Russian step

After 13 years at Telekom Austria, Boris Nemsic has moved to take on the role of CEO at Russian carrier Vimpelcom. He talks to Mike Hibberd about the two carrriers and his views on the industry.

The persistence of the board of directors at Russian carrier Vimpelcom finally paid off earlier this year, when-at their third approach-they persuaded Boris Nemsic, CEO of Austrian incumbent fixed and mobile carrier Telekom Austria, to move to Moscow. He assumed responsibility for Vimplecom on April 1st, after 13 years at the Austrian carrier. The last three of these were spent as group CEO and were preceded by nine years spent running the firm’s mobile arm, Mobilkom Austria.

Vimpelcom is a larger operation than Telekom Austria, with 57.8 million mobile customers across Russia, Georgia, Armenia, Tajikistan, Uzbekistan, Kazahkstan and Ukraine as of Q308. The firm also won licences to operate in Vietnam and Cambodia in 2008. Mobilkom counted 17.8 million customers at the close of 2008 across Austria, Bulgaria, Belarus, Croatia, Slovenia, Liechtenstein, Serbia and Macedonia.

But Nemsic argues the similarities between the two companies are more pronounced than the differences. “The number of countries in each portfolio is almost the same and both companies have a strong mobile arm and a smaller fixed operation,” he says. “There is excellent brand equity on both sides, both carriers have two new startups and, when you look at revenues, Telekom Austria makes about $6.5bn, while Vimpelcom is somewhere around $8bn.”

Nemsic gives two principal reasons for his decision to take on the Vimpelcom job in 2009, having twice declined in the past. The first of them, he says, was the fact that he considered his job at Telekom Austria to have been completed. “In 2008 we succeeded in achieving a lot of our goals,” he says. “Mobilkom Austria had the best year in its history; we had tremendous, double-digit growth in all KPIs on the mobile side. On the fixed side we took steps to improve cost control and showed a clear improvement in efficiency. And, in terms of the market, we had net additions on the fixed line for the first time in 12 years.”

This sense of completion contrasted with the prospect on offer at Vimpelcom, he says. In February 2008, Vimpelcom completed the acquisition of Golden Telecom, a primarily fixed line operator in Russia and the CIS. Nemsic’s experience at integrating mobile and fixed operations will be something he can draw upon in his new role, he says. “The acquisition of Golden Telecom is a huge step. It really changes Vimpelcom. And this job of integration has to be done now-and I’m talking about integration, not about convergence.”

There has been speculation that Nemsic’s move to Moscow could herald the development of some kind of relationship between Vimpelcom and Telecom Austria, the two firms have extremely complimentary footprints, after all. Nemsic dismisses this out of hand, though.

With 3G licences recently awarded in Russia, Nemsic’s expertise in deploying and operating mobile broadband networks and services will also prove useful. Mobilkom Austria was the first European carrier to offer commercial HSDPA services, he says, and today generates 33 per cent of its airtime revenues from data, principally access services.

These two tasks could be seen as competitive, of course. Telekom Austria’s fixed line difficulties-reporting net customer losses for 12 years-have been in part attributed to the tremendous success of the carrier’s mobile broadband offerings. Nemsic offers no insight into Vimpelcom’s projections for 3G deployment, promising to shed more light once he has settled in, but denies that there is a conflict between growing mobile broadband and fixed line services.

“I don’t see this as a competition. If I did I would have been against an acquisition of this type and I’m not, I’m very much for it. We can do a lot to benefit the customer, it’s up to us as operators to give the best balance to the customer,” he says.

He’s no more forthcoming on the prospects of further expansion for Vimpelcom, arguing that the current economic climate makes speculation unwise. Nonetheless, he adopts a philosophical air when asked how he approaches such challenging economic environment: “You know, that’s life. You just have to cook it as it comes.”

Not that he is content to let industry developments wash over him-this much becomes clear when he moves on to the topic of European telecoms regulation and its champion; European Commissioner for the Information Society and Media, Viviane Reding. Of Reding’s campaign to drive down international roaming rates, wholesale and retail, he says: “I don’ t know what her intention was, but the result is a situation that favours the global operators, because they are able to balance this between the left pocket and the right pocket.

“If an operator like Zain introduces a one-price roaming plan because the market says it is affordable, then I support it fully. But if you make a regulatory decision to say that one size fits all it cannot be in favour of the industry, nor in favour of the customers,” he says.

So is his move to Russia partly motivated by a desire to escape Viviane Reding’s regulatory reach? Nemsic laughs this suggestion off, protesting that he’s not running away. “I’m just saying these kinds of regulatory steps are simply wrong because they severely cut down the investment power of carriers. What we need in Europe is a knowledge society and if you take this money away from the carriers it will ultimately go against that knowledge society,” he says.

He does have some words of praise for Viviane Reding, though, praising her support for the digital dividend that would make spectrum in the 700 – 800 MHz range available for mobile use. “We need the digital dividend because if we do not put LTE into this spectrum range it will not fly. The proof of this is WiMAX: it cannot fly, because of economics and because of physics. Deployment in the 2.5 3GHz range cannot be done simply because of cost. There is no economic model that makes it affordable,” he says.

With this in mind, he sees little point in the presence of WiMAX at the 4G table. “We need one standard. And that standard appears to be LTE.”

As technology camps compete for deployments, carriers are battling against other companies for the end user relationship. Handset vendors, internet services firms, software houses; all seek to exploit direct customer relationships. For some operators this is a cause for concern and has led to protectionist manoeuvres like the banning of VoIP clients from handsets deployed on their network.

Nemsic claims not to be unduly worried, though. “This is a completely normal competitive situation where each branch of the industry is trying to get a foothold. At the end of the day all of them will get a piece of the cake because a lot of the services that will be provided by all types of company will be on a the basis of revenue sharing.”

He is dismissive however, of operators that are prepared to cede too much revenue and control to handset or service partners. The exclusivity deals through which Apple’s iPhone and Google’s two Android handsets have come to market are particularly dangerous, he suggests. “I think that the operators who are making these exclusive deals are weakening their positions severely. They risk becoming dumb pipes. In our life, our society, exclusivity doesn’t work, which is why in Russia, all three major operators carry the iPhone.

“Why should a vendor like Apple only target 30 per cent of the market when it can target 100 per cent? It doesn’t make sense and, when I look at the volumes for the iPhone, in my opinion they are too low,” he says.

Such a fate will not befall operations under his control, he says, arguing that the operator will always hold the strongest position in the fight for customer relationships through its control of the billing channel and the SIM card. Where firms like Apple and Google are limited to selling applications for their platforms alone, he says, operators can sell across the range of handsets and platforms that are in the market. “Only the operator can have all of these offerings in one place,” he says.

One topic on which Nemsic is uncharacteristically taciturn is the acrimony that has characterised relationships between Vimpelcom shareholders for the past three years. Altimo and Telenor in particular have been at loggerheads and Telenor’s holdings in the company were frozen in March following a dispute with a minority Vimpelcom stakeholder, Fairmex.

Such public discord between the parents cannot be good for the child, and it’s difficult to believe that this level of instability is not a cause of concern for Nemsic as he takes on his new role. Not least because there is a risk that it could divert him from the operational challenges he seems to so relish. But he offers no comment on the situation, stating only that be believes it will not distract him from the matters in hand.

Several times he says that he looks forward to speaking again, when he has established himself at Vimpelcom and is able to give more detail on the performance and prospects for the Russian carrier. It will be interesting to see what he has to say further on down the line.

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