Interview with VimpelCom Chief Operating Officer Jo Lunder on the company’s future in Russia.

Jo Lunder is chief operating officer for Russian mobile phone operator VimpelCom, a post he took up in September of last year. His insight into the firm's operations is unique, as between 1993 and 1999 he held various top managerial positions with Telenor, the Norwegian telecoms firm that bought a 25 percent-plus-one stake in VimpelCom early last year.

Telenor has invested substantially in VimpelCom's BeeLine trademark, helping it to fund expansion in Moscow and Moscow Oblast, becoming one of the biggest operators in Russia with more than 500,000 subscribers. The firm operates both the GSM and DAMPS standards.

Lunder told The Russia Journal about VimpelCom's plans to expand its GSM network, coming changes in Russia's cellular phone industry, cell phone tariff cuts and the role of the government in Russia's telecoms sector.

RJ: What does VimpelCom plan to do next?

JL: First of all, we want to develop VimpelCom as a company – so if VimpelCom as a company needs more money to develop the markets, Telenor wants to participate in this.

I also think Telenor has plans for other initiatives in Russia. We believe in Russia, and we believe in this market. But it's too early to tell you exactly what we are planning to do. We will make a couple of announcements this year.

I think many companies would like to be part of the Russian telecommunications market. But I think you will see a consolidation over this year. Today, you see a lot of different investors and different companies. But at some point in time, these different investments will probably be consolidated in big groups. In general, you see a lot of the biggest telecoms companies in Russia – Russia has proven ability to attract Western capital.

RJ: What is the difference between Russian and Western telecoms markets?

JL: All markets copy one another, you don't see a major difference between Western Europe and the United States. For this reason, I don't see any major differences in the way we developed the Russian mobile market in comparison to Western Europe.

The fact that we have a less developed infrastructure in the banking industry, that we have less credit cards available, that we have a less developed retail infrastructure and that we have a huge country in geographical terms will probably lead to Russia using different telecoms services from those we've seen in the West.

RJ: How much does VimpelCom plan to invest in the near future?

JL: When you ask how much VimpelCom is planning to invest, it's a different question from how much do you think is needed to develop VimpelCom GSM's net. To look at Moscow first, I think we're going to spend $250 million in 2000-2002, and then Muscovites will have a great GSM network with good cover and high quality.

Then to develop the regions, I think we need $400 million to $500 million in the next three to four years to give the regions a high quality GSM network. That doesn't mean that VimpelCom is planning to invest all this money. This will be financed through different sources: The venders will participate, banks will participate; and how much Vimpelcom will put in, it's too early to say.

RJ: Will there be technical innovations in the industry next year?

JL: I think you will see a gradual development here. Now we are moving into GPRS [Internet access through a mobile phone], and then we will be moving to something called EDGE [high-speed data transfer system], which is part of the two-plus generation [between the second and third generations]. The next stage will be UMTS [third generation mobile system]. I think you will see this development happening in the next three to four years. Again, the best markets will receive the best functionality and capacity first. It's not going to be like, in the year 2004 we roll up UMTS in Russia – because the country is too big, so everything is developing, moving.

I think the Internet is going to be big in Russia, I think you will see strong growth in fixed access to the Internet, you will see strong growth in broadband access to the Internet, and I think you will see a strong growth in wireless access to the Internet. But as in any market, it starts with either the ability to pay or with strong interest. Wireless Internet is not only something for central Moscow.

But it's going to take some time to develop this market. I think next summer hundreds of thousands of Muscovites will be taking down information from the Internet to their mobile phones. And I strongly believe in the fact that the Internet will play a very important role in this development.

And it might lead to the fact that Russia may leapfrog development stages that we've seen in Western Europe, for example within the banking industry. I mean, the biggest problem for the Western banks today is what they call the retail networks – all the offices around. Because it's extremely expensive to operate and run all these offices. Big banks in London probably have 50 different offices around the town. The banking industry now is trying to move away from dependence on these offices and move into electronic solutions. That might mean that Russia jumps into electronic banking. This is one factor how the Internet and telecoms sectors will develop differently in the Russian market. In order to do it, you need regulations, you need a regulatory machine. The government actually is making it possible for Western companies to invest in this solution and develop these solutions.

RJ: What do you think about the way the Russian government regulates the telecoms sphere?

JL: I was a bit surprised about the issuing of the third [GSM] license in Moscow. Because I think competition is working very well in Russia. We have strong price reductions from both MTS and VimpelCom. We are putting money into growing the market; we are putting a lot of money into building infrastructure. The government should be concerned about creating competition, and I think they have succeeded in doing that.

But in general, the way they plan and operate, dividing the country into super-regions, the way they organize different companies, it looks like they plan their job very well.

RJ: Could Russian telecoms tariffs plunge even lower than they have recently?

JL: If you look at cellular in Moscow, you will see strong price competition, substantial price decreases in the last six months. And that's proof of the fact that competition is working. But the more subscribers we add to the network and the more people that use the phones, the lower the tariffs will get.