VEON boss Kaan Terzioğlu does not try to hide his apathy toward 5G. "The vanity about 5G needs eradicating," he said, pointing out that fewer than 5% of his own customers have 5G-compatible handsets. "It is not a need today and I would rather focus on bringing 4G for all, not 5G for a few."

Serving 158 million mobile customers, VEON sprawls across several big emerging markets where the older 4G standard is still not being used by millions of people. VEON's own numbers for the recently ended first quarter show that only 88 million of its subscribers were 4G customers at the end of March. As the gap between this number and that for the total customer base continues to narrow, investment in 4G rollout remains a priority.

But economic conditions pose a threat, Terzioğlu told Light Reading during an interview earlier today. Soaring inflation and higher interest rates have had nasty ramifications for Pakistan, VEON's biggest market by sales, where the government faces a foreign-exchange crisis and is under pressure to repay billions in overseas, dollar-denominated debts. The risk of a default now looms.

Figure 1: The emerging-markets operator has been hit by import restrictions in Pakistan.
(Source: Timon Schneider/Alamy Stock Photo)

All that has had unforeseen consequences for Terzioğlu's Pakistani unit, whose capital expenditure slumped 75% for the first quarter, to less than 3.7 billion Pakistani rupees ($13 million), compared with the year-earlier quarter. "It is not that we don't have an appetite to invest but simply that the central bank stopped all sorts of imports," said Terzioğlu, reflecting on a government decision aimed at tackling some of the country's financial problems.

"That is impacting all the operators, not just us, but it is clear that the high interest rate policy of the west has some impacts beyond imagination in emerging markets," said VEON's CEO. "Pakistan is probably feeling that the most."

Currency weakness clearly hurt VEON across all its country operations, with reported sales down not because of underperformance. Measured in local currencies, the company boasted a 15% year-on-year growth in sales for the first quarter. In US dollars, revenues dropped 9%, to $884 million.

The story was no different at the earnings level. EBITDA (earnings before interest, tax, depreciation and amortization) were up 11.2% in local currencies but down 13.5% in US dollars, to $385 million. It's a potential problem for VEON when it comes to investing for the future and repaying loans. An investor presentation shows that 78% of gross debts – which totaled $5.7 billion at the end of March – are denominated in US dollars.

"We are keeping our financial discipline and that requires discipline in inflationary pricing," said Terzioğlu. "As we do this and execute on the pricing levels of our packages based on cost pressures and market pressures, we are also looking for local leverage and hedging our assets in hard currency."

Russian withdrawal and Ukrainian war

He has faced a blizzard of challenges in the last couple of years, triggered largely by Russia's invasion of Ukraine in February 2022. Up to that point, VEON counted Russian telco VimpelCom as its largest international asset. Hit by international sanctions, it has beaten a quick retreat from the Russian market, classifying VimpelCom as a "discontinued operation" and negotiating a sale of it to Russian managers in late 2022. An obstacle to that transaction was removed in April with the issuance of a US license, effectively allowing US stakeholders to engage in the process.

The other big trouble spot is Ukraine, VEON's second-biggest market by sales, where it owns Kyivstar, one of the country's main mobile operators. Despite the obvious difficulties of operating in territory under regular bombardment by Russian forces, Kyivstar managed 6% growth in sales and a 1% increase in EBITDA on a local-currency basis.

"It is a remarkable commitment by the local team," said Terzioğlu. "Ninety-one percent of the radio area network is functioning but this is not stable – every day new sites are being built and maintained. We've also significantly updated our energy storage capacity to deal with outages on the energy side." A deal involving competitors allows each company to make use of one another's infrastructure, he said.

Towering ambition

The divestment of tower assets, a move that various operators in western markets have already made, could help to relieve some of the financial pressure on VEON. The separation of towers from the rest of the business has already happened in Ukraine and similar carve-outs are planned across other countries in the next two years.

"We're committed to being an asset-light operator and I think the towers really need to be owned by an independent towers company that can make more use of the assets by co-hosting different operators on them," said Terzioğlu. "No operator in the world has the luxury of owning its own towers." He rules out having a majority stake in a towerco, saying if VEON is involved it will be as a "minority" shareholder.

Terzioğlu can take some pride in VEON's technology transformation on his watch. When he joined the company in 2019, it was still recovering from its earlier decision to opt for a one-size-fits-all approach, whereby services and technologies developed within group headquarters were imposed across countries with very different tastes and characteristics. Under Terzioğlu, individual countries have had more autonomy, recruiting their own software teams for apps development. The irrelevance of US tech giants in many of VEON's markets has clearly helped.

Sales growth has come from signing more customers up to its 4G plans rather than charging separately for those apps. The average customer in Pakistan, for instance, now uses 5.8 gigabytes of data a month, compared with 5.1 gigabytes a year ago. Average monthly revenue per user has risen 17%, to PKR285, over the same period.

"In the last 18 months, we have established tech companies in pretty much all the operations we are in," said Terzioğlu. "We are either the number one or number two tech company in every single market we are in, and I see this as a unique competitive advantage." It's a trait that certainly marks VEON apart from its better-known peers in the west.

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— Iain Morris, International Editor, Light Reading