FOCUS: VimpelCom Ltd to turn into VEON to mark value-adding tech focus

By Yekaterina Yezhova

MOSCOW, Mar 13 (PRIME) -- Amsterdam-domiciled VimpelCom Ltd., the sole owner of Russian mobile operator VimpelCom, is rebranding into VEON as it is transforming into a global technological company with the eponymous Internet mobile platform, which will work in all 12 markets of its presence soon. Analysts said the giant will win from the move since technological companies’ value is higher than that of telecommunications firms.

“In the past few years, the telecom industry’s performance has been lackluster in many markets across the world. Growth has been elusive, even in emerging markets, and the industry has failed to reinvent itself,” VimpelCom Ltd. CEO Jean-Yves Charlier said in his blog after announcing the news.

“Our industry is at a crossroads and in desperate need of reinvention. The sector has lacked meaningful engagement with customers, particularly in prepaid markets where customer loyalty has been limited at best. It risks simply becoming dumb pipes for others, as consumers and businesses communicate, share and socialize for free through fast-growing OTT players.

“Worse still for us, VimpelCom Ltd. was caught in the headwinds of the currency devaluations in emerging markets as well as underperforming compared to other industry players, as it grappled with a weak balance sheet, poor financial performance and inefficient operations.”

Spokeswoman for VimpelCom, Anna Aybasheva, said the Russian unit and its Beeline brand will stay unchanged.

Senior analyst at Zerich Capital Management Viktor Markov said tech companies cost more today than telecom stocks, and it is more prestigious to be named as such.

“Customers associate VimpelCom Ltd. with a Russian company, but the group is present in 12 countries and plans to expand its activities and geography. That is why a change of the name will cement the company’s international status,” Markov told PRIME.

“Russian shareholders of VimpelCom Ltd. have recently diversified the business through purchasing assets abroad. And rebranding is in a general flow of business development.”

LetterOne of Russian businessmen Mikhail Fridman, German Khan and Alexei Kuzmichyov owns 47.9% of VimpelCom Ltd.’s common and voting shares, while Norway’s Telenor holds 23.7% and wants to withdraw because of the lack of control. The Amsterdam-based company’s involvement in a corruption case in Uzbekistan was also rumored as one of the reasons.

Natalya Milchakova, deputy director of Alpari’s research department, explained rebranding by two factors. “First, the company’s plans to get listed on the Euronext Amsterdam stock exchange this year to attract new investors after the sale of shares by Telenor. Second, it’s the launch of the Web platform, which the company started promoting in Europe earlier than in Russia and which explains its intention to become ‘a global tech leader’,” the analyst said in a research note.

“Earlier, VimpelCom Ltd.’s management said it plans to receive up to 40% of revenue from advanced services, including mobile banking and so forth. The company also intends to cooperate with big providers of Internet services, for example Uber.”

VEON is the name for the company, while rebranding is subject to shareholders’ approval on March 30, and the Internet platform, which will start working in Russia in April–June.

The platform is a messenger where messages and calls between its users are free, and it works even with a zero balance on the mobile phone account. The application also integrates partner services, like payments, video and music. VimpelCom Ltd. already announced partnerships with MasterCard, Deezer and STUDIO+ (Vivendi).

“Our partnership with MasterCard will enable our 235 million customers to benefit from the secure, convenient, one-click mobile payment option, MasterPass, to buy mobile airtime or make e-commerce purchases,” Charlier said. Vivendi will provide short feature movies and Deezer will share its music library with VEON clients. New partnerships will be unveiled during the platform’s unrolling.

VimpelCom Ltd. will carry out a secondary listing in Europe in April–June, following doubling of its free float to 20.1% in July–September 2016. The company will list under its new name VEON and wants to broaden its investor base, with potential inclusion in European indices and extended stock coverage. It trades only on the NASDAQ now.

“The listing will allow the company to have one more trading floor. In the future, LetterOne could also go public to monetize its business,” Markov from Zerich said.

“Investors are mainly guided by financial results of a company. A change of a name does not alter its value. The move could improve its prestige and attract new shareholders. If a technological component in business expands, VEON’s value will grow.”

Milchakova from Alpari said it is still hard to estimate impact from rebranding on the company’s financial results, because it is unclear how VEON’s messenger will be monetized. “The news about the European listing in addition to the U.S. one could support the quotes in the short-term,” she said.

Sberbank CIB said that the platform can be monetized through sharing revenue with partner services, and the management expects the service to become an important growth factor in the future.

“We think the Internet platform could entice clients, but its success will depend on an attractive list of partner services, as well as costs and the speed of engaging a critical mass of clients,” Sberbank CIB said in a research note.

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