VEON – Transition from telco to consumer IP communications platform

Introduction to Veon

Geographical footprint and brands

Veon came into being at the start of 2017, a rebrand of VimpelCom. The Amsterdam-based telco was founded in its current form in 2009 when shareholders Telenor and Alfa agreed to merge their assets in VimpelCom and Ukraine’s Kyivstar to create VimpelCom Ltd.

Veon is among the world’s 10 largest communications network operators by subscription, with around 235 million customers in 13 countries (see Figure 1).

Figure 1: Veon’s geographical footprint (September 2017)

Source: Veon, STL Partners

The telco operates a number of brands across its geographical footprint (see Figure 2).

Figure 2: Veon’s brands (September 2017)

Source: Veon, STL Partners

Veon’s largest market is Russia, where it has over 58 million mobile subscribers, making up 24% of its global total. Pakistan and Bangladesh comprise its second-largest markets by subscribers, while it has over 30 million customers in Italy under its Wind Tre brand, a joint venture with CK Hutchison (see Figure 3).

Figure 3: Veon mobile customers by region, H2 2017 (millions)

Source: Veon, STL Partners

A brief history of Veon

  • 1992: Veon began life as Russian operator PJSC VimpelCom in 1992.
  • 2009: VimpelCom Ltd. founded as Telenor and Alfa Group (Altimo) agree to merge their assets in VimpelCom (Russia and CIS) and Ukraine (Kyivstar).
  • 2010: VimpelCom acquires Orascom Telecom Holding (operating in Pakistan, Bangladesh, Algeria) and Wind Italy from Egypt’s Naguib Sawiris.
  • 2017: VimpelCom Ltd. rebrands as Veon.

Enter your details below to request an extract of the report


The somewhat unusual development of both Veon’s shareholder structure and geographical footprint means the telco faces some unique challenges, but has also enabled a degree of flexibility in the company’s path to transformation.

Veon’s shareholder structure – an enabler of transformation

At the time of writing, Veon is 47.9%-owned (common and voting shares) by Alfa (via investment vehicle LetterOne), and 19.7% by Norway’s Telenor (with the remaining 32.4% split between free float and minority shareholders).

This structure means that the company is less beholden to dividend-hungry shareholders, allowing the telco more ease of alignment than many of its contemporaries. This extra “breathing space” also allows change to occur faster with fewer levels of managerial approval required, whilst the board of directors has given its backing to Veon’s transformation journey, offering full “top-down support”. Nevertheless there is some doubt about how the transformation plans will be greeted at local OpCo level, and the group faces some serious cultural challenges in this area.

Faced with lacklustre organic growth and in the face of headwinds of currency devaluations in its former Soviet markets, Veon has chosen to, in the words of CEO Jean-Yves Charlier, “disrupt itself from within”.

Reversing the revenue decline

Speaking at Veon’s rebrand in February 2017, CEO Charlier spoke of how the telco sector has been backed into a corner by aggressive disruptive start-ups like Skype and WhatsApp, meaning the industry now needs to reinvent itself and find new paths to growth.

The company began by improving its capital structure, in part through the consolidation of operations in two of its largest markets, with the mergers of Mobilink and Warid to form Jazz in Pakistan, and the formation of joint venture Wind Tre from Wind Italy and CK Hutchison’s Tre (3).

Veon states it has realigned its corporate culture and values, introduced a robust control and compliance framework, and significantly cut its cost base, and the operator returned to positive revenue and EBITDA growth in the second quarter of 2017.

Contents:

  • Executive Summary 
  • Introduction to Veon
  • Veon’s digital strategy
  • What are the strengths of Veon’s offering?
  • What must Veon do to succeed?
  • Will Veon make it work?
  • Introduction
  • Introduction to Veon
  • The path to total transformation
  • Veon’s digital strategy
  • Reinvent customer experience
  • Network virtualisation
  • The product
  • An omni-channel platform
  • The strengths of the holistic platform
  • Can Veon’s consumer IP communications proposition succeed? 
  • Can Veon beat the GAFA and Chinese giants to the market?
  • What must Veon do to succeed?
  • Conclusions

Figures:

  • Figure 1: Veon’s geographical footprint (September 2017)
  • Figure 2: Veon’s brands (September 2017)
  • Figure 3: Veon mobile customers by region, H2 2017 (millions)
  • Figure 4: Veon revenue and EBITDA, Q4 2015-Q2 2017 ($ billion)
  • Figure 5: Veon’s transformation from telco to tech company
  • Figure 6: Penetration of leading social networks in Russia (2016)
  • Figure 7: Veon IT stack scope of responsibilities
  • Figure 8: VEON app screenshots – a IP communication platform
  • Figure 9: Veon app access requirements
  • Figure 10: Comparison of consumer IP communications plays
  • Figure 11: Veon – a SWOT analysis

