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Kazakhtelecom Fires Starting Gun on Automation

Robotic process automation could be the next step on the digital transformation journey for Kazakhstan's telecom incumbent.

Iain Morris

December 19, 2017

7 Min Read
Kazakhtelecom Fires Starting Gun on Automation

If you thought automation was only for the Western software sophisticates of the telecom world, think again.

Kazakhtelecom remains one of central Asia's state-controlled telcos, and unflinchingly dominant in its fixed-line market. It has clearly benefited from government largesse at the expense of its rivals. And it operates in a country to which few outsiders would naturally look for examples of success in digital transformation.

Yet automation and digital transformation are firmly on the management agenda of the former telecom monopoly. It already attributes major efficiency improvements to its existing transformation program, including a sharp rise in revenues per employee, a metric that will increasingly attract scrutiny in the automation era, Light Reading has previously argued. In 2014, Kazakhtelecom made just 7 million Kazakh tenge ($20,860) per employee. That figure had risen to KZT8.4 million ($25,032) in 2016, and it will hit KZT9.2 million ($27,416) this year, the company predicts, as efforts to streamline and digitize the business continue. (See Efficiency Drive by Major Telcos Has Claimed 74K Jobs Since 2015.)

On automation, though, it is just getting started. According to documentation that Light Reading has obtained from the company, Kazakhtelecom is now considering investments in technologies that fall into the category of robotic process automation (RPA), a subset of automation in which operators including the UK's Colt Technology Services Group Ltd and Germany's Deutsche Telekom AG (NYSE: DT) have made investments. "It's software that can automate tasks like a macro does in Excel," said James Crawshaw, a senior analyst with the Heavy Reading market research group, in explaining RPA during a recent Light Reading event. (See Colt: Automation's 'Silent Killer' Is Poor Quality Data and DT Trumpets Automation Savings Worth '800 Employees'.)

Kazakhtelecom has identified six processes in the client services, accounting, human resources (HR) and legal departments for potential RPA, its documentation shows. In client services, for example, sales employees are currently bogged down in processing applications for service connections, disconnections and changes. Automating that process would eliminate a lot of routine manual work. In accounting, meanwhile, automation could free up employees who spend much of their time inputting data from invoices and financial statements into SAP AG (NYSE/Frankfurt: SAP) systems. RPA could deliver similar efficiency benefits in the HR and legal departments, the operator believes.

The initiative is bound to fuel concern about headcount reductions at a business that has already slimmed down considerably. Staff numbers have fallen from about 29,000 five years ago to roughly 23,000 today. The RPA that Kazakhtelecom is considering would affect about 500 employees. And while this does not mean 500 jobs will disappear, Kuanyshbek Yesekeyev, the operator's chairman and CEO, expects Kazakhtelecom to become a lot smaller as a result of automation in all its forms. "This is a story about how to be more efficient using computers," he tells Light Reading during a meeting in central London, while declining to share his estimates about the precise impact automation will have on the size of the workforce.

Figure 1: Cracking the Automation Whip Kuanyshbek Yesekeyev, chairman and CEO of Kazakhtelecom, has automation firmly on his agenda. Kuanyshbek Yesekeyev, chairman and CEO of Kazakhtelecom, has automation firmly on his agenda.

Digital transformation is at least partly responsible for the 6,000 job cuts that have happened in the last five years. Among other things, Kazakhtelecom has been centralizing functions and standardizing processes. That includes consolidating the 16 network operations centers (NOCs) it has maintained for the various regions of Kazakhstan into one facility in Almaty, the country's biggest city. Yet to run its course, this centralization and standardization is seen as a prerequisite for investment in RPA next year or in 2019.

As it becomes increasingly "paperless," Kazakhtelecom is also developing new key performance indicators to measure its progress on digital transformation. One target that has obvious ramifications for employee numbers is to increase the share of sales it does through online channels, from about 20% today. "We want to move sales channels from offline to online," says Yesekeyev. "That is one part of the digital transformation."

