VEON, an emerging market telco operating in 10 markets that include, Russia, Algeria, Bangladesh, Pakistan, and a number of Commonwealth of Independent States (CIS) countries, believes that there is still a need for 4G infrastructure. The big problem is content. The pandemic may offer some opportunities for it to drive financial content through.

Sergi Herrero, Co-CEO of VEON, discussed with Emmanuel Daniel the importance of content in the evolving telco business and how the bundling of services destroys value.

Key points in the discussion include:

• Creation of financial content through 4G 
• Bundling of financial services is the best way to destroy value and therefore Herrero is focusing on targeted content such as telemedicine
• VEON, an underdog in emerging markets, believes that it can use the pandemic to build its business

Here is the full transcript of the session:

Emmanuel Daniel (ED): I'm very pleased this evening to speak with Sergi Herrero who is now in London, and who is the Co-CEO of VEON, an Amsterdam-listed telecommunications company, has most of its business in Russia and in other emerging countries like Pakistan and so on. 

Sergi Herrero (SH): Thank you so much for having me. I'm very happy to be talking with you today. 

We are headquartered in Amsterdam, but we are publicly traded in New York also, in the NASDAQ. We have two trading offices, and we operate in 10 markets. Russia is the biggest one, but we also have Bangladesh, Pakistan, Algeria and then another set of CIS (The Commonwealth of Independent States) markets like Ukraine, Kazakhstan, Uzbekistan, Kyrgyzstan, Georgia and Armenia to serve around 210 million customers.

ED: Sergigive me a sense of what the pandemic has meant to you as a professional, with all these experience behind you? What have you been thinking about and what are some of the opportunities that have come across for you?

SH: The pandemic for us, the first reaction was to be sure that our teams were safe and secure. Our industry it's quite exposed, and we need to ensure that the network is working. Our first focus was on the security and health of our teams. We were very fortunate that we had good protocols in place, so we had no issues in that regard. 

But immediately, my mindset shifted towards the opportunity. What this crisis is bringing is a confirmation of things that most people have in their mind, but they always said, ‘Yeah, maybe in a few years from now,’ or, ‘Maybe we need still a couple of steps’. This crisis is making very clear that digitalisation and moving to a cashless society, it's going to happen now. The sceptics, I think that they were convinced during this past eight weeks of being forced to be at home. And now it's a hyperinflation when it comes to the demand of the services – everybody wants to have it now. All the investments that perhaps were a bit delayed, now they are being accelerated. 

For me, it means a confirmation of what we already put in place eight months ago when I joined VEON. Perhaps it was the main reason for me to change from Facebook to join a telco in emerging markets. I'm a true believer of the capacity of identity. I think that identity and a mobile phone are perhaps the closest thing to a digital identity. The phone number is something that we all use on a day-to-day basis that we know by heart and that we even protect as much as we can, and we don't want to lose. Using that as a way to identify people in a safe and secure manner – and allow them and empower them to transact – for me was always something that we did in my previous life at Facebook and I wanted to implement in VEON. 

VEON has the luck of operating in places that are inconvenient and definitely in a developing stage. People could see it as an issue; for me, it was a blessing. We are in a very unique position to be the ones driving this wave of change when it comes to cashless and fintech because we know most of the customers – better even than the governments sometimes. If we can leverage that type of information to make onboarding and creation of accounts simpler, I think it's a win-win for everybody.

ED:  A number of developed countries’ governments have put in place guarantees and disbursement of funds to their respective economies. There’s the whole disbursement process taking place. Some of that disbursement is going through the banking system, and there will be two elements there: one would be identity, which is KYC, e-KYC maybe, and the whole onboarding process. Funny thing is that in many markets, the United Kingdom (UK), Germany, Singapore, Hong Kong, the disbursement process is already underway. But governments did not use this opportunity to onboard a lot of the fintech, the startup community, which had perfected identity as the first point of call, and then payments. They're not incorporating some of the latest infrastructure available in these two areas.

SH: There's different types of acceptance or embracing. I think that due to our work, we are close to the government. These discussions were asked trying to convince them in the past on the importance of having these systems connected. Now, it's the opposite, they are coming back to us and saying, ‘Okay, I know that you came up with these ideas, how can we accelerate them?’ Yes, I think that it was not fully built up, but the eagerness on the government’s side to make this thing happen is progressing quite fast. 

I give you the example of Pakistan. We are very close with the Pakistani government and we are already working on ways to disburse funds. Yes, the traditional banking system plays a role, but I think that the new players like us touch a segment of the society that is the one that perhaps has been most impacted in this crisis and the ones that perhaps are not bankerised. Including these types of players is very important to make sure that we have a successful approach.

