Telecoms must address technology disrupters, says LetterOne head

For someone overseeing more than $13bn of telecoms assets, Alexey Reznikovich does not seem to have much time for the industry.

Or at least, that is, for the parts of the telecoms industry stuck in the past - which form the majority in his view - and that are being disrupted by technology groups and so face an uncertain future.

Mr Reznikovich, pictured below, runs LetterOne Technology, the newly named holding group for the 48 per cent stake in VimpelCom and 13 per cent share of Turkcell controlled by Russian billionaire Mikhail Fridman and his Russian partners.

"The telecoms industry has become a victim of its inability to transform itself to address the new challenges. Many companies will go under or be merged. They will vanish one way or another," says Mr Reznikovich.

VimpelCom is not spared in his assessment of the sector. The company - which serves 220m customers across 14 countries such as Russia, Italy, Ukraine, Bangladesh and Pakistan - needs a "complete revamp", says Mr Reznikovich.

He sees an opportunity to substantially increase the company's value by stripping as much as two-thirds off the costs of running the business by moving operations to a more digital platform.

Mr Reznikovich points out some of the absurdities of the old-fashioned telecoms business. "We have 10,000 tariffs in Russia," he says, shaking his head at the expense of managing such complex arrangements. "It needs a complete revamp of the whole thing. That's the only way to do it."

He estimates that only a fifth of the industry will be able to change, however. "I am hopeful that VimpelCom will. The shareholders have a clear vision of where VimpelCom needs to go. We will start to do this in a number of business units this year."

Mr Fridman and his partners battled Telenor to become the largest shareholder in VimpelCom more than two years ago. Telenor still owns 43 per cent of the listed Amsterdam-headquartered group compared with the 48 per cent controlled by LetterOne.

In five years, Mr Reznikovich says, VimpelCom could have scaled back its workforce from 60,000 to as low as 10,000, with a fourfold cut in IT spending.

"The idea is to make VimpelCom a much more valuable company - not to have a multiple of five or six times [earnings], but to have a multiple of 10 or 12. We need to do something different," he says.

"The industry has not been able to pay for its cost of capital for the last five years. This is extremely inefficient from an investor standpoint. And it's going to get worse."

Alongside the cost-cutting, Mr Reznikovich wants to bring in a more entrepreneurial culture aimed at meeting specific customer needs.

He is appalled that the telecoms industry is not using its relationship with customers, pointing out the technology groups are light years ahead in knowing what people want and when.

"The telecoms industry is extremely inefficient in how they deliver services," he says. And this is in spite of telecoms groups owning a vast amount of information about the people who use their services, he adds.

"Do you know how many email addresses we have of our 15m customers in Italy? Five thousand. This is a joke! But we have all the information about how they pay, use the internet, their profiles . . . We can use this to make tailored offers and charge more - and improve revenues."

<

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.

Mr Reznikovich has overseen Mr Fridman's telecoms business at various holding groups since 2002, including Altimo and LetterOne Telecoms.

LetterOne Technology is the latest incarnation. The name was chosen to reflect the shift in strategy to more digital platforms, as well as the intention to make further major acquisitions in the telecoms and technology sectors.

The group will take over the activities of LetterOne Telecoms, with the name change and board appointments reflecting the focus outside traditional telecoms for the first time.

Mr Reznikovich says there is a cash pile of $16bn to invest from the 2013 sale of Russian oil producer TNK-BP.

The office has been set up in London to "better manage the deal flow", he says. Two-thirds of the revenues of VimpelCom were generated outside the UK.

The decision to move the international businesses of Mr Fridman and his colleagues to London was made before the hostilities in Ukraine, which Mr Reznikovich admits has made being based in Russia more difficult.

The company wants to invest in struggling companies that need funds to succeed, as well as look at markets such as data centres and telecoms infrastructure, as well as technology groups that could add services for VimpelCom to use.

"Telecoms is a pipe," Mr Reznikovich says. "If we execute the first part of our strategy, we will have much more information on customers and then use our digital companies to feed the system and help VimpelCom offer new things, almost as a distribution channel."

There is also an opportunity to invest in companies that are in markets open to consolidation, he says, pointing to an easing of regulatory opinion about mergers in the sector.

Deals are already in the offing. "We are working on all fronts," Mr Reznikovich says. "We hope to have a result on all three areas [of our strategy] this year."

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation