January 18, 2019
VEON's plans to scrap its digital platform, now confirmed by the company, will trigger the loss of about 200 jobs within the organization, Light Reading understands.
The layoffs will include about 100 roles at group headquarters in Amsterdam, where a development team had been working on the platform, and lead to the closure of the operator's London office, previously set up with responsibility for its digital strategy.
VEON, which operates in Russia and various emerging markets, had launched the platform to considerable fanfare at Mobile World Congress in 2017. Seen as an attempt to challenge the over-the-top players on their own turf, the platform underpinned a mobile app that allowed customers to access services from VEON as well as content partners such as MasterCard. (See VEON's Digital Overhaul Much More Than Rebranding and VimpelCom to Pioneer 'Multivendor' NFV; Downbeat on 5G.)
But the initiative seemed to meet with a lukewarm response from customers. Only 8.3 million of VEON's roughly 240 million subscribers were using the app at the end of the 2017 fiscal year, when VEON last provided an update. (See VEON: When Transformation Goes Bad.)
The decision to stop disclosing details of customer adoption was a sign the digital strategy was not going as planned. Then, in March last year, CEO Jean-Yves Charlier, the man behind that plan, abruptly quit VEON amid deepening shareholder gloom.
Several months later he was followed out of the door by Christopher Schlaeffer, the London-based executive in charge of VEON's digital strategy and a former senior executive at Germany's Deutsche Telekom. Given the latest turn of events, he seems unlikely to be replaced.
In a statement sent by email, VEON said: "In light of changing business priorities, VEON is proposing to discontinue investment in the VEON digital platform. We are currently consulting with employee representatives on the likely impact of this proposal."
Within VEON, there is now a recognition that mistakes were made in marketing the digital platform as a game changer for the business instead of a useful addition to the telco's arsenal of services, Light Reading has learned.
Earlier reports have suggested that VEON is giving up on a digital strategy and going back to its telco roots under new CEO Ursula Burns. But despite the apparent retrenchment, the operator insists that digital services development remains a priority for the group.
What seems likely following the cuts in London and Amsterdam is that individual operating companies will be given more freedom to pursue their own digitalization plans. "Many of our operating companies already offer a range of digital services, including Beeline TV in Russia and Jazz Cash in Pakistan," said VEON in its statement.
James Crawshaw, a senior analyst at Heavy Reading who has been monitoring VEON's numerous digital activities, said there were important lessons to be learned from the latest developments.
"You can't compete head on with OTT apps unless you have a differentiator, which VEON didn't," he told Light Reading. "So if they can't compete at the application layer, maybe telcos should just focus on being competitive at the network layer and do this as efficiently as possible, through automation, in order to sustain profitability."
Like other major telcos, VEON has been slashing headcount in recent years as it tries to prop up earnings. It cut more than 12,000 jobs across its operating companies between 2015 and the end of 2017, when it employed around 39,900 people.
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Yet to report numbers for the 2018 fiscal year, VEON reported a 5.7% drop in sales for the recent third quarter, to about $2.3 billion, and saw earnings before interest, tax, depreciation and amortization (EBITDA) sink 18.7%, to $848 million. But the declines were blamed largely on unfavorable currency movements and other "inorganic" factors. On a like-for-like basis, VEON said revenues were up 2.9% and earnings by 4.6%.
Unlike some other big operators, VEON's balance sheet position also looks strong: Net debts fell to just $5.7 billion last September, from $8.7 billion a year earlier, and represent just 1.7 times VEON's annual earnings.
Even so, VEON's share price has lost about a third of its value on the Nasdaq since this time last year, closing yesterday at $2.58, amid investor concern about the operator's strategy.
Staff cuts in Amsterdam and the closure of the London office should at least make a big difference on the cost front. A company target was to reduce corporate costs by about a fifth last year, from $431 million in 2017, and VEON aims to halve the figure, to around $216 million, by 2020.
VEON was reportedly spending about $100 million annually on activities related to the digital platform.
Alex Kazbegi, an analyst with Russian investment bank Renaissance Capital, delivered a withering assessment of the company's digital investments last year, when VEON had just sold its 50% stake in Italy's Wind Tre. "All the money spent before has gone nowhere," he told Light Reading at the time. "They are very lucky to have sold Italy and are now mostly cost cutting, focusing on core emerging and frontier markets and paying a decent dividend." (See Rudderless VEON Keeps Digital on Down-Low.)
Providing a more sympathetic take on VEON's digital experiment, Crawshaw said today: "It was a very ambitious idea in the first place so hats off to them for trying. The CEO that supported the digital platform left ten months ago and I guess the new CEO is having a bit of a clear out."
— Iain Morris, International Editor, Light Reading
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