ED: Do you have an opinion that emerging countries are easier to onboard – or rather to build this kind of infrastructure – than more developed countries with more developed banking regulations in place?

SH: The emerging economies are definitely more open minded when it comes to quickly changing the laws. Perhaps in the past, they were a bit reluctant, but now they arefully convinced that this is the way to go and adapting quicker. In more developed economies, changing existing regulation is always more complicated than building a new one. We have a bit of advantage when it comes to places like Bangladesh, Pakistan or even Algeria, where there's not a clear definition of e-money, and we can help carve out something that yes, it continues to be safe and secure for the customer, but at the same time we don't, I would say, preclude the lower tiers of the society to create a bank account or to have access to these types of services.

ED: Which countries do you think are further down the road? Just on the concept of identity, there's a lot of work being done. Some of the work on identities is blockchain-centric, trying to create that kind of mutually validating concept. And then there is the more straightforward telco/tech-driven process. Where do you come from and what are you seeing?

SH: Now you're putting me on the spot, because I'm definitely a believer of blockchain and the new approach that payments could take. I do believe that decentralising can add stability in these moments. But I would say, there are already governments using the traditional rails that are putting identity at the centre. 

Singapore is definitely one of the most advanced players when it comes to this area. In my previous life with Facebook, we definitely worked closely with the government of Singapore to try to build some type of identity that could serve also on the payments front. 

I think that the second one perhaps would be India, with UPI (unified payments interface) and the monetisation. That was a big push towards digital identity. The world was looking at what has happened in India and the results are quite positive. It's not perfect, but trying to solve issues for a billion people are not easy. We are seeing good positive traction. And now, other economies like the ones we operate in, we are definitely keen to implement some sort of monetisation because they see the values of onboarding people that were perhaps left away, but also it's a way to bring transparency to some parts of the economy. 

ED: Now that you are a chief executive of a telco company, do you see this differently from when you were involved in a platform? Would you see this differently if you were a service provider, like a financial institution? Are there differences in perspective?

SH: There's always this saying that the grass is greener on the other side, right? When I was at the platform side, we were always talking about the importance of getting the final mile when it comes to access to the customer and how the telcos were playing a very important role. If that role’s done properly, it could generate more value. 

You’ve seen today, the examples of Facebook investing in Reliance in India and other companies are doing the same thing. It's, again, another confirmation that perhaps the telcos are reclaiming a bit of their importance when it comes to managing identity. 

Now that I am in a telco, I fully believe it. We are still a bit behind, to be fully honest – we were very focused on deploying 4G towers – all the telcos’ mindset, we are changing that. That's also part of the beauty of VEON and why we have two co-CEOs. My focus and my background are mainly on new technologies, digitalisation, platformisation, also new ventures and additional businesses. But, the business still needs to be run. That's why my co-CEO adds a lot of value. He can focus on that area, be sure that the infrastructure is very efficient and very reliable – of course, at a good price – and then we can focus on building services on top of that. 

The situation is evolving in a way that there's going to be perhaps more concentration when it comes to providing services and players like us can become again relevant.

ED: I get this idea that your job as co-CEO is really to add on the content element, the revenue-generating element. In the 4G world, basically it was about streaming content and voice over IP (VoIP) and so on. The new agenda is already being forced onto you. Whoever is not investing in 5G is going to be left behind and you're the kind of emerging market player who needs to build it all up from scratch if you want to play. If not, you lose it. Strategically, what do you need to do to make that transition?

SH: The good thing is that 5G in our geographies is not going to come tomorrow. There's still a lot of room when it comes to 4G deployment and 4G adoption. Our main focus is to be sure that we get everybody to 4G – and when I say everybody, it means all the segments of population. We are trying not to exclude by acquisition power or other things, but our focus is a bit different. Instead of using the telco as a way to distribute only our services, we want to create new services.

We defined three clear verticals that for us are important. The first one is financial services. I think that with the opportunity that we have – not only in Pakistan, but also in Russia and even in Ukraine and Uzbekistan – we have something that is relevant in that area. The second piece is content. We have good operations when it comes to TV, music, and gaming. We want to develop that area. The final one is what we call big data and attic. We have a lot of data when it comes to our customers. These data can be fully anonymised, but still be used in a way to enrich credit scoring or ad targeting. It's something that we are starting to develop. 

