VEON CEO to boldly go where few telcos have won beforeVEON CEO to boldly go where few telcos have won before
Highly regarded for the success of his digital strategy at Turkcell, Kaan Terzioglu is trying to repeat the same feat across one of the world's largest telco groups.
July 19, 2021
For someone in no apparent hurry to launch 5G, Kaan Terzioglu has some intrepid 5G ideas. Forget the old self-driving car and remote surgery cliches. The boss of VEON prefers the Star Trek universal translator that would – thanks to 5G's low latency – allow someone speaking Turkish, Terzioglu's native language, to carry on a seamless conversation with a Japanese monoglot. "A real universal translator could be possible over the next three to five years," he says. "When that happens, 5G has to be there for a bread-and-butter service."
Hired in February last year as co-CEO of VEON – alongside former Facebook executive Sergi Herrero – Terzioglu aims to boldly go where no one at VEON has gone before. In his own words, that means redefining the tired old relationship between a telco and its customers based on the sale of minutes and gigabytes. His ambition is to establish VEON as a "digital operator," providing not just raw data but an entire portfolio of apps and services.
With its 213 million customers, VEON has tried this before and failed. Under former CEO Jean-Yves Charlier, who left ignominiously in 2018, it embarked on one-size-fits-all approach to its disparate collection of businesses in Russia and various emerging markets. An app platform developed in London and at group headquarters in Amsterdam was intended for every country from Algeria to Uzbekistan, regardless of the circumstances. VEON has been dismantling that strategy ever since Charlier's departure.
Figure 1: VEON CEO Kaan Terzioglu says app development is more important than 5G.
Much of that dismantling happened under Ursula Burns, an American executive (and former CEO of Xerox) who played a sort of caretaker role at VEON between Charlier's departure and the arrival of Terzioglu and Herrero. Her successors have swept away the final traces of centralization, hollowing out the Amsterdam headquarters. Individual operating companies are more autonomous than ever before. The role of group chief technology officer has been scrapped in a sign of the change.
"How can one solution fit?" Terzioglu tells Light Reading. "We need to be a blue-chip company in Bangladesh, a blue-chip company in Pakistan, a blue-chip company in Russia, and that comes with certain types of capability and empowerment. Those people, those local boards and local company management, need to make a decision about their customers and what they need."
To seek out new applications
Decentralization could bring a different set of challenges, though. Thanks to cutbacks and prudent management under Burns, VEON's profitability has improved despite tough operating conditions. In 2020, it reported an adjusted margin for earnings (before interest, tax, depreciation and amortization) of 43.3%, up 2.6 percentage points in three years. The risk now is that decentralization results in duplication of resources and erodes profitability.
Terzioglu acknowledges there is "delicate balance" to be struck. While VEON has ditched centralization, one measure designed to counter any loss of efficiency has been the establishment of virtual forums for the exchange of ideas about best practice. The usual "oversight mechanisms" for a publicly listed company are also still in place, he says.
YoY% in local currency
-4.3 percentage points
-4.4 percentage points
EBITDA margin adjusted
-0.1 percentage points
-0.2 percentage points
Net profit before one off items
Rather like his European counterparts, he is also exploring opportunities to spin off infrastructure assets. VEON has now established separate legal entities for its mobile towers in Russia and Pakistan and it is working on similar moves in Ukraine and Bangladesh. "Tower operations and infrastructure operations require scale to be more profitable," he says. "Sharing towers and infrastructure is a fact of life and it will become unavoidable in future for any operator."
But none of this vindicates Terzioglu's strategic vision. To critics, over-centralization was probably not VEON's main problem in the past. The bigger one was trying to compete outside its comfort zone of being a dumb pipe. After all, there are few international examples of thriving "digital operators" that come from a telco background.
Terzioglu would have been chosen for the top job at VEON largely because of his track record at Turkcell, a Turkish mobile operator revered by some European telco executives as a rare digital success story in telecomland. By his own admission, that is partly because Turkey has not been infiltrated by US big tech to the same extent as more developed European markets. And the same holds true for the countries in which VEON today operates.
"I listened to this story at Turkcell over and over again, and I am so proud to prove it otherwise," says Terzioglu. "Why are you doing TV when everyone watches Netflix? You know what they call that everybody? Three percent, in my markets, and 97%, of which 60-odd percent is going to be meeting a smartphone for the first time in their lives over the next 12 months, is going to be looking for local content."
He resists the suggestion VEON will compete head-to-head against the likes of Netflix or Spotify. The opportunity, he says, is to provide local alternatives as well as applications in some overlooked areas that have become more important during the pandemic, including education, healthcare and security. "This portfolio of digital services, customized for every country based on their priorities, is going to be our core business."
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Just where is VEON in this process? For one thing, Herrero has stepped down from the leadership role into an advisory one, leaving Terzioglu solely in charge. VEON can also reel off a list of applications that have been launched in individual countries, including Toffee, a TV service it claims is now the most popular video-streaming app in Bangladesh, and JazzCash, a payments service in Pakistan.
It has also recruited software talent in some key markets and now employs between 300 and 400 developers in Russia, another 300 in Kazakhstan and about 100 in Uzbekistan, according to figures shared by Terzioglu. "In none of the countries are we at the stage where we have a complete portfolio of apps, but in various countries we have different flavors."
An attempt to develop a universal translator app within VEON is possible, says Terzioglu, although he clearly sees that as an initiative and product that would have a much broader reach than his own organization. "If I see any opportunities – and make this an open invitation – I will be more than happy to support it."
5G: the final frontier
On the infrastructure side, though, he does not see 5G as any kind of priority in VEON's markets, where 4G is still available to just 40% of the population on average. "I want to stay away from this vanity of 5G. There is a responsibility to bring 4G to everyone." VEON has added nearly 25 million 4G customers in the last year, says Terzioglu, and penetration is now rising fast.
In Russia, specifically, the 4G investment has been needed purely to restore competitiveness. Three months before Terzioglu joined, VEON partly blamed underinvestment in its Russian 4G network for the loss of about 4.5 million mobile customers between September 2017 and March 2019, when it served about 54.2 million altogether.
Figure 2: Veon's network footprint (Source: VEON)
To boost 4G coverage, it spent about 14.8 billion Russian rubles ($200 million) in the recent first quarter, about 35% more than it invested a year earlier. While there was another disappointing fall in the number of mobile customers, which dropped to 50 million from 53.5 million a year earlier, VEON did manage to add another 2.4 million 4G customers, giving it 23.1 million in total.
"I think we addressed those issues over the last 18 months and today I am very proud of our network quality in Russia and especially in Moscow and St Petersburg," says Terzioglu when asked if the Russian business is now on a par with MTS and MegaFon, its two main rivals.
Resistance to 5G is unsurprising given the investment demands and the lack of any 5G competitors in VEON's markets. But it could provoke concern these countries risk falling behind others in the race to build more advanced networks. If applications suddenly emerge that do require 5G capabilities, those markets could lose out economically.
That is perhaps a bigger worry for governments than it is for individual service providers. But Terzioglu does not sound convinced that 5G will be needed soon outside parts of the business sector or communities where it might support a residential broadband service. "Frankly speaking, I see a digital operator value proposition being more relevant than increasing speeds," he says. If he can make his vision a reality, few will disagree.
— Iain Morris, International Editor, Light Reading
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