Russia's MTS Tackles OTT

Make a few sacrifices or lose the war entirely: That seems to have been MTS's rationale when launching its own over-the-top (OTT) service earlier this month. "I am not afraid of cannibalization. But I am terrified by obsolescence," says Dario Betti, the Russian telco's director of product development and services. (See MTS Opts for OTT Over Obsolescence.)

It is unusual to hear a traditional service provider describe the challenges posed by the OTT phenomenon in such stark terms. Yet Betti can see that customers' habits and demands are changing and that Mobile TeleSystems OJSC (MTS) (NYSE: MBT) has to change with them if it wants to avoid being left behind.

The OTT move accompanies a big push on smartphone sales right now. Around 47% of MTS's Russian customers were using these devices in September and revenues from data traffic were up 20% in the July-to-September quarter, compared with the same period last year. Yet a growing proportion of smartphone subscribers are not making use of data services.

Recent Operational Performance at MTS

Source: MTS.

"This push creates some additional potential for upselling the data package to existing customers who recently bought a smartphone but did not connect the data plan or did not start using data plans, even if they paid for it," said Vasyl Latsanych, MTS's chief marketing officer, during an earnings call with analysts last month, according to a Seeking Alpha transcript.

Of course, driving data customers towards its OTT service will not help MTS to boost revenues. It could even dent sales from ordinary voice and text-messaging services, as Betti seems to acknowledge. But if MTS can persuade data subscribers to favor its offering over Internet telephony and messaging services, such as WhatsApp, it will have succeeded where many other telcos have failed. By elbowing aside some of its web rivals, MTS could position itself more comfortably for new service-based opportunities in the future.

This will be no mean feat, however. The RCS technology MTS is rolling out has been heavily criticized in the past and telco attempts to compete against OTT players have often met with disappointment. But the MTS service could address customers' growing frustration with OTT fragmentation, according to Betti. And support for RCS technology is building in the device and web community, he says.

Having already introduced the RCS-based offering in Moscow, MTS is now planning to launch it across Russia and parts of central Asia next year. That could be just the sort of boost the technology needs.

— Iain Morris, , Editor-in-Chief, Telco Transformation, and News Editor, Light Reading