinova said.

“Security was the main issue. There were very clear legal rules as well. All of this must make it possible to do really civilized business in Ukraine.”

Vodafone allocated a brand manager in Kyiv to scrutinize the use of the U.K. brand, so that “there is no way a single letter in the company’s name differs in color or size.” Vodafone also sent a PR manager and an information security manager to MTS Ukraine.

“Besides, almost every worker has their own, shall we say, ‘opposite number’ in the U.K., so that all the best practices that can be adopted are implemented in Ukraine as soon as possible,” Ustinova said.

Price concerns

But Vodafone Ukraine’s CEO admits that meeting the British brand’s requirements in Ukraine, where most of the population is not ready to pay more than $2 per month for cellphone services, was, and still is, very difficult. In comparison, subscribers in Europe pay on average €30-40 a month, while those in the United States pay $50-60.

The low prices make it hard for Ukrainian operators to raise the capital needed to replace outdated technologies.

“We need to take into account that we use the same equipment for providing network and 3G data,” Ustinova went on. “We’d like to raise prices, but the competition on the market doesn’t allow us to do so.”

After rebranding into Vodafone, MTS Ukraine started offering three tariff plans: small, medium and large. They cost from Hr 30 ($1.20) to Hr 90 ($3.50) a month, and offer from 500 megabyte to 5 gigabytes of 3G data.

So far, only 1 million of the 23 million MTS subscribers have shifted to Vodafone’s tariff plans.
Many customers have accounts with more than one operator in Ukraine to avoid paying for out-of-network calls.

Overdue 3G provider

The Ukraine’s three biggest mobile operators – Vodafone Ukraine, Kyivstar and Turkish-owned Lifecell – successfully bid a total of Hr 9 billion for 3G licenses on Feb. 23, 2015, with rollouts of the new services starting shortly after.

By late spring, both Lifecell and Kyivstar were offering 3G in Lviv, and started to expand their networks out of that testbed city towards central and eastern Ukraine.

However, Vodafone Ukraine was slower of the marks than its rivals, offering customers outsourced 3G services from Ukrtelecom’s TriMob operator until September 2015, when it finally launched the first of its own 3G mobile Internet services, in Odesa.

“We weren’t the fastest to introduce 3G,” Ustinova said. “We took a different approach.”
The company instead opted to renew 50-70 percent of its equipment before launching 3G services.

“We understood that a good user experience is essential at the beginning,” she said. “That’s why we tried to persuade clients that this 3G data service would be of a completely different level, right from the beginning.”

Trial period

“My acquaintances in government often ask me ‘when will Vodafone bring investments to Ukraine?’” Ustinova said. “I explain to them that ‘we, Ukraine, have been given a trial period.’”

“Living here,” she went on. “We all understand that certain changes and efforts are needed to make the market civilized, so that it can provide fair competition under proper laws.”

Although Vodafone is in no rush to put money into Ukraine, promising instead only intellectual property, it has vowed to bring in “healthy” business standards “for a long period.” Vodafone Ukraine employs 3,300 people across the country.

“Telecoms is a capital-intensive industry, which doesn’t pay for itself within two, three, four or even five years,” Ustinova said. “So we can’t build our policy around annual figures. It’s not our goal to overtake anyone. We’re approaching this prudently, and on completely different terms.”

“But we believe Vodafone will help us become the favorite mobile operator on the Ukrainian market,” she said.

Kyiv Post staff writer Denys Krasnikov can be reached at [email protected]. The Kyiv Post’s IT coverage is sponsored by Beetroot, Ciklum, Steltec Capital, 1World Online and SoftServe. The content is independent of the donors.