Russia's Holding for the iPhone

Wireless operator VimpelCom is looking at a number of ways to keep up its rapid revenue growth. Adding the Apple smartphone is one of them

by Jay Yarow

Will VimpelCom (VIP) be the first wireless operator to sell the iPhone in Russia? If Chief Executive Alexander Izosimov has his way, it will. "Nobody's struck a deal with Apple yet, but we would love to," he says. Izosimov says no negotiations are taking place, and he has no idea whether his company will win the rights to sell Apple's (AAPL) coveted device. But in a wide-ranging interview with BusinessWeek, the CEO makes it clear that he's looking at many avenues to maintain the rapid growth his company has seen in recent years, from adding new devices like the iPhone to expanding into the broadband business.

VimpelCom, which operates under the Beeline brand, is Russia's second-largest wireless provider, with 52 million subscribers. In early June, it reported a $601 million profit in the first quarter, up 117% from the year-earlier period, as revenues increased 42%, to $2.1 billion. This follows an 80% increase in net income for 2007, to $1.46 billion, as revenues rose 47%, to $7.17 billion.

Despite the strong performance, Izosimov has reason to be concerned about VimpelCom's growth. Virtually all of the company's revenues come from providing wireless service in Russia, and that business is showing signs of maturing. After years of rapid expansion by VimpelCom and its two major rivals, most Russians have mobile phones. One research report by UralSib Financial puts the penetration rate at more than 100%, though it cautions the figures may be skewed by unreliable data. VimpelCom's stock has slid from a high of nearly $45 last year to about $30 now.

Clustering the Countries

Izosimov has a number of ideas for keeping up growth. At the top of the list is international expansion. VimpelCom now operates in six countries beyond Russia—Kazakhstan, Ukraine, Uzbekistan, Tajikistan, Georgia, and Armenia—and Izosimov would like to expand into other countries in the former Soviet Union, as well as a few strategic spots beyond. "We have opportunity in neighboring markets," he says. "Our prices are the lowest and our margins are the highest in the industry."

Beyond the former Soviet Union, Izosimov says he'll look for markets where wireless penetration is low and there's an opportunity to group the operations of several adjacent countries together. "It is important to have a cluster of countries," he says. That allows VimpelCom to save on infrastructure, management, and marketing costs.

VimpelCom plans to invest $1 billion in Vietnam. "Vietnam will be able to provide 10 million new subscribers in three to four years," Izosimov says. "It positions us well to expand into Cambodia, Laos, and when they open it up, Myanmar, which will all be natural extensions."

Konstantin Belov, a telecommunications analyst at UralSib Financial, thinks expanding into Vietnam would be wise. "Russia is close to saturation in subscriptions, almost in usage, too," says Belov. He adds, "Vietnam's market has growth prospects, the country is quite large, so it's quite good to be there."

Apple's New Approach to the Market

Getting the rights to sell the iPhone may be the trickiest part. VimpelCom wants to join with Apple to tap into the expected strong demand from consumers for the device. But its two major rivals, Mobile TeleSystems (MBT) and MegaFon, are interested in the iPhone, too. "Obviously we would love to [sell the Apple phone this year]," says a spokesman for Mobile TeleSystems.