MOSCOW, May 15 (Prime-Tass) -- In the last few weeks Muscovites could see billboards in the streets with an unfamiliar logo - a white egg inside a red square. No company name was put on the billboards. Market participants speculated that it was probably a new logo for Russia?s largest mobile operator MTS and their predictions proved to be true last Wednesday, when AFK Sistema, the parent company, presented new joint brand logos for all its telecommunications subsidiaries.
Analysts said Sistema was late with its re-branding campaign and may remain behind its main rival, VimpelCom, in terms of financial results. VimpelCom re-branded in April 2005 helped by UK-based Wolff Olins. The same company did it for MTS for US$4 million.
Sistema-Telecom's CEO Sergei Shchebetov said last Wednesday that the fact the same agency was responsible for a successful rebranding of VimpelCom did not bother him. He said Wolff Olins had the best idea proposing to use white and red eggs a basis for a new logo.
Shchebetov said the rebranding should start having a positive effect on financial results of the companies in "six months to a year."
"Generally, the brand is very surprising, it caused a lot of discussion," Yelena Bazhenova, telecoms analyst at Aton Capital, said. "However, it is already evident that VimpelCom's brand is stronger and MTS' brand will not outperform it," Bazhenova said, adding that MTS was too late with its new logo.
Shchebetov also said Wolff Olins had proposed the idea of joint brand for all Sistema telecoms units as early as 2003, but Sistema's shareholders only approved the idea in August.
"The launch of the new MTS brand was long overdue in our view," Deutsche UFG?s Alexei Yakovitsky said in a research note Thursday. "We expect the renewed MTS brand to have a positive impact on the company?s development," he added.
According to UBS, the stockmarket is currently pricing in an 8-10 percentage point decline in the MTS share of total wireless revenues in Ukraine and 4?6 ppercentage point in Russia between the end of 2005 and 2012.
?To put it into context, in 2005 alone MTS lost 6 percentage points in Russia and 9 percentage points in Ukraine (and the losses have been accelerating lately)," Vladimir Postolovsky, Research Director with UBS said in a research issued May 11. ?The company has already conceded market leadership in Ukraine and if after third quarter of 2005 we were predicting that it would become number two in Russia by the end of 2006, after the fourth quarter results it looks more like the end of first half of 2006," he added.
The new logo introduced by Sistema is intended for its five subsidiaries, namely, Sistema Telecom, telecommunications arm of Sistema, MTS; telecommunications operator Comstar United Telesystems, fixed-line operator Moscow City Telephone Network, or MGTS; and MTU-Intel, an Internet provider operating under the Stream brand.
The logo consists of two squares, one of which represents a white egg, or an oval, inside the square, and the other of which contains the name of the company. The color of the squares is unique for each company. Sistema Telecom has silver color, MTS - red, MGTS - light blue, Comstar UTS - dark blue, and Stream - light green.
In addition, Golden Line, a subsidiary of MTU-Intel, received a similar new logo with an orange color. Sistema Telecom did not include the latter company in its presentation, as the decision to introduce the logo for Golden Line was made "at the last moment," Shchebetov, said.
The new logo was launched "not only to unite the companies within the group, but also to show them to the market in a different manner," Shchebetov said.
Analysts supported the move, noting that all telecommunications subsidiaries would surely gain advantages from it.
"We like the idea of an umbrella brand for Sistema?s various telecommunication businesses and believe that it is in response to a general tendency in the telecommunication market (e.g. integration of all telecommunication services)," Renaissance Capital said in a research note Thursday. "We also think that all of Sistema?s telecom subsidiaries will benefit from being presented as part of a broader telecom services group, and that it will suggest quadruple play services to their customers," Renaissance Capital said.
The ability to offer so-called quadruple play services was also underlined by Sistema's representatives. Shchebetov noted that one of the ideas of the new logo is to increase customers' loyalty, as Sistema's units may offer a wide range of telecom services, including mobile and fixed-line communications, Internet access and pay-TV services.
"Nevertheless, we believe that it?s too early to draw any conclusions regarding the success of the new Sistema brand, particularly given the success of VimpelCom?s recent re-branding," Renaissance Capital said.
Bazhenova of Aton Capital agreed that several months are needed to assess the results of MTS? re-branding campaign, adding that the introduction of the logo was a necessary step despite the company?s tardiness in launching it.
Among the direct steps that MTS plans to take in order to attract new subscribers, MTS' acting President Leonid Melamed named a change in development and marketing strategy, which likely to be adopted in June. He did not provide the details of the strategy, but said that the company might switch to ruble-denominated tariffs from U.S. dollar-denominated tariffs in September-October.
Given that VimpelCom and MegaFon, the third largest operator, have already introduced ruble-denominated tariffs, MTS' management looks to be far behind its rivals with this move as well, analysts said. MegaFon has moved all its tariff plans, even the older ones, to ruble denominations.
"VimpelCom and MegaFon turned out to be more flexible in their tariff policies," Bazhenova said. "If the ruble keeps strengthening against the dollar, MTS will lose some of its revenue. It has to switch anyway, but the move is overdue," she said.
The fact that MTS was falling behind its competitors in terms of marketing strategy might be due to the fact that MTS has gone through numerous changes in top management positions, including marketing managers, during the past 12 months, with some positions remaining vacant for several months. However, now that all positions have been filled and the company has a new president (whose "acting" prefix is just formal, according to Shchebetov), MTS is likely to pursue more distinct marketing policy, analysts said.
However some analysts are still very skeptical about the MTS management?s ability to win over the lost market share in Russia and Ukraine. ?Since MTS reported its four quarter results it has underperformed VimpelCom by circa 25% and we are increasingly hearing the following refrains: ?MTS has been beaten up quite badly already, Sistema is fully aware of the problems by now, there is new management in place and things are likely to change for the better, so MTS must be better value at this levels?. We strongly disagree with these points of view," Vladimir Postolovsky, Research Director with UBS said in a research issued May 11.
Postolovsky argues that the fundamental problem of Russian wireless sector is the fact that ?it is stuck in transition from growth to value, while the problem of MTS is that it is losing market share and that management of organic growth does not seem to be one of Sistema?s strengths."
?Should we expect MTS? fortunes to change? We are less than convinced. As we have argued in the past MTS has always underperformed VimpelCom in managing organic growth; this was simply well disguised before 2005 by very profitable growth through acquisitions. We see clear evidence that the company market share losses both in Russia and in Ukraine are accelerating," Postolovsky said.
End"
Posted to the site on 15th May 2006
Posted to: www.cellular-news.com/story/17383.php