Doing business with Russian oligarch Mikhail Fridman is evidently not for the faint-hearted. For years, his uncompromising investment arm battled Norway's Telenor over the strategy of Russia's VimpelCom, which counts both as big shareholders. Last year, Telenor appeared finally to give up any fight, putting its VimpelCom stake up for sale. (See For Sale: Telenor's $2.4B Stake in VimpelCom.)
But if Fridman's fearsome reputation urges caution among prospective partners, his vast resources and ability to sniff out an opportunity will continue to entice the more daring. Having earlier this year earmarked $16 billion for investment in US and European technology companies, Fridman's LetterOne group this week announced a $50 million commitment to FreedomPop , a California-headquartered mobile virtual network operator (MVNO) that is keen to spread its wings. (See Eurobites: Russian Billionaire Pumps $50M Into FreedomPop.)
Undeterred by Telenor Group (Nasdaq: TELN)'s experiences, FreedomPop appears to have spurned more traditional funds in favor of LetterOne, lured by the promise of a tie-up with VimpelCom Ltd. (NYSE: VIP). Having already launched services in the US and several European countries, the MVNO has ambitious plans for international expansion and a particular eye on emerging markets. With its presence in such territories, VimpelCom could be the perfect network partner. (See MVNO Free Europe: FreedomPop Adds $50M, Thinks Global.)
What makes this deal even more interesting is not what Vimpelcom could do for FreedomPop, but how the minnow could help the monster. VimpelCom is desperately trying to shake off its baggage as a traditional telco and strike a sleeker, more digital pose. It has already struck a $1 billion deal with Sweden's Ericsson AB (Nasdaq: ERIC) to shift most of its business support systems over to a cloud platform in the next two to three years. It is also investing heavily in software and virtualization technologies. (See VimpelCom Aims for BSS Overhaul by 2019 and VimpelCom Plans Global NFV Tender.)
Yet the operator could learn much from a company such as FreedomPop. Like other successful MVNOs, the startup has flourished thus far by tearing up the telco operating manual, ditching the long-term contracts and pricey plans. Up to a point, subscribers can use it entirely free of charge. Customer service is a priority, along with development of the company's app-based technology. Some of FreedomPop's leading executives come from an Internet rather than a telco background.
FreedomPop has its critics: Several reviewers have complained the underlying technology does not always work, for instance. But it has been able to attract interest and investment by positioning itself as a kind of hassle-free alternative to the telco norm. Its skills, digital capabilities and cultural approach could be of huge value to any incumbent trying to adapt.
That would certainly appear to include VimpelCom. During an April interview with the Financial Times (subscription required), Alexey Reznikovich, chairman of VimpelCom and CEO of LetterOne, complained that telcos know far less about their customers than Internet players do and are also lagging on service development. Among his objectives he aims to simplify tariffs and make huge cuts to IT expenditure through digital transformation.
Such moves might ultimately help VimpelCom to boost its valuation to somewhere between ten and 12 times its earnings, Reznikovich has suggested. Currently worth $7.85 billion on the Nasdaq, the operator now trades at just 2.7 times its EBITDA last year. If a $50 million investment in FreedomPop can bring LetterOne even marginally closer to its financial goals, it will have been money very well spent.
— Iain Morris, , News Editor, Light Reading