For me, these three verticals are completely separate business that yes, rely on the connectivity side, but in the near future can be completely standalone. When we think about VEON, we are thinking about a portfolio of companies. One of them, yes, would be connectivity, but we're going to have three, four, or hopefully more in other verticals. It's becoming more of a holding of enterprises than just a telco player that is trying to do more things than telco.

ED: There's another model to portfolio companies, the API model, which is like a cloud sort of a structure, which appeals to you more now, because the cloud structure is one where you don't own a portfolio of companies, you basically create an ecosystem of players sort of leveraging off each other and you probably make money from a subscription model or something like that. Where are you now? Is it right, as a telecom player, that you need to own the assets that you're creating? 

SH: We want definitely to own the assets that we create, but we don't want to create them only for our subscribers. That, for us, is a big difference. We are seeing products that are being used, actually, in just a mere area of our customers that the majority of the traffic comes from people that are not our telco customers. We want to continue in that path and create products and services that are relevant for people. If they are a customer of our telco business, fantastic; if not, not a big deal, because we're going to create new revenues and new monetisation streams. 

The focus there also is on growth. At this point, we are not focusing on monetising, basically because we are just scratching the surface. I'll give you the example of Pakistan. We have JazzCash with 8 million customers, but if I compare with Jazz the telco, there are 62 million there. I'm like, what, 12% of the potential users in Pakistan, so it's very early to say that we are ready to start monetising. Our focus is on growth. Even with what we're seeing, it's like double-digit growth in this ecosystem. So, for us, the focus there is persons, customers, product-centric and then at some point, if we need to monetise, we'll think about it. 

Content is an easy one. We don't need to reinvent the wheel. There are three paths that are already been defined. The first one is ad base, and it's something that is working quite well. I think they'll have a good position there. Then, you can also go with subscription for some premium content, or even pay-per-view when it comes to live events like music or sports. 

We just piloted in Russia, for example, a live concert. It was something that we never did before, but with COVID, we wanted to improvise. We put this conference with Russian musicians and the success was phenomenal. We had more than 200,000 people joining into this concert, and the segment of population that was joining was very interesting because it was between 32 and 38 years old. It's definitely the type of people that we want to engage that perhaps were not even customers of Beeline telco, but they feel that this is a good asset and a good product so they want to participate. 

There's another piece about open APIs that we are trying to pilot. We were not on the forefront of these technologies. Now, we are catching up, specifically in Ukraine. We have an open API project to allow not only startups but also banks and financial institutions to connect. We are going to deploy that and accelerate, so it's more about creating things that matter for our customers than trying to be two steps ahead.

ED: In the area of payments, let me just do a thought experiment with you. When you take something like M-Pesa in Kenya, that was a telco-led initiative. But when they tried to replicate it in Nigeria or in South Africa, that didn't work too well because they already had very developed payments industries. On top of that, payments today, you have new things coming on, like central bank digital currency (CBDC). You have JazzCash in Pakistan, there's every reason that that will be overtaken by the central bank at some point. How's your thinking on payments evolving? Your personal thinking as a professional who has seen this evolving, and maybe you put in there something about Facebook. Do you think that Libra will ever come out or is Libra kind of a red herring? Is there something else that will probably be more successful?

SH: As I said, I really believe on blockchain and decentralisation, especially when you have central banks that print money with no limit. Having a limited quantity when it comes to the money, it makes a lot of sense. But with impacts to the day-to-day, I think we are still far away from that. There're things that you can do, but it's a subset of people that are using it. 

Perhaps you and I, we can have an Ethereum wallet and transact with USD in a virtual way. Most of the population are not there yet. That's exactly where the value of JazzCash really lies. We're talking about countries like Pakistan, Bangladesh that are emerging. Most of the population is not being bankerised and left away, they cannot open a bank account. We can help them onboard. Then if they transact with rupees – or at some point with digital rupees – it's, I would say, less relevant. 

The way we are building JazzCash, it's completely agnostic. If tomorrow we want to treat Bitcoin, Ethereum or whatever it is the cryptocurrency that the central bank creates, we can do it. At the end, for us, it's an onboarding mechanism. It's a KYC approach, where we are saying, ‘this person is really this person’ and, based on the documents that this person provides, can transact up to a certain amount. The things that they can do, it's what they want to do, basically, which is send money to family and relatives across the country, or even remittances across borders, pay their invoices when it comes to gas, electricity or even taxes – the government is very keen to develop that area – and finally, merchants. There's been a big push and a big advance in JazzCash with the focus of merchants. Until now, our merchant provision was not very strong. With the partnership with MasterCard that we recently signed, there's definitely an acceleration on providing merchants with tools that are non-existent in Pakistan – not only about QR codes, but the way to create a point of sale with just a phone. For me, those changes are more profound and more needed than the crypto and the blockchain developments that will come, but it will not be effective if we don't have this type of infrastructure.

