Jo Lunder: We will deliver on our promise of $2.5 billion in
merger synergies 
                                            
                    
Jo Lunder, CEO of VimpelCom since July 2011, is hoping for a period of stability in the company after two huge transformational deals in the past 15 months.
But he hopes to use the expanded scale that results from those deals as a way of bringing down costs across the company. Vendors can expect some tough talking from the company’s new headquarters in Amsterdam.
“We haven’t taken anyone out yet,” says Lunder, speaking of the group’s roster of suppliers, “but we’ve asked everyone to align their terms and prices.” The response? “I think they are being very cooperative,” he says. “We are pleased with the relationship they have with the new group.”
The two deals were a merger with Ukraine’s Kyivstar in October 2010 followed by the purchase of Wind Italy and a controlling 51% stake in Orascom Telecom Holding in April 2011.
One further deal was dropped. VimpelCom owns 49% of Russia’s largest retail chain, Euroset, bought in 2008 with an option to take the stake to 100%. “We decided not to execute on that option,” says Lunder. “That has now expired. We’d rather stay focused on the [existing] business and focus on increasing our cash flows. It was not the right use of resources to buy the company. We have a good distribution presence in Russia.”
Headquarters moved from Moscow to Amsterdam after the Kyivstar deal. That merger “made the company change dramatically”, says Lunder. “It made us change the way we organise the business.” The company runs no services in the Netherlands, so the Amsterdam office could be set up “with a blank sheet of paper”, he says. “We have a lean and mean HQ, with a 150-employee limit. It’s very light.”
Procurement is a central function, along with the usual range of financial and funding tasks. But outside the headquarters the group has kept a decentralised set of five independent business units: one each for Russia and Ukraine, one covering Europe and North America — essentially Wind Italy and Wind in Canada — plus another covering Asian and African interests and the fifth unit those in former Soviet states such as Kazakhstan, Uzbekistan, Tajikistan, Armenia, Georgia and Kyrgyzstan.
“We are keeping strong local management cultures and the local relationships with customers,” he says. The company is also keeping local brands — such as Beeline in Russia, Kyivstar in Ukraine, Djezzy in Algeria, Banglalink in Bangladesh and Telecel in Zimbabwe, as well as Wind in Italy and Canada. (It should be pointed out that Wind in Greece is now a separate company: heavily indebted, it was restructured and bought by its creditors from Orascom in 2010.) 
                    
                    
$2.5 billion synergies 
                    
The central procurement function — which Lunder calls “the biggest advantage of a cross-border merger like this” — is being introduced gradually, but it is a key part of the rationale behind the 2011 deal. The company estimated $2.5 billion synergies at the time of the merger, “and we will deliver that”, he says. “We are approaching that number.”
Those synergies are likely to be achieved through lower prices, rather than by eliminating some vendors, says Lunder. “We would like not one or two but a broader base of vendors. We don’t have any desire to limit the number of vendors.”
But under central direction VimpelCom is likely to adopt many of the cost-saving strategies that the industry is now following — measures such as network sharing and tower sharing, and outsourcing part of the network “to famous vendor names”, he suggests.
Beeline in Russia and Wind in Italy are “the two big elephants” of the expanded VimpelCom: they represent 70% of the company’s business.
But the potential is in the second tier of members of the group, “where 3G is not rolled out yet and where there is huge potential from the substantial data growth” that will happen as a result. In this group is Ukraine, the central Asian states, Algeria, Bangladesh and Pakistan, he says. “There are good cash-generative opportunities. We’re at an early stage of data growth.”
Below this is group three, “smaller operations with big potential”, but he warns that they “need time”: countries such as Canada, Vietnam, Cambodia, Laos and African assets, in Central African Republic and Zimbabwe.
“It’s a quite unique combination,” says Lunder. Russia and Italy are “cash machines to maintain our dividend level to shareholders and to help the growth engines and the others in group three. “I like balance.”
Voice and data roaming will be centralised. “We are now a global group, and we have a lot of cross-border traffic. We want to capture the benefits of being global and we want to make sure we have the right terms and conditions.” 
                    