Next page: Shaping up

Shaping up
Headcount reductions at Kazakhtelecom have happened against the backdrop of major staffing cuts throughout the country's information and communications technology (ICT) industry. According to research carried out by Kazakh sovereign wealth fund Samruk-Kazyna, which owns about 52% of Kazakhtelecom, the number of industry employees fell 8% in the 12 months to July 2016, to about 65,700 (including 47,000 in telecom alone). "Decreasing profits have led to layoffs," says Samruk-Kazyna in a report published in November last year.

While Kazahkhtelecom claims to have enjoyed growth in both sales and profits over the last few years, it has not been immune to the macroeconomic squeeze. In a presentation he gave this month to the UK-Kazakhstan Business Council in London, Yesekeyev said that revenues increased at a compound annual growth rate of 2.6% between 2013 and 2016, and that his company has consistently delivered a margin on earnings before interest, tax, depreciation and amortization (EBITDA) of more than 30% over the past eight years. Yet revenues fell from KZT227 billion ($676.5 million) in 2015 to KZT206 billion ($613.9 million) last year, and the operator made just KZT100 billion ($298 million) in the first half of 2017.

Figure 2: Financial Highlights Source: Kazakhtelecom Source: Kazakhtelecom

EBITDA has risen over this recent period, however, from KZT70 billion ($208.6 million) in 2015 to KZT74 billion ($220.5 million) last year. And Kazakhtelecom seems on course for another increase this year, generating KZT40 billion ($119.2 million) in EBITDA during the first six months. For all the focus on efficiency-boosting digital transformation, recent profit growth probably owes more to old-fashioned consolidation. In March 2016, Kazakhtelecom merged Altel, its mobile subsidiary, with the local business of Sweden's Tele2. Yesekeyev says "infrastructure sharing" has been a factor in staff cuts so far.

Nevertheless, disruptive market forces mean executives cannot afford to be complacent now. The merger between Altel and Tele2 AB (Nasdaq: TLTO) has been thriving while its rivals suffer, and it aims to increase its share of the mobile market from 29% to 35% this year. But it enjoyed a government-sanctioned monopoly in the 4G sector until late 2016, when authorities said they would award licenses to Kcell and Beeline, its mobile network rivals. TeliaSonera, Kcell's current owner, is trying to exit the Kazakh market, along with others in central Asia where it has recently struggled. A new owner would surely have a greater sense of purpose.

Moreover, as in other parts of the world, the challenge from so-called over-the-top players like WhatsApp has eaten into revenues from traditional voice and text-messaging services in the consumer segment. In response, Kazakhtelecom is turning its attention to the much faster-growing business-to-business (B2B) market, where it already provides some services, including a selection of data center offerings. While sales in this market remain small, they are rising fast. Last year, Kazakhtelecom generated KZT7 billion ($20.9 million) in revenues from B2B customers. It made KZT7.8 billion ($23.2 million) in the first six months of 2017.

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Yet with its 70% share of Kazakhstan's ICT market, Kazakhtelecom has much to lose. And it may be even more vulnerable in slower-growing sectors such as fixed broadband, where it controls 71% of business. Following Kazakhstan's accession to the World Trade Organization in 2015, there has been growing pressure on Kazakh authorities to liberalize markets including the telecom sector. Regulatory steps might include forcing Kazakhtelecom to open its fiber network to rival operators, although market realities could prohibit competition across much of the country. "Kazakhstan is the ninth-biggest country in the world [geographically] but has just six people per square kilometer," notes Yesekeyev. "How many operators can go there?"

A far likelier development next year is a public share offer of Kazakhtelecom, as the government looks to privatize businesses in several important sectors. While a final decision has yet to be taken, the very possibility of an offer puts the spotlight on Kazakhtelecom's financial and operational health. With major investments in 4G and fiber now behind the company, net debts have fallen to just 0.3 times annual EBITDA -- far less than most European incumbents report -- and Kazakhtelecom's credit rating was recently upgraded from BB to BB+ by Standard & Poor's. If they can bring about further improvements in a short span, automation and digital transformation could make Kazakhtelecom really stand out.

— Iain Morris, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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