Russian investors aim for higher growth

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Russia used to be an emerging market, but now mobile is reaching saturation and Alfa Telecom's Altimo arm is seeking high-growth investment opportunities in selected markets around the world. Alan Burkitt-Gray interviews Altimo's CEO, Alexey Reznikovich

Alexey Reznikovich: We are a minority investor. We do not take active positions in any of our investments

We are not a Russian company any more, says Alexey Reznikovich, CEO of Altimo. This seems as somewhat surprising declaration by an executive with a Moscow phone number on this business card.

"The majority of our assets are outside Russia, particularly after the latest acquisition that we made in Turkey last November. We acquired a stake in Turkcell. It was the largest Russian acquisition ever made beyond the boundaries of Russia, a $3.3 billion acquisition." The largest "in any sector ever", he notes, not just in telecoms.

The reason for this international investment — and more is planned — is that the mobile market is reaching saturation in Russia. Altimo — "It stands for 'Alfa Telecom International Mobile'," he says — is looking for new growth markets.

More recently Altimo has taken a further step in its international development. In September 2006 it appointed an international advisory board of leading people from the business and political world.

The member of the new board best known to the telecommunications industry is Julian Horn-Smith, the last of the original Vodafone team to leave the company after 22 years. He retired in August 2006 as deputy chief executive of the group.

There are three other members so far: Douglas Hurd, former UK foreign minister; Roderic Lyne, a former British ambassador to Russia; and Peter Watson, former chairman of the US International Trade Commission. They will meet at Altimo's new London offices three or four times a year. They will advise Altimo "as we consider and develop the international business strategy over the years ahead", says Reznikovich.

International company

The advisory board was appointed as Altimo moved into the London office as its joint group headquarters. "Altimo has now become an international company, so the opening of the London office is an expression of our commitment to the internationalism," he says.

So, back to Turkey. Why Turkcell? "The market was attractive. Our strategy is focussing on emerging markets, and the name Altimo stands for 'Alfa Telecom International Mobile'," he says. "International primarily means emerging markets. We have experience primarily in the Ukraine and the CIS and we want to use this experience in countries such as Turkey, Indonesia, India and other markets."

They "are very similar to Russia, like Russia was a couple of years ago", he says. "Turkey was on our radar screen. Also a couple of million people travel from Russia and Ukraine to Turkey every year on vacation. I think it is popular tourist destination for Russians. So the roaming is huge. And the Turkish market has been growing very well and will still grow for a couple of years."

Given Turkey, why Turkcell? "Turkcell is the leader, with a 63-64% market share. It was very clear that if we are to invest in Turkey, it has to be Turkcell." Altimo wants to invest in number one or number two in any country. "Turkcell at number one was always our target." An opportunity arose when an existing shareholder, Çukurova, decided to sell part of its stake.

Turkcell was a successful company, so what has Altimo added to its strategy? "Nothing," says Reznikovich. "We believe that adding nothing is sometimes much better than adding anything at all."

Independent management

Altimo's philosophy is not to get involved in operational management. "We are a minority investor. We are a private equity fund/holding company, so do not take active positions in any of our investments. We'd rather try to hire professional independent management, who have experience and expertise of the industry and they usually lead the company."

Altimo does get involved in strategic decisions, he says, "M&A decisions and some budget and financial decisions at the level of the board of directors only. That's our investment approach."

But he mentioned that among the justifications for investing in Turkey were the roaming charges that Russian and Ukrainian tourists were paying. Is that a strategic decision? "We know of course that Turkcell has been in touch with Vimpelcom for some time." And they are developing a strategy. "We as shareholders in both companies would be supporting these initiatives, but we will not be getting involved in operational decisions on the tariffs and charges and so on."

What lessons from Russia and the CIS could Altimo apply to Turkcell, if Turkey is something like Russia was a few years ago in terms of mobile rollout? "I hope that there could be some cross-fertilisation both ways," says Reznikovich, "because in many dimensions Turkey is a more developed country than Russia."

In terms of experience, it is investment expertise rather than operational expertise that he was thinking of. "We consider ourselves experts in the investment business," he says.

Sharing expertise

"I think we know how to make an investment in countries like Russia, Ukraine and Turkey, and hopefully Indonesia and some other markets. So we are trying to replicate this specific expertise — not so much the operational expertise of our entities. It's up to operational managers, if they decide so, to share expertise. It becomes easier if they have the same shareholder, because we can facilitate this."

There is no formal structure, but it should happen in an informal way, he hopes.

Reznikovich is one of the new Russians, cosmopolitan and educated internationally. He was born in 1968, so was only 23 when the Soviet Union collapsed on December 31 1991. He graduated from the economics faculty of Moscow State University and then took an MBA from Georgetown University in the US and Insead in France in 1993.