ED: What's interesting is, in India, for example, there’s Reliance and Reliance Jio, they seem to have lots of capital to be able to wipe out any alternative proposition on price alone – there's a capital war going on, which really is, in a way, senseless. VEON, being a listed company with responsibility to shareholders and so on, you can't play that capital game in the way that Reliance does. How do you think about blatant capitalism or price-destroying capitalism?

SH: There are very few companies that can play the game that Reliance is playing. You can say that it was a bet, personal bet from their founder and CEO. 

We are approaching it in a different way. Focusing on product and customer, you can do as many things as you need. At the end of the day, the price is not that relevant. We are focusing on user experience and user proposition. That being said, we are in a very fortunate position, as we recently published in our earnings call, we are sitting on a $2.7 billion liquidity so we can act when necessary to either acquire or finance these types of projects. But also, our shareholders are very keen to help us in this area. When you bear the potential of VEON plus the shareholders that we have, the sky is the limit. We can do as much as we feel appropriate, we are ready to accelerate. 

For us, it was more on creating the foundation. If you look back probably a year ago, we were not in the position that we are today of having that foundation, the products and even the mindset of where to go. Now, we do. You'll see more things coming from our side. We're definitely going to accelerate not only on burning cash – I think that burning cash is a futile exercise – but on placing bets that are very focused and very thoughtful on the potential return. Return not for us in terms of revenue, but in terms of value for the population. We are firm believers that if we create value for our customers, at some point down the line, we will make money. This comes from my background at Facebook, we always operated like this – build something that is engaging and at some point, we’ll monetise. I feel the same way with VEON.

ED: In your case, you actually have to invest – whether you like it or not, 5G will come very quickly. Even when you say 4G, you got to invest on the servers in all the countries that you operate in, you might as well go to 5G very quickly. You're actually in a transitionary phase; it's a moving target in a way, right? You're actually moving emerging market countries into a developed market model. Speed would be an issue, speed of execution, and also, the whole idea of revenue generating on the go. I'm just trying to make sense of this moving target in terms of the telecommunication and content and infrastructure model, how that's going to play out? How would you differentiate between the different principles that are out there? You've got Orange, the main players in that way. You come across as the underdog. What does the underdog need to hold on to in order to play this game?

SH: I like being the underdog because everybody discounts what you're going to do and then you can surprise [them]. You mentioned some of the players, they tried multiple things, and look, nobody was really successful in that approach. I think that we know exactly what we don't need to do. We know pretty well what is the path of success, which is something that – in the past, perhaps – was more tough to swallow for telcos, because we always had this pride of we can still claim some value. I don't have that issue. I know where the battle can be won, I know where we lost. 

When it comes to content, I cannot compete [with] Netflix – not because of their money that they invest in content, but because of their expertise. I don't have that set of expertise. 

Our teams and our company are very good when it comes to telco, but not in content. What they are looking into is a partnership – a partnership in the form of a joint venture. We have something unique that these companies don't have, which is a connection with customers, and it's a paying connection. We have people that, on a daily basis or on a weekly basis, transact with us. This is a very strong link that none of these OTT (over-the-top) players have, especially in our geographies. I think that there's a win-win scenario where we can say, ‘You know what, you bring the content, you bring this expertise, I'll bring the distribution’ and we create value together. I don't need to own you. You don't need to own me. But I think that we can create a bigger cake if we work together. That's our approach. 

When it comes to bundling, most of our competitors have a very rigid approach of ‘let's bundle this thing and make it grow into the ARPU’ (average revenue per user). I don't care about that. I honestly couldn't care less, Bundling is the best way to destroy value, especially if you have a very unique product. For me, it's using our customers to show them that there's something else outside our premises that can be valuable for them. If they pay outside our premises, that's fine for me too, because the relationship and the partnership between the content, in this case, and us will allow us to monetise in another way. I'm trying to monetise if it makes sense outside my premises.

ED: The point you raised on bundling is very interesting, because right now, there's a battle going on between the platform that we're using right now, Zoom, and then the players who bundle like Microsoft, Cisco and so on. Zoom has sort of like just surpassed all of them and there is an unmitigated success in acceptance of customers worldwide and the valuation shows very, very strongly. I think the market cap is now $48 billion or something like that. That enables a company like Zoom to do a number of things, it can create its own ecosystem of startups and APIs and so on. If you were to specialise in one thing, what would the VEON proposition be?