Enter your details below to request an extract of the report

Cloud 2.0: don’t blow it, telcos

Summary: enterprise cloud computing services need great connectivity to work, but there are opportunities for telcos to participate beyond the connectivity. What are the opportunities, how are telcos approaching them, and what are the key strategies? Includes forecasts for telcos’ shares of VPC, IaaS, PaaS and SaaS. (September 2011, Executive Briefing Service, Cloud & Enterprise ICT Stream) Apps & Telco APIs Figure 1 Drivers of the App Market Telco 2.0 Sept 2011
  Read in Full (Members only)    To Subscribe

Below is an extract from this 28 page Telco 2.0 Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service and the Cloud and Enterprise ICT Stream here. Non-members can subscribe here, buy a Single User license for this report online here for £795 (+VAT), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

To share this article easily, please click:



Introduction

In our previous analyses Cloud 2.0: What are the Telco Opportunities? and Cloud 2.0: Telcos to grow Revenues 900% by 2014 we’ve looked broadly at the growing cloud market opportunity for telcos. This new report takes this analysis forward, looking in detail at the service definitions, market forecasts and the industry’s confidence in them, and actual and potential strategies for telcos.

We’ll also be looking in depth at the opportunities in cloud services in the Cloud 2.0: Transforming technology, media and telecoms at the EMEA Executive Brainstorm in London on Thursday 10th November 2011.

The Cloud Market

Cloud computing represents the next wave of IT. Almost all organisations are saying that they will adopt cloud computing to a greater or lesser extent, across all segments and sizes. Consequently, we believe that there exists a large opportunity for telcos if they move quickly enough to take advantage of it.

Total market cloud forecasts – variation and uncertainty

In order to understand where the best opportunities are and how telcos can best take use their particular strengths to advantage of them, we need to examine the size of that opportunity and to understand which areas of cloud computing are most likely to offer the best returns.

Predictions for the size and growth of the cloud computing market are very diverse:

  • Merrill Lynch has previously offered the most optimistic estimate: $160 billion by the end of 2011 (The Cloud Wars: $100+ billion at stake, May 2008)
  • Gartner predicted expenditure of $150.1 billion by 2013 (Gartner forecast, March 2009)
  • IDC predicts annual cloud services revenues of $55.5 billion in by 2014 (IDC report, June 2010)
  • Cisco has estimated the cloud market at $43 billion by 2013 (STL Partners video, October 2010)
  • Bain expects spending to grow �?vefold from $30 billion in 2011 to $150 billion by 2020 (The Five Faces of the Cloud, 2011)
  • IBM’s Market Insights Cloud Phase 2 assessment of September 2011 sizes the cloud market at $88.5bn by 2015
  • Of that total, research by AMI Partners suggests that SMBs’ share of that spend will approach $100 billion by 2014 – over 60 % of the total (World Wide Cloud Services Study, December 2010)

Figure 1 – Cloud services market forecast comparisons

Cloud 2.0 Industry Forecast Comparisons Bain, Gartner, IDC, Cisco Sept 2011 Telco 2.0

Source: Bain, Cap Gemini, Cisco, Gartner, IBM, IDC, Merrill Lynch

Whichever way you look at it, the volume of spending on cloud computing is high and growing. But why are there such large variations in the estimates of that growth?

There is a clear correlation between the report dates and the market forecast sizes. Two of the forecasts – from Merrill Lynch and Gartner – are well over two years old, and are likely to have drawn conclusions from data gathered before the 2008 recession started to bite. Both are almost certainly over-optimistic as a result, and are included as an indication of the historic uncertainty in Cloud forecasts rather than criticism of the forecasters.

More generally, while each forecaster will be using different assumptions and extrapolation techniques, the variation is also likely to reflect a lack of maturity of the cloud services market: there exists little historical data from which to extrapolate the future, and little experience of what kinds of growth rates the market will experience. For example, well-known inhibitors to the adoption of cloud, such security and control, have yet to be resolved by cloud service providers to the point where enterprise customers are willing to commit a substantial volume of their IT spending.

Additionally, the larger the organisation, the slower the adoption of cloud computing is likely to be; it takes a long time for large enterprises to move to a new computing model that involves changing fundamental IT architectures and will be a process undertaken over time. It is hard to be precise about the degree to which they will inhibit the growth of cloud acceptance.

As a result, in a world where economic uncertainty seems unlikely to disappear in the short to medium term, it would be unwise to assume a high level of accuracy for market sizing predictions, although the general upward trend is very clear.

Cloud service types

Cloud computing services fall into three broad categories: infrastructure as a service (IaaS), platform as a service (PaaS) and software as a service (SaaS).

