It was estimated in
2001 that the total revenues of the new operators
in the Russian wireless communication markets for
the first time outpaced the fixed line communication
operators' revenues. What is the ground of this
overtaking? And how do you see this develop into
the future?
I think first of all there is a trend that the cellular
industry is growing faster than the fixed line industry,
which we have seen in other markets. I also think
that in this country the development of cellular
telephony came a bit later than what we saw in Western
Europe earlier in the 90s. The reason for this development
is the combination of a later GSM development in
Russia and it is repeating the same experience of
many countries. As for the revenues, higher numbers
in the mobile sector is no surprise given a relatively
low penetration rate of fixed telephony (23%), its
outdated equipment and heavily regulated tariffs.
One could call Moscow the instigator of these developments,
and the city has already been covered quite extensively.
How much potential is there still in Moscow?
We think that when you look at the Moscow market
with respect to economic growth and income per capita,
the city is comparable to a medium sized western
or central European country, like Hungary for example.
For that reason, and also based on the developments
of the three or four past years, we believe that
the penetration level in Moscow is going to grow
to more than 50%. Currently, around 15 million people
are living in Moscow and the Moscow region, and
we expect to see the number of solvent users in
Moscow and in the Moscow region to grow to at least
8 million.
In the development of wireless telecommunications
in Russia, VimpelCom has played a very important
role. With this in mind, could you give us a brief
history of the company's operations in Russia?
First of all, VimpelCom is one of the pioneers of
this business in Russia. It was the first Russian
company to list on the New York Stock Exchange in
1996. The company was a joint venture between a
Russian individual and an American company. The
American party provided equipment for a pilot network
and initial money, the Russian individual provided
technical expertise and knowledge of local environment
and together they started a mobile network in Moscow.
It was based on the American DAMPS technology and
the company achieved excellent results in 1995,
1996, and 1997, after the listing on NYSE. Then
the financial crisis of '98 hit VimpelCom severely,
and the company also suffered, as its DAMPS technology
could not successfully compete against GSM used
by its main competitor. Initially the company had
to take DAMPS because the regulator would not issue
more than one GSM license per region due to the
shortage of frequencies.
Since that time the situation has changed and
we have rebuilt the company. We have attracted
two strategic partners:
· Telenor from Norway with industrial
experience and knowledge,
· Alfa group, which is the major financial
industrial player in the Russian environment.
We have also changed our technology from DAMPS
to GSM and during these years we have taken VimpelCom
from what it used to be into a national GSM player
with two strong strategic partners in a fast growing
Russian market. Still, the history of this company
is helping us to set up businesses throughout
the country. The Beeline brand is one of the most
recognised brands in the country. VimpelCom was
the first company in Russia that realised the
strength and the importance of the brand. The
Beeline brand has been linked to innovation and
strong performance for many years.
Even though we faced problems in '98 and during
our transition to GSM, the company is strong today.
Indeed, we were early in the market, we were pioneers
in it, we have a strong brand, and we were the first
company to be listed on the NYSE. All these factors
are very much facilitating our business development
throughout the country.
VimpelCom has strong ambitions when it comes to
development, to further expansion, but the core
for the time being is still Moscow. How does this
translate into numbers and figures? What is the
percentage of Moscow in your total revenues?
One year ago the whole VimpelCom was Moscow based,
all revenues came from Moscow. All subscribers came
from Moscow. And over the last twelve months we
have changed completely from being a Moscow based
operator to a national operator, we have now 25
GSM operations throughout the country, based in
the biggest cities in the country. We plan to have
more than 35 GSM operations by the end of this year.
And as a result of that, the revenue and the distribution
will be much more equal between Moscow and the regions
as their development multiplies. We will have more
or less the same number of subscribers outside Moscow
and inside Moscow in 2005, and we expect to have
the same revenue base a bit later.
Indeed, VimpelCom is looking to expand regionally,
including to cities such as Novgorod, Saratov, and
Novosibirsk. This involves facing some practical
problems that the distances in Russia bring. How
do you make really sure that you really have a unified
network in the country?
First of all, I think this is going to be the biggest
GSM network in the world, at least, when you look
at the number of kilometres or time zones. There
are 11 time zones from east to west. While setting
up a national network we make sure that it has one
policy with the same procedures and business processes,
a unified strategy throughout the country with the
same technical solutions, the same billing system,
the same customer service and, of course, the same
brand. And we find the most cost effective way of
linking our local GSM networks into a single nationwide
network. From time to time we lease phone lines
to other places and we are also investing and developing
our own transport network.
Now Beeline, as you indicated, has very strong brand
recognition in Russia. The whole matter of brand
recognition is a new sphere in the Russian economy.
How did you establish your name so successfully?
I think going all the way back to the establishment
of the name of the brand, it was the importance
of the brand that was understood by the American
shareholders. Having seen the American market, they
understood that this is going to be a name and a
brand, which needs to be positioned in the minds
of many millions of people. For that reason, we
were aware that we needed something that catches
the attention and lingers in the mind. So it started
from the understanding from a part of the shareholders
in the necessity of this, after which we have been
very consistent in how we developed the brand, what
kind of values we gave to the brand, and how we
presented the brand. We have been able to attract
skilled people, and little by little gained the
experience inside the organisation of how to build
the brand. We used the brand actively when we communicated
inside the company, and now we are consistent in
how we market and present the brand externally.
