MTS considering change of its brand to Vodafone

Photo: Ivan Chernichkin

Mobile operator MTS is studying the possibility of using the brand of the British telecom group Vodafone in Ukraine on conditions of a franchise, two top managers on the telecom market told Capital. One of them added that in some countries Vodafone works with local operators on conditions of the franchise of the trademark. “For this the local operator deducts 3-4% of earnings from the services for the telecom operator,” he says. Indeed, the British group does not own a single share in Vodafone Iceland, for example. The local operator Fjarskipti hf. uses both the well-known brand name and its advertising practices under agreement.

One of the members of the National Commission for State Regulation of Communications and Informatization (NCSRCI) said MTS representatives already approached the department for consultation on the possibility of using a new brand Vodafone on franchise conditions. “The commission was not against this proposal,” he added.

The press service of MTS Ukraine did not provide any additional commentary. Head of the company’s PR Department Viktoriya Ruban said its representatives were engaged in this matter. Over the past several days, she said, they were out of reach.

An old story

“Vodafone has been satisfied with its long-time partnership with MTS in Ukraine since 2008,” a representative of the media department of the Vodafone Group told Capital. He chose not to comment on the possibility of the franchise or share interest in the Ukrainian business. Noteworthy, Vodafone has been safeguarding its brand in Ukraine for quite some time. The group has 13 certificates for trademarks in Ukraine and also a .com.ua domain. As a reminder, having concluded an agreement on strategic partnership with Vodafone in 2008, the MTS group became one of its 40 partners around the world. The agreement envisaged joint purchases of software and equipment with discounts and allowed to introduce certain products and services. MTS also tried to introduce in Russia content distribution platform Vodafone 360, though it did not go up against Apple and Google platforms.

“Everybody assumed (us including, when we were employees of MTS) that Vodafone could acquire MTS or we will help it emerge on the market as a MVNO (mobile virtual network operator) or they will provide our subscribers with cheap roaming. However, everything ended with us being granted access to their hub with marketing materials, advertising campaigns, cases and services,” recalls Marketing Director of the Wimax-operator Giraffe Taras Kucheryaviy, who earlier worked in the MTS Marketing Communications Department.

Money talks…

As Capital wrote earlier, MTS began seeking a buyer for its Ukrainian affiliate or additional investors for 3G. “We did not find any partners and we are not sure that any of them will be interested. This is one of the options,” said MTS Group President Andrei Dubovskov in Moscow at the announcement of the company’s financial results on Tuesday, as Interfax reported. Yesterday, one of Capital’s sources informed that MTS is using Swiss investment bank UBS in the search for potential partners. Another source said that MTS can be appraised at approximately three annual EBIDTA. This is more than UAH 15 bn based on the financial results of the company for 2013. Interestingly, in November The Sydney Morning Herald reported with a reference to the UBS survey that the Vodafone Group could sell its Australian branch for US $2.73 bn to focus on growing businesses in Europe and Asia. “If Vodafone agreed to become a co-investor it would have been beneficial for MTS in the current conditions. This would provide a source of cash, which the group may be short of now, taking into account the situation in Russia,” said Deputy Director of GfK Ukraine Hlib Vyshlynskiy. As a reminder, the major shareholder of JFSC Sistema (which controls MTS) Vladimir Yevtushenkov was put under house arrest in Moscow.

What the new image will give

President of SV Consulting Oleh Stefanyuk says that Ukraine’s MTS is a very beneficial asset for acquisition. “This is not some start-up, in which you have to invest a lot of money, but a well-tuned business that turns profits,” he said. The expert believes that the European brand could significantly improve the position of MTS on the Ukrainian market. As Capital wrote earlier, the company practically caught up with the market leader Kyivstar in Q3 in terms of earnings from mobile communication services.

Stefanyuk, however, warns that if the western brand is used exclusively on conditions of a franchise and not co-investment, investments into it may turn out to be risky, because it can fall victim to a negative PR campaign launched by competitors at any given moment. They can focus, for example, on the fact that the operator is still controlled from Russia.

Vyshlynskiy adds that a simple change of the sign without changing the tariff setting policy is not likely to have a significant effect on clients. That is why re-branding should be done in combination with such actions as optimization of roaming tariffs within the framework of the international group, he says. The GfK expert emphasizes that re-branding is an expensive venture. That is why MTS, having gained experience from the change of the UMC brand in 2007, will seriously evaluate the economic effects of such a move.