Figure 2 – Cloud service layer definitions

Cloud 2.0 Service Types vs. layers Telco 2.0 Sept 2011

Source: STL Partners/Telco 2.0

Of the forecasts available, we prefer Bain’s near term forecast because: 1) it is based on their independent Cloud ‘Center of Excellence’ work; 2) it is relatively recent, and 3) it has clear and meaningful categories and definitions.
The following figure summarises Bain’s current market forecast, split by cloud service type.

Figure 3 – Cloud services: market forecast and current players

Cloud 2.0 Forecast growth by service type Sep 2011 Telco 2.0

Currently, telcos have around a 5% share of the c.$20 billion annual cloud services revenue, with 25 % CAGR forecast to 2013.

At the May 2011 EMEA Telco 2.0 Executive Brainstorm, we used these forecasts as a base to explore market views on the various cloud markets. There were c.200 senior executives at the brainstorm from industries across Telecoms, Media and Technology (TMT) and, following detailed presentations on Cloud Services, they were asked highly structured questions to ascertain their views on the likelihood of telco success in addressing each service.

Infrastructure as a Service (IaaS)

IaaS consists of cloud-based, usually virtualised servers, networking, and storage, which the customer is free to manage as they need. Billing is typically on a utility computing model: the more of each that you use, the more you pay. The largest of the three main segments, Bain forecasts IaaS to be worth around $3.5 billion in 2011, with 45 % CAGR forecast. The market leader is Amazon with about 18 % share. Other players include IBM and Rackspace. Telcos currently have about 20 % of this market – Qwest/Savvis/Equinix, and Verizon/Terremark.

Respondents at the EMEA Telco 2.0 Brainstorm estimated that telcos could take an average share of 25% of this market. The distribution was reasonably broad, with the vast majority in the 11-40% range.

Figure 4 – IaaS – Telco market share forecasts

Cloud 2.0 IaaS Telco Forecasts Sept 2011 Telco 2.0

Source: EMEA Telco 2.0 Executive Brainstorm delegate vote, May 2011

To read the note in full, including the following additional analysis…

  • Virtual Private Cloud (VPC)
  • Software as a Service (SaaS)
  • Platform as a Service (PaaS)
  • Hybrid Cloud
  • Cloud Service Brokerage
  • Overall telco cloud market projections by type, including forecast uncertainties
  • Challenges for telcos
  • Which areas should telcos target?
  • Telcos’ advantages
  • IaaS, PaaS, or SaaS?
  • Developing other segments
  • What needs to change?
  • How can telcos deliver?
  • Telcos’ key strengths
  • Key strategy variables
  • Next Steps

…and the following charts…

  • Figure 1 – Cloud services market forecast comparisons
  • Figure 2 – Cloud service layer definitions
  • Figure 3 – Cloud services: market forecast and current players
  • Figure 4 – IaaS – Telco market share forecasts
  • Figure 5 – VPC – Telco market share forecasts
  • Figure 6 – SaaS – Telco market share forecasts
  • Figure 7 – PaaS – Telco market share forecasts
  • Figure 8 – Total telco cloud market size and share estimates – 2014
  • Figure 9 – Uncertainty in forecast by service
  • Figure 10 – Telco cloud strengths
  • Figure 11 – Cloud services timeline vs. profitability schematic
  • Figure 12 – Telcos’ financial stability

Members of the Telco 2.0 Executive Briefing Subscription Service and the Cloud and Enterprice ICT Stream can download the full 28 page report in PDF format here. Non-Members, please subscribe here, buy a Single User license for this report online here for £795 (+VAT), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Organisations, people and products referenced: Aepona, Amazon, AMI Partners, Bain, BT, CenturyLink, CENX, Cisco, CloudStack, Deutsche Telekom, EC2, Elastic Compute Cloud (EC2), EMC, Equinix, Flexible 4 Business, Force.com, Forrester, France Telecom, Gartner, Google App Engine, Google Docs, IBM, IDC, Intuit, Java, Merrill Lynch, Microsoft, Microsoft Office 365, MySQL, Neustar, NTT, OneVoice, OpenStack, Oracle, Orange, Peartree, Qwest, Rackspace, Red Hat, Renub Research, Sage, Salesforce.com, Savvis, Telstra, Terremark, T-Systems, Verizon, VMware, Vodafone, Webex.

Technologies and industry terms referenced: Azure, Carrier Ethernet, Cloud computing, cloud service providers, Cloud Services, Communications as a Service, compliance, Connectivity, control, forecast, Global reach, Hybrid Cloud, Infrastructure as a Service (IaaS), IT, Mobile Cloud, network, online, Platform as a Service (PaaS), Reliability, resellers, security, SMB, Software as a Service (SaaS), storage, telcos, telecoms, strategy, innovation, transformation, unified communications, video, virtualisation, Virtual Private Cloud (VPC), VPN.