                    
Global roaming 
                    
He has set up an Amsterdam subsidiary “to manage global roaming partners” with local resources where appropriate. “This will be a company that will represent all our assets”, making sure the company benefits from the “scale and size of our outgoing traffic”.
There will also be central management of relationships with over-the-top companies such as Facebook, Google and YouTube. “Here you will see an advantage of being global.” Global agreements will be handled from the Amsterdam headquarters, he says. “You will see the results in the future of these global partnerships.”
There will be no global VimpelCom branding, he repeats. “To me even though the telecoms industry is global, the competition is local.” Customers know the operators in their own country, and when they go travelling they don’t scroll through the operators in the country they’re visiting and pick one by brand. Brand loyalty is irrelevant when you leave the country, “and there’s more to gain from the local market by keeping a brand. Don’t take the risk of rebranding,” he says.
“I have a fond belief in businesses being local and brand loyalty being local. That’s where we are today.” But, he adds, “in five years from now we will have to judge”.
Lunder has been CEO only a few months, but he has a long track record with VimpelCom. He was a member of the board of directors from May 2002 until May 2011, and was the chairman of the board from April 2010 until he was appointed CEO. For a couple of years back in 2003-05, he was chairman of the original Russian VimpelCom.
In 1996 it was the first Russian company to list its shares on the New York Stock Exchange. When it merged with Kvivstar in 2010 a new VimpelCom was set up, taking over the NYSE listing, to own the Russian and the Ukrainian companies.
Last year’s deal, with Wind/Orascom, was more complex. It combined with an Italian company, Wind Telecom, which gave it 51.7% of Egyptian-registered Orascom Telecom Holding and 100% of Wind Telecomunicazioni, the Italian mobile operator.
“Orascom Telecom Holdings is still listed on the Cairo Stock Exchange,” says Lunder, who was appointed chairman of OTH in January 2012. There is a CEO, Ahmed Abou Doma, who reports to him and also looks after the interests of the minority shareholders. 
                    
                    
Naguib Sawiris 
                    
Orascom was originally chaired by Egyptian businessman Naguib Sawiris. According to Sawiris’s own website, since the merger he has focused on companies not included in the deal, including Egyptian operator Mobinil, in which France Telecom Orange has about 71%, and North Korea’s only mobile operator, Koryolink.
OTH takes prime responsibility for managing its interests, says Lunder, but coordinates closely with the VimpelCom group, “after a discussion on the best strategy — a focus on operations and on increasing cashflow”. It is “beneficial” for OTH to have an independent strategy: “They are two listed companies with different public shareholders but have the same view on business. We coordinate critical business processes and this is hugely beneficial for both.”
He’s looking closely at those international operations he earlier called “group three”, too. “We are doing a contribution analysis to see which we can develop and which we can combine with others.”
Decisions “could go either way”. Canada could go one way, Vietnam the other, he suggests. Some markets will take time to develop, “and maybe we would be better rolling out LTE in Italy”.
And that’s now a key ambition for Lunder and VimpelCom. After the industry’s transitions from fixed voice to mobile with 2G, then to 3G, “in certain markets we are on our way to 4G”, he says. “Mobile broadband will be a very, very strong product that will offer a lot of benefits for customers.”
The transition to 4G “will offer huge benefits for telcos in the next five to 10 years”.
Italy will “start rolling in 2013 in some regions”, mainly as a transformation of existing 3G spectrum, but Russia “has not even finalised its 3G rollout: 3G will be the focus in 2012”, he says. “Then when and if we have access to 4G spectrum we will again transform from 3G to 4G, starting with the most interesting markets — Moscow, St Petersburg and the other big cities.”
He wants to remain flexible. “VimpelCom is on a journey and what it will become is hard to predict today. We have always been innovative. We are driven by our entrepreneurial culture. VimpelCom will not look in five years as we are today. There is too much dynamism.” GTB 
                    
Further reading from Global Telecoms Business: 
Sawiris 'seeks expansion in Europe, Africa' 07 Feb 2012
Globalive 'plans to buy' Canadian rival 22 Dec 2011
Orascom to invest $70m in Zimbabwe unit 28 Nov 2011
Kyivstar and MTS Ukraine plan 3G tie-up 24 Nov 2011
VimpelCom appoints Telenor exec as COO and deputy CEO 21 Nov 2011
VimpelCom and MTS link for 4G infrastructure 28 Sep 2011