October 20, 2016
LONDON -- Broadband World Forum 2016 -- VimpelCom's Tommy Ljunggren does not sound like he is overflowing with enthusiasm on the topic of 5G. "Most demonstrations are about high speeds and low latency and I'd really like to see more focus on providing decent speeds and wide-area coverage," says the operator's group director for architecture and security.
Considering VimpelCom Ltd. (NYSE: VIP)'s emerging-markets presence, that desire for a less zippy version of 5G than the millimeter-wave technology grabbing headlines is hardly surprising. Today headquartered in Amsterdam, the operator counts Russia as its biggest market but maintains subsidiaries across a diverse range of countries in central and Southeast Asia, North Africa and Europe, serving more than 200 million customers overall. Providing widespread connectivity for attractively priced mobile Internet offerings is a priority.
It is also forcing VimpelCom to take a hard look at its fixed-line business. A strategic objective is to be the biggest or second-biggest operator in each of its national markets. "To do that, we have to have the fixed assets and our own IP and fiber infrastructure -- we really can't live without it," Ljunggren tells Light Reading on the sidelines of this week's Broadband World Forum in London. "Our transformation includes putting more effort into the fixed line again -- we are actually heating up the fixed part all across our footprint."
Competition has evidently intensified while operating conditions have worsened. Several years ago, VimpelCom lost its number-two spot in Russia's mobile market to long-standing rival MegaFon , having already trailed market leader Mobile TeleSystems OJSC (MTS) (NYSE: MBT). With mounting economic and regulatory pressure, group revenues fell by 16% in the April-to-June quarter, to about $2.2 billion, compared with the year-earlier period (although VimpelCom insists they rose by 0.1% organically).
Can a fixed-line push fuel growth? The bundling of fixed and mobile services in so-called "quad-play" packages has already met with some success in Russia, says Ljunggren, and is a necessary churn-limitation measure in such a competitive environment. While VimpelCom does not have "the strongest position" in Russia's fixed-line market, its fiber network is already quite extensive. Major investments are not on the cards, and an eagerness to share infrastructure with rivals, and be "asset-light," could help to reduce capital expenditure in future (VimpelCom currently spends about 17% of revenues on capex).
That could prove increasingly important as VimpelCom looks for "backhaul" options to support rising volumes of mobile data traffic. Regardless of how quickly 5G takes off, Ljunggren sees a need for more fiber backhaul simply to cope with the adoption of high-speed 4G services. But he also reckons the line separating fixed from mobile is getting blurrier by the day. One 5G use case that does hold appeal is the fixed wireless access scenario that Verizon has publicized in the US. "That will be very suitable for our markets as well because of the difficulty of getting fiber connections to all customers," says Ljunggren. "5G could bring that connectivity to the last mile."
Outside Russia, plans will obviously be shaped by VimpelCom's existing presence. In Armenia, for example, where its Beeline-branded subsidiary is the former incumbent, the operator is now considering an investment in G.fast, which is designed to boost broadband speeds over copper lines. "It doesn't make sense to take fiber to customers," says Ljunggren. "G.fast will be a much cheaper solution for us and now it's mature enough to bring the speeds and capabilities we need." In rural parts of the country, meanwhile, VimpelCom has been rolling out 4G networks using 450MHz spectrum to provide broadband connectivity.
Next page: Virtualization holds the key
Virtualization holds the key
On a global scale, the virtualization of network functions now sits at the heart of VimpelCom's strategy and is making the distinction between fixed and mobile even less relevant, according to Ljunggren. Currently, VimpelCom is carrying out trials of virtualized customer premises equipment that allows enterprises to set up a virtual private network connection for small branches regardless of the underlying connectivity. "It doesn't matter if it's 4G or fiber and it can even be someone else's connectivity," says Ljunggren. "Virtualization is a big opportunity for fixed-mobile convergence."
The current focus of the operator's NFV strategy is on the evolved packet core (EPC), partly because virtualized EPC offerings have been more readily available than other virtualized functions but also to cope with the traffic growth on 4G. As a first step, VimpelCom earlier this year teamed up with China's ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) on a virtualized EPC rollout covering the five markets of Armenia, Laos, Kyrgyzstan, Tajikistan and Uzbekistan. "In these markets we've now migrated all the data traffic across and closed down the legacy," says Ljunggren.
The next phase of the NFV project will entail rolling out virtualized EPC technology across VimpelCom's nine other markets. After holding a global NFV tender, the operator is set to announce a vendor for this work before the end of the year, as well as an NFV infrastructure supplier. Given the apparent success of the five-country virtualized EPC deployment, China's ZTE seems likely to be a strong candidate. In the meantime, another tender in an as-yet unnamed country will identify an NFV vendor for HLR (home location register) and HSS (home subscriber server) functions. (See VimpelCom Plans Global NFV Tender.)
Ljunggren is not disclosing any firm targets for the virtualization of network functions, but the journey is bound to get more difficult. So far, the operator has avoided any interoperability problems by working in a single-vendor environment. In future, however, it wants to use a "multitude" of suppliers across a range of functions.
VimpelCom's relative lateness to the NFV party might help it skirt some pitfalls, though. As recently as last year, the OpenStack technology on which companies are basing their NFV deployments was a source of major concern to operators such as the UK's BT, which publicly flagged doubts about its "carrier-grade" credentials. But as OpenStack has matured, some of the worries appear to have dissipated. "We can skip that whole discussion," says Ljunggren. (See It's OpenStack or Vendor Lock-In, Says AT&T and BT Threatens to Ditch OpenStack.)
The rollout of gigabit broadband access networks is spreading. Find out what's happening where in our dedicated Gigabit Cities content channel here on Light Reading.
In parallel with the deployment of software and virtualization technologies, VimpelCom is also collaborating with Sweden's Ericsson AB (Nasdaq: ERIC) on a $1 billion overhaul of its legacy IT systems in 11 of its 14 markets. By shifting these business support systems on to a cloud platform, it hopes to cut its IT bill in half -- which would mean spending just 2% of Group revenues on IT in future -- and spur revenue growth. The rough goal is to have completed the bulk of the transition by 2019. "We are preparing implementation plans now and then it's full steam ahead," says Ljunggren. (See VimpelCom Aims for BSS Overhaul by 2019.)
Back-office transformation has clearly been one of the telecom industry's biggest bugbears in recent years, with a number of projects falling by the wayside. But VimpelCom says it is taking steps to ensure its current efforts do not suffer the same fate. "We've started by anticipating what customer needs will be, what processes will be needed to address those and then decided on a solution," says Ljunggren. "And the basic principle is not to move systems but to migrate customers -- the legacy will be closed down eventually."
Keen to shake off a reputation heavily tarnished by recent charges of corruption in central Asia, VimpelCom has undoubtedly become one of the most proactive regional players this year when it comes to network transformation. The big task now will be to make those efforts pay off on the commercial side of the business. (See VimpelCom's Russian Boss Makes Beeline for Exit and Eurobites: 'Uzbekgate' Costs VimpelCom $795M.)
— Iain Morris, , News Editor, Light Reading
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