(Bloomberg) -- Mobile TeleSystems PJSC is offering online taxi hailing and medical appointments over video, as Russia’s largest mobile carrier pursues new apps for revenue growth amid stiff wireless price competition.
The carrier made an speedy foray into Russia’s taxi business in October after Uber Technologies Inc. in July agreed to merge its operations into a joint venture with rival Yandex NV. That digital service and others could make up 10 percent of MTS’s sales in a few years and probably more than half of revenue in the longer term, Vyacheslav Nikolaev, the company’s head of marketing, said in an interview in Moscow.
“We saw an opportunity to enter the taxi market once competition weakened,” Nikolaev said. “After Yandex acquired Uber’s business in Russia and ride prices rose, we thought there could be room for another serious player on the market.”
Carriers globally, struggling to grow revenues with cheap prices for voice calls and generous data offerings, are branching out into businesses where they can capitalize on their millions of customers. BT Group Plc has invested in sports rights, while Vodafone Group Plc is betting on connecting machines and Orange SA is offering banking. Investors are being cautious about the new opportunities, with the models still unproven.
“No wireless carrier has been so far able to generate a meaningful part of revenue outside of voice and data,” said Alexander Vengranovich, an analyst at Otkritie Capital in Moscow. “The success of MTS’s push into digital services will depend on the partners it chooses.”
MTS runs more than 20 of its own mobile apps, including an online-wallet, and more traditional apps for music and TV. For its ride-hailing app, MTS has partnered in a revenue-sharing agreement with City Mobil, an taxi operator that’s big in Moscow and St. Petersburg. MTS’s cashback service connects to over 100 retail partners that return a portion of the purchase price to the phone accounts of users who select them through an MTS app.
“Given that wireless tariffs in Russia are among the lowest in the world, large purchases may allow users to cover their wireless bill for several months," Nikolaev said.
MTS will continue to reduce its retail network, which now has 5,700 stores, once its competitors follow suit, Nikolaev said. The optimal number of stores would be about 2,500 each for the Russian carriers in the mid-term, he said.
There’s also some relief in MTS’s main wireless business, which has been growing for several quarters, according to Nikolaev. Russia’s other major mobile carriers, MegaFon PJSC and Veon Ltd., also saw domestic growth in the latest quarter after the country’s economy rebounded from the worst recession in two decades.
MTS shares are down about 2.4 percent year-to-date for a market value of 505 billion rubles ($8.5 billion). Veon’s U.S. depositary receipts have declined about 0.8 percent, while MegaFon stock has lost about 10 percent in Moscow.
The trio have been more restrained in offering bundled tariffs with aggressive pricing in a boon to the industry after years of selling more minutes and data at rates that were little changed. Although MegaFon recently expressed concerns that price wars may resume, Nikolaev doesn’t agree, saying MTS made routine adjustments to tariff plans in nine of Russia’s regions that don’t affect Russia as a whole.
“There are no price wars,” he said. “There is an economic recovery, and we see that people are eager to consume more and pay more for it. Our revenue will be at least stable, and I don’t see any reason for average revenue per user to decline in general on the Russian market.”
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