As Light Reading reported in January, VEON, a major Eurasian telecom operator, has pressed the reset button on its "digital" strategy. The company, which reported $4.4 billion of revenues in the first half of 2019, raised eyebrows in 2017 with its announcement that it would launch its own VoIP and messaging app, competing with the likes of WhatsApp. The company's bold plan was to offer those apps and the accompanying data connectivity for free, while hoping to take a share of revenue from third-party services that it would recommend to users based on their profiles.
Unfortunately, the centrally planned proposition did not go down well with VEON's customers, who are located in culturally diverse countries including Russia, Pakistan, Ukraine, Algeria, Bangladesh, Uzbekistan, Kazakhstan, Kyrgyzstan, Armenia and Georgia. Algeria isn't even in Eurasia, as keen geography students will have noted.
As a financial analyst with investment bank Renaissance Capital, Alex Kazbegi had been a long-term critic of VEON, in particular its ill-fated digital app. So, when VEON announced in February that Kazbegi was joining as chief strategy officer, I was intrigued, particularly given that we had worked together at another investment bank, Citigroup, in the late 1990s.
I spoke with Kazbegi recently to learn what direction the company's digital strategy was taking since he joined. According to Kazbegi, the problem with the prior approach was that VEON's London-based digital development team had tried to force a one-size-fits-all app onto all the regional operating companies with very little localization. The app didn't have the scale of truly global players, yet wasn't sufficiently local to differentiate. "It was ten years too late and inevitably flopped," he noted.
"Now we say, the opcos [operating companies] know best. Our job at the corporate HQ is to provide support and guidance. The digital content initiatives need to come from the country operations. We are flipping the model on its head. Instead of a central strategy function dictating a common digital content approach to each country, the country operations are empowered to set their own agenda based on their better understanding of local tastes."
For example, the MyBeeline application was designed by the Russian unit and has a completely different look and feel to the MyJazz application designed in Pakistan. Moreover, while the Russian app focuses on content such as video, music and digital magazines, the Pakistan app offers content related to agriculture (such as weather forecasts), which is of interest to an agrarian population.
One example Kazbegi cites of a successful local initiative is digital financial services in Pakistan. "It is like a local version of M-PESA [the mobile money service that dominates the Kenyan economy]. We are exploiting the opportunities of a largely unbanked population." Kazbegi notes the local government is supportive of telco-led initiatives, such as electronic payments and biometric verification. VEON is not just offering these services to its own subscribers in Pakistan, but also plans to offer it to rival's subscribers. They are also considering expanding the offering to other emerging markets in which VEON operates.
Another example of localization that Kazbegi gives is the Beeline TV in Russia. VEON acts as an aggregator across three content providers and uses predictive analytics to recommend content. "People are often overwhelmed with content libraries. Our job is to offer them something that fits their taste." VEON has already amassed 1.5 million monthly users of the TV service in Russia and is thinking of rolling it out to other markets. Global players such as Netflix do not offer much local language content in these countries; this provides an opportunity for VEON to differentiate.
Another defense that VEON has against global OTT players is that the governments in the countries in which it operates have strict laws about data sovereignty. The requirement to store and process data locally within each country has deterred many international players. "It limits competitiveness for some western companies," says Kazbegi.
VEON is also taking advantage of customer analytics to sell additional services. The company collects data on the services and content its subscribers are consuming and combines it with third-party data to build a more complete profile of the customer. This has enabled them to create a credit score of its customers, which it offers as a service to banks. For example, if VEON sees a customer browsing an automotive website they might target them with offers for loans, in partnership with banks.
Investment to support the transfer of digital initiatives from the country where they were initially developed into another largely comes from the local operating companies themselves. To top this up there is a central investment fund, which operates like an internal VC fund. "But in order for the central fund to invest, they need to demonstrate to VEON Ventures that the service is really viable," notes Kazbegi.
VEON's new digital strategy lacks the headline-grabbing bravado of its previous approach. However, decentralized planning and localization of content in markets that are insulated from global Internet giants seems like a good alternative to the command economy of VEON's previous digital apparatchiks.
— James Crawshaw, Senior Analyst, Heavy Reading