Early jobs were at Procter & Gamble in Italy and Transworld in the US, before he became a partner at McKinsey. He set up an internet café chain.

He has been a director of Alfa Group, Altimo's parent company, since 2002, and has been Altimo's CEO since June 2005, with overall responsibility for business development and management supervision of the group's assets. He's also a director of VimpelCom, one of the group's main investments.

He's looking at a number of international investments — Indonesia, India, Vietnam "and some other markets in south and south-east Asia", he says. "It's premature to speak of any deals, but we are definitely taking a very hard look at that."

Are there particular companies in mind? "All these companies are on the radar screen," he says. "There are two or three companies in each market. We're looking at all of them." Altimo will be ready "if the opportunity arises, as happened in Turkey".

Those three countries in particular "satisfy the criteria that we use for making an investment — the criteria being the GDP per capita, level and growth rate, the penetration of mobile telephony in the market, the intensity of competition, profitability of the industry, the industry structure, the political environment and risks, and the size of the country".

Target markets

In 2005 Altimo conducted "a massive study of pretty much all markets, in Africa, the Middle East, Latin America and Asia". After analysing the results the company decided Indonesia, India and Vietnam were the main targets.

Africa and the Middle East? "Not right now," says Reznikovich. "If you go to Africa you really need to take a cluster approach. You have to invest in many countries. It doesn't make sense to have one or two investments on a standalone basis — from a logistical standpoint, a management standpoint, and so on. It's much better to have a cluster."

But if you invest in Indonesia, he notes, or Vietnam or India, "each of these countries is so large in terms of population that it could be sufficient in order to rationalise the investment and the management time, and the travel time, dedicated to that country." And those markets "are more stable than many of the Africa markets".

What about European markets, west of Ukraine and Russia? "Not interested," says Reznikovich. "The penetration of mobile telephony is very high in those countries and therefore the potential for growth is low. We invest only in the countries with a reasonably high growth potential."

He's looking for 20-30% penetration, "but not 90%", he says. "Even in eastern European countries like the Czech Republic and Hungary it's high." In Russia the SIM card penetration is around 80%, he says, "but many people have double or triple SIM cards, and the real penetration is around 60%". In Russia he expects another year and a half of growth, 2006 and 2007 — which is why he's looking for other growth markets.

In Ukraine the SIM card penetration is around 60-65% "and the real penetration is around 50%, so Ukraine has maybe two years of growth to go".

Reznikovich's group has the same approach to all its investments, including those in Russia and Ukraine, he says. "We never hold majority control and we never get involved in the operations. The only thing we do is participate in the board."

Sometimes he talks to vendors. A couple of years ago "we helped VimpelCom management to push down the prices and our people were involved in some negotiations". But he didn't want to say any more about that on the record. Whatever it was, "it doesn't happen on a regular basis".

Vodafone founder Julian Horn-Smith is a member of Altimo's new international advisory board

Altimo's major investments

Altimo is a leading private equity group which is used by Alfa Group as its exclusive vehicle for making investment into telecommunications assets in Russia the CIS and other promising emerging markets.


Founded in 1992, VimpelCom is one of the largest wireless telecommunications service companies in Russia. It operates under the Beeline family of brand names, which are among the most recognized names in Russia. VimpelCom's licence portfolio covers 136 million people, approximately 94% of Russia's population. VimpelCom is aggressively expanding to develop the Russian regional cellular telecommunications market as well as to other promising emerging markets. Shares traded on New York Stock Exchange.


MegaFon is the third largest provider of wireless telecommunications services in Russia. Its licence portfolio covers 145 million people, or 100% of the population. The company is actively seeking to obtain 3G licenses to provide third generation mobile services and currently builds and tests pilot 3G networks in Moscow and St Petersburg.


Kyivstar is one of the leading providers of wireless telecommunications services in Ukraine. The network covers more than 1,200 Ukrainian cities and towns including all regional centres, over 19,000 villages and all the main highways of national and regional importance. The company is also licensed to operate mobile, city, long-distance, and international phone networks. Additionally, Kyivstar holds licences to build and maintain its own fixed-line networks and to organise data transmission networks.

Golden Telecom

Founded in 1989, Golden Telecom is a leading facilities-based provider of integrated telecommunications and Internet services to businesses and other high-usage customers and telecommunications operators in major population centres throughout Russia and other countries of the CIS. Shares traded on Nasdaq.


Turkcell is the leading GSM operator in Turkey with over 27 million customers and a 65% market share. Turkcell is the first Turkish company to be listed on the New York Stock Exchange and also trades on the Istanbul exchange.