Exclusive: Vimpelcom set for radical overhaul from telco to internet player - CEO

November 4, 2016 11:09 AM EDT

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By Anthony Deutsch and Eric Auchard

AMSTERDAM/LONDON (Reuters) - Vimpelcom is undertaking the telecom industry’s most radical overhaul to date, weaning itself from declining revenues from voice and data to focus instead on mobile Internet services such as banking, taxis and messaging, its executives said.

The reinvention by one of the world’s top ten mobile operators is the clearest example yet of a major telecom company deciding to join the tech sector rather than trying to beat it and may put pressure on others to follow.

It will mean a shift for Vimpelcom from selling data and voice calls to offering a single, app-based platform where users can communicate for free. Vimpelcom plans to revenue share through partnerships with recognized Internet names, such as Uber [UBER.UL].

The Amsterdam-based company with Russian roots is eliminating layers of management and revamping its networks to cut costs and invest in creating new services, Vimpelcom Chief Executive Jean-Yves Charlier told Reuters in an interview.

In addition to banking and messaging apps, Charlier said Vimpelcom wants to mine client data to target new services, such as offering a customer a taxi booking on a busy Friday night, based on anticipating how busy a neighborhood is and knowing where potential customers are located. For Internet partners, such insights can help differentiate them in a crowded field.

"Fundamentally, we think the industry is at a crossroads," Charlier said. "Telcos have an opportunity to really (join) the Internet age. And that's where we see our whole strategy going."

Charlier, a veteran of the telecoms industry, ran France's No. 2 mobile operator SFR before joining Vimpelcom in 2015.

Worldwide, mobile and fixed line telecom operators are struggling with declining revenue amid intense competition. Falling prices and regulatory restrictions hamper their ability to compete with pure Internet players.

Increasingly, they must choose between investing to become digital players to fend off rivals like Facebook or Google or slim down and merely serve as "dumb pipes" for these digital players, Citi analysts argued in a recent report (http://reut.rs/2fhDmB1).

To date, most reinvention efforts have been incremental moves into media, advertising or financial services, notwithstanding top U.S. telecom firm AT&T's bid to buy media giant Time Warner (http://reut.rs/2fjgmTY).

Examples include Verizon's push to acquire web properties such as Yahoo, NTT DoCoMo and SingTel's investments in media, ads and big data. Safaricom has pushed into financial services and BT bought football broadcasting rights.

FIRST MOVE: MESSAGING

Vimpelcom's Wind mobile brand began testing its free messaging app, dubbed Veon, in Italy this week. The new platform will form part of Vimpelcom’s joint venture with Hutchison's 3 Italia, Charlier said. It will be rolled out across Italy by Christmas.

The app will function like voice, video and text messaging services WhatsApp or Viber, but with a vital difference: Veon users incur no charges against their mobile data plan while other messaging apps running over the top of operator networks count against their monthly data allowances.

By the end of 2017, Veon will be available to Vimpelcom's more than 200 million customers in more than a dozen markets, Charlier said.

"We think we are at the forefront of a potential reinvention of the industry," he said.

Set up in Russia 24 years ago, Vimpelcom has expanded into seven nearby Eastern European or Central Asian countries and is active in markets stretching from Italy and Algeria to Bangladesh, Pakistan and Laos.

Beset by competitive challenges in its traditional business, a costly corruption scandal in Uzbekistan, and a deep financial crisis in Russia, Vimpelcom has undergone a tough restructuring under Charlier that has returned the company to profit.

In February, Vimpelcom agreed to pay $795 million to settle Dutch and U.S. bribery probes relating to payments to Gulnara Karimova, the elder daughter of Uzbekistan's president (http://reut.rs/2e8brpe).

So far, 75 of its top 100 managers have been replaced. Further workforce reduction is part of the strategy to make Vimpelcom much more agile than it was in the past, Charlier said. Thirty percent of managers have been cut this year, it has reported.

In the year to date the company has cut nearly 24 percent of its workforce to 45,000 at the end of September, with more cuts to come.

Chief Financial Officer Andrew Davies declined to spell out a job cut target but said 13 national offices will see layers of management cut out and entire business operations relocated to just three regional administrative centers."We haven't even started yet," he said, when asked about the prospect of further job cuts.

BETTING ON REINVENTION

Rather than depending on shrinking monthly access fees from its customers, Vimpelcom covets the higher growth that comes from competing for a bigger share of the $200-$300 per month a consumer can spend on Internet services on their phones – on things like transport, music or meal delivery.

"We are putting a major bet on overhauling the whole plumbing of the company," Charlier said. "The future is about engineering capabilities around data."

To accelerate these ambitious plans, the mobile operator and its financial backer, LetterOne, the investment vehicle of Russian billionaire Mikhail Fridman, have struck partnerships and made investments.

These include an investment in ride-sharing platform Uber by LetterOne and negotiations by Vimpelcom toward a business partnership with Uber in local markets where it operates. Vimpelcom has agreed a $1 billion deal with Swedish network equipment giant Ericsson to overhaul Vimpelcom technology systems in 11 markets.

LetterOne has also invested in FreedomPop, a U.S. supplier of free voice and data plans, and Qvantel, a Finnish provider of cloud-based network management software that Vimpelcom also plans to incorporate in its reinvention strategy (http://reut.rs/2fycXCb).

(Editing by Elaine Hardcastle)



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