Talking through adversity

Speaking with Velcom’s CEO, Helmut Duhs, World Finance finds out how, after being faced with hyperinflation and economic uncertainty, the Belarus-based company has found success

 
 

The last five years have been unique in Belarusian history. Until 2008, the country had been growing at roughly nine percent a year, and the telecoms industry was booming. An unprecedented number of people had access to smartphones and mobile internet. However, in 2011 the financial crisis finally caught up with Belarus, and the economy spiralled out of control.

Hyperinflation threatened the industry, with annual rates at more than 100 percent. Through this adversity, Velcom continued to grow, and it launched an intelligent micro-finance scheme allowing customers to continue buying and using the latest technology. Today, the company invests as much in this scheme as in all other areas of the business, ensuring growth and resisting the downward pull of the crisis.

The company operates under two brand names – Velcom and Privet. What is the relationship between both?
Velcom is the incumbent mobile operator in Belarus, and is focused on quality, while maintaining a business market share of 70 percent. Privet – which in Russian means ‘hello’ – is a simple product, without any obligations, or a binding contract.

You have reached your fifth anniversary with Telecom Austria Group. How have operations changed since then?
A lot of things have changed in this time. In 2007, Belarus was still in the golden age of mobile communication. Prospective growth at that time was dominating our business discussions. I was importing business knowledge from Austria and other highly competitive markets to help develop the Belarusian market. The influx of mobile communication services has doubled in these five years, reaching a level of near 120 percent. In the beginning of 2010, 3G technology was rolled out in Belarus. It was the last country in Europe to adopt this technological generation. The set up was well established already, which is why it became the fastest growing 3G market in Europe until 2011.

2011 was a complicated year for Velcom and Belarus, as the country suffered hyperinflation at more than 100 percent per year. The local currency was devaluated by 200 percent – where two-thirds of the value was lost in just two months. For technology importers like our operator, these are among the worst economic conditions possible. To be part of Telekom Austria Group in such an environment enabled us to keep our operations running, as we were provided with liquidity from international resources. This was necessary, and important to maintain our network.

Last year in Belarus we had moments where inflation was at five percent – not per year, but per week

Recently, America Móvil Europa became a big shareholder in the Telekom Austria Group, so even more know-how and resources, particularly relating to emerging markets, have become available. We have definitely had a rollercoaster-ride for five years. With huge growth and economic downturn, we have overcome most negative effects during 2012, and are back to regular operations again.

What other strategic partnerships do you benefit from?
In Belarus, if you invest in a long-term infrastructure project you need to have sustainable relations with your technology and distribution partners, which is standard in many similar corporations. Moreover, our experience with other market participants I would label ‘co-opetition’, a combination of co-operation and competition.

All retail-market activities are fierce yet fair competition. However, when shaping the marketplace we are regularly cooperating with others. For instance, before the UMTS frequency was available, we bought capacity from an EVDO operator that actually offered this technology already. We are engaged in sharing infrastructure with our competitors, and we also try jointly to develop the regulatory environment for this market.

SOURCE: WORLD BANKNotes: Figures post-2013 are World Bank estimates
SOURCE: WORLD BANK
Notes: Figures post-2013 are World Bank estimates

What investments will ensure better service for your customers?
We are striving to provide the latest technology, advanced enough to enable best customer experience. Currently this is 3G on specific rates up to 42Mbit per second. We have also invested in increasing the retail experience in our smart-stores. However, the most interesting investment we have made during the financial crisis over the past two years is offering microloans to our customers, enabling them to invest in smartphones. In times of high cost for consumers, we enable them to get a smartphone and pay for it over 12 or 18 months. So meanwhile, our investment in the customer allows us to grow, and increase our market share.

The outstanding amount of loans – where payment-discipline is quite high – reaches new network extension dimensions of our capital investment. That means that we invest as much in the customer as we invest in our infrastructure. The scheme contributed to make Belarus the fastest growing 3G market in the history of Europe. Our mobile-broadband customer base then increased within 1.5 years, from zero to more than 700,000 people, along with comparable positive results of fellow competitors as well.

Were there any unique challenges in the market for Velcom?
In terms of a market to invest in, Belarus is unique. The mobile telecommunication market in the country is very comparable to other markets in Europe. However, the Belarusian economic situation is much less predictable. In other western European markets, inflation level is up to five percent per year, which is perceived as high. Last year in Belarus we had moments where inflation was at five percent – not per year, but per week.

In order to cope with such an environment, companies have to be more flexible, and must understand the economics of specific business models much better, especially if there is a need for foreign currency. We tackled micro financing for terminals jointly with competitors to shape the regulatory environment. We also worked together with the government in order to ensure there was the ability to invest in the future.

How would you evaluate the business climate in Belarus?
The mobile communication market is the only market segment in the country where foreign investors are consistently active. This is a very positive example of Belarus showing that a good outcome is achievable for the customer, the company and the government under such a regime. Moreover, I tend to agree with the current IMF recommendation for Belarus to engage more with structural reforms.

How do you see the market in telecommunications changing in the next few years?
Business models for fast penetration, including highly subsidised handsets, are outdated. Operators have to concentrate on their value-chain – which is providing infrastructure services – as demand for broadband is not going to slow down. Commercialising of this growth is the key, and a positive coexistence with high-end players – which are the driving customers demand for telecommunication-service – will be a success factor as well.

How did you progress in the company to become CEO? How do you see your career progressing?
I never relied on past achievements, and I continuously strived to find new experiences, especially in moments when I was quite confident that what I was doing had reached a reasonable performance level. I keep on learning, and I think good performance always succeeds.