Basically, I think we have been and are using professional
and modern methods to develop and maintain our brand.
As a result of all this, I think, we also have this
brand recognition throughout Russia.
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Nowadays, when you
look at the telecom sector and IT, they are very
much interlinked in their development. Could you
indicate to our readers the services that you add
to conventional ones?
We have some additional services, like voice mail
and caller ID, which are already established in
the market and they are growing rapidly. We have
also seen a very strong uptake in messaging services,
i.e. sending and receiving short messages. It can
be a message from me to you. It can also mean downloading
information on the phone. It can be for you as a
businessman the ability to download currency exchange
rates, stock quotes and other financial information.
It can also be location based information services
helping you to navigate in the city and find shops,
offices or institutions you are looking for. It
can also be the youth segment downloading information
for their needs. So we have a variety of messaging
services, developing from one to one messages to
widely distributed messages, to a group of people
downloading specific information on the phones.
It is the key priority now driving our revenues.
We have been able to grow revenues from our value
added services including messaging services from
2-3% to, last quarter, already 7% of total revenues.
It was as a key driver.
In addition to that, we have upgraded all our networks
to introduce what the industry calls GPRS. It is
a packet switched radio-technology, different from
the traditional circuit switching. GPRS is showing
a gradual uptake, and this is the first sign of
real wireless DATA, which enables you to log on
to the Internet through your GPRS enabled handset
or through a computer connected to a GPRS enabled
handset. You can be anywhere commuting at fairly
effective speed using this service.
You have the brand name, you have the services that
attract new customers, and then you have the ambition
to expand into the Russian regions. What are then
your targets for this expansion?
We believe that first of all we will see a consolidation
of a number of players in the next years. We started
with a big number of small players, with various
technologies being represented, such as DAMPS, AMPS
and NMT. Right now we can see that the big three
national players are taking 90-95% of the growth
in the market, and it is all GSM. In the future,
we will have three main national players commanding
most of the subscribers and revenues. Our ambition
and target is of course to remain one of these three.
And we are aiming at having 30% of the national
market in three to four years.
In reaching these targets, partnerships, such as
the ones you have with the Alfa Group and Telenor,
can be of huge value. Could you indicate what recent
partnerships have you forged, and what did you expect
to gain from it?
Telenor brings industrial experience and know-how.
Telenor is a Norwegian based telecommunications
company with investments in Europe and Asia. They
have a number of cellular companies throughout the
world. Scandinavia was very early with cellular
technologies and Telenor is a skilled and competent
organisation. Telenor definitely played the role
of bringing experience and technology for the development
of the market.
Alfa has a different profile. They are one of the
biggest industrial financial groups in Russia. They
own the fourth biggest oil producing company, the
biggest privately owned bank, and they are strongly
present in other industries, in real estate, etc.
They have very good experience and knowledge about
the regions and regional development in Russia.
They played an important role in bringing local
skills and know-how to help the company execute
its plans of national expansion
To be able to manage VimpelCom operations and ambitions,
the CEO needs rich experience to tap from. Could
you give your personal professional background to
our readers? And how has it brought you to where
you are?
I have traditional education with a Bachelor's degree
in economics and then an MBA on top of that. I have
worked in a bank and in the financing industry for
five years and then for the last ten years I have
been working inside the telecommunications industry,
first in the Norwegian market for six years, and
then the last three years I spent in VimpelCom in
Russia. VimpelCom offered me an opportunity of getting
an experience in a different market. And I offered
VimpelCom rich experience of how to build a company
in a rapidly growing market.
Now you have been here for three years, which means
that you came here just after the '98 crisis. It
shows that you have had to face a lot of challenges
to overcome the crisis, to rebuild the company,
etc. What then do you consider to be your most important
personal achievement?
There were substantial problems after the Russian
economic crisis of 1998, and VimpelCom's operations
were based on the old technology. We have changed
the technology and expanded into a national operator.
We have turned big losses into substantial profits.
We created a team that executed our strategic plan
and made that remarkable turn around possible.
VimpelCom's major achievements are quite impressive.
You turned a Moscow network into a national one.
What then do you see as your major challenge for
the future? How do you see the future of Beeline?
Of course, there are a number of big challenges
for the company. I think any market has its own
characteristics. I think we will face as a big challenge
in this market, staying focused, because there are
many different opportunities and there are many
things that are tempting to involve yourself in
as a company, especially as we are a big organisation
with substantial capital resources, with a strong
brand and name. But we have to remain very consistent
in sticking to our plans and strategy. We are a
cellular company, we have Russia as our market,
and then we are an effective organisation that can
service millions of subscribers in the biggest GSM
network in the world. We will continue to focus
on creating value for our shareholders. We will
stick to our mission of being the best cellular
communication company in Russia providing wireless
voice and data services to our customers so as to
make their lives easier and more comfortable.
On a more general level, what would be your final
message to the readers keeping in mind that they
are potential investors in the Russian economy?
With these resources, natural and human, Russia
is a country of unlimited opportunities. The government
now has the idea of how to develop the economy and
what is needed for this development to be successful.
I think there are also some key industries that
will benefit from this extremely, and that the telecom
sector is one of them. We are very optimistic and
enthusiastic about what we are doing and we have
strong belief in ourselves and a strong belief in
our future. |