SH: As I mentioned, there are three things for us that are very relevant, one is financial services. I do think that we have the right expertise and the right focus to make it a huge success. The approach is the same, it's valuation. We are not trying to create revenues on day one; we are trying to create value, like Zoom or the other ones. 

The second one is content. Our expertise and our localisation add a lot of value to these players. You cannot drop or pretend to make a business in Bangladesh with the latest Avengers movie. Nobody would pay for that type of content, they already get it either via piracy or somewhere else. But, they would pay money for content that is very local. We know where this local content sits and we can distribute it. Leveraging that is also an area where we can definitely make a change. 

The final one is big data. All of these companies, they sit on tons of data. The data that Zoom can have, it’s location – perhaps if the customer allows – maybe some type of transaction if they put their debit card, and that's pretty much it. They can improve the utilisation of the product, but they don't have this contextual and behavioural data. We do. 

We have towers, we know where the people move. We don't need to say if it's he or she or how tall or how old – that's irrelevant, but we have this unstructured data that is very, very powerful. Until very recently, we were not even paying attention to that segment. We were not even hiring people that could leverage and farm this type of information. Now, we are doing it, and the first results are tremendous. 

I'll give you the example of how we are using it internally. Now, we are deploying towers in a way that is unprecedented. Before, we were feeling or we were using our gut feeling to say yeah, maybe we need to put a tower here or there, maybe some sort of drive-thru analysis. Now we are using data that we have from our customers to say, ‘it makes sense to put a tower here’. You pair that with AI and you don't need to even have a drive thru, for we are discovering ways to allocate our towers that, in the past, were non-existent, with the efficiency that that generates but also the increase in productivity. All of these things, just as I said, are the beginning of a journey, but I feel very, very confident that in these three areas – financial services, content and big data – we can make a huge dent.

ED: On the power of telco technology, how fast do you think is it moving? What do we need to look out for in two areas: identity and payments? You said that you like the idea of blockchain and really, the whole idea of crypto transactions, is that there's no speed to it, it's not a reality yet. What are the trigger points that you're looking at to make that a reality?

SH: It's not moving fast enough. My constant push to the team is, ‘let's do it faster’. I think that it's a balance between [being] willing to do things quite aggressively, but also at the same time, to keep the customers with us. We are geeks in this thing. For us, it's natural, but I want to be sure that my mom, my dad can use it in a way that they feel comfortable and they know that everything is secure. We're probably going to be rolling a bit slower than I would like, but both identity and also payments are going to be tight and tight together, specifically in emerging economies. What we're trying to do is to get the support and ease of mind from the government to say, ‘let's push it and let's make it an obligation’. Every country I think will focus, will strive on digital. It's our moment to say, digital and owning this data and owning it in a local way, it's super powerful, we can help you in this journey. That's what our mindset is, to empower local people and local governments, to have a say in this new revolution the next wave of technology advancements.

ED: One last point. Because of the COVID-19 pandemic and all the lockdowns, cybercrime is on the rise tremendously. What are you seeing and how are you dealing with them?

SH: It's something that we knew was coming, also because we operate in complex geographies. For us, cyber security was always a priority. Now, what we are doing is, the tools that we use internally, we try to repurpose this for B2C [and] also for B2B. There's a huge demand when it comes to B2B in our geographies, but also we feel that this technology should be available for customers. We are productising that, and hopefully in the next few months, we're going to start offering these services to our customers. It's a huge demand. We knew that. 

There's another piece, which we also think that is important, which is telemedicine. We launched some pilots in Ukraine, and I have to say that it's been quite positive. Especially in locations that are quite rural or geographies that are difficult to access, you need to have this type of technology. We are in the best position to at least provide or be the ones carrying this type of information. We are working on that. 

These two items, I do believe that they are going to be more and more important when it comes to 5G, when operations remotely can be done. 

Just a matter of a Fun fact: we had one of our employees to have the first 5G operation remotely. He had implanted a chip in his hand to monitor blood pressure and levels of oxygen and it was a robot that did that remotely. The person was sitting 50 kilometres away from the doctor and via 5G test that we did with our own network, we were able to conduct that type of operation. All of these things are coming and we try to test, learn and improve the service. 

ED: Sergi, thank you very much. It was an excellent interview and excellent to get a perspective from you. 

SH: Thank you, Emmanuel.