BARCELONA (Reuters) - Growth is so hard to come by in the telecoms sector that Turkcell CEO Kaan Terzioglu pledged to grow a mustache when he took over in 2015 and only shave it off if he met his performance targets.
Terzioglu still sports a thick handlebar but only, he says, because he lifted his goals after hitting them a year early - on the back of a digital overhaul he initiated at the Turkish company.
“We call ourselves a digital operator – we managed to transform our value proposition,” Terzioglu said in a recent video chat via messaging app BiP, Turkcell’s answer to Facebook-owned WhatsApp.
Turkcell’s digital arm Lifecell has introduced subscription-based products such as BiP for online messaging, fizy for music, and TV+ for video streaming, which Terzioglu was promoting at the Mobile World Congress in Barcelona this week.
BiP is similar to Wechat, the popular all-purpose social media product developed by China’s Tencent, and allows users to send money to friends, or use the third-party apps of banks or airlines on a revenue-sharing basis.
Lifecell’s core suite of nine digital apps has been downloaded over 80 million times, serving more than half of Turkcell’s customers, and fizy is three times as popular in Turkey as streaming pioneer Spotify, the company says.
Terzioglu now wants to partner with operators abroad to market the Lifecell app suite.
Turkcell isn’t the first telecom operator to try and pull off the transformation from voice calls and data to becoming a so-called platform company.
VEON, formerly a Russia-focused telco called Vimpelcom, announced a similar digital relaunch a year ago at the same industry gathering.
But in its latest annual results, VEON, which has 240 million customers, said its flagship mobile app - available in Italy, Russia, Ukraine, Georgia and Pakistan since 2016 - had been downloaded just 8.3 million times.
Turkcell’s transformation to digital has been helped by fast-growing demand in its home market.
It is Turkey’s leading mobile operator and thanks to investments in LTE wireless networks can offer high data speeds, Terzioglu said.
Its share price is up 40 percent over the past year, although its market capitalization - at $9 billion - is still a fraction of Europe’s largest telecom operator Deutsche Telekom, which is worth $79 billion.
Going digital for a telco risks cannibalizing its bread-and-butter business - voice and text messaging. Digital apps, meanwhile, require a totally new skillset to analyze and profit from the customer data they yield.
Spain’s Telefonica, whose interests span Europe and Latin America, also embarked on such an undertaking last year, announcing it would shift all its businesses onto a unified ‘fourth platform’.
This year, Telefonica unveiled its own digital assistant so that customers can use voice commands to administer their accounts or interact with other online helpers like Google Assistant.
Yet the assistant, called Aura, will work differently across the six markets where it is being launched, largely due to the complexity of Telefonica’s portfolio - from mobile-only in Britain to a Brazilian player created out of several takeovers.
“That’s our reality,” Telefonica’s chief digital officer, Chema Alonso, told Reuters in Barcelona.
Given the difficulty of such a makeover, it’s not surprising that some established European companies are fighting shy.
“We’ve seen telcos try to move in the past – but they are just not flexible and agile,” said Kester Mann, an analyst who covers the operators at CCS Insight.
“I’m struggling to see a Deutsche Telekom, an Orange or a Vodafone making a really radical reversal of their strategy,” he said of the big German, French and British players.
Deutsche Telekom CEO Tim Hoettges doesn’t even want to compete head on with Silicon Valley giants like Amazon, the e-commerce juggernaut that has moved into online entertainment.
“We shouldn’t try to copy Amazon, because Amazon will always be better than the copies,” Hoettges said in response to a Reuters question.
“Deutsche Telekom’s strength is personal proximity,” he said. “I call it dialogue marketing.”
Yet shares in Deutsche Telekom are languishing near three-year lows despite solid annual results last week.
Turkcell’s shift to digital has included bundling its fizy app for free into Turkcell subscriber packages, with no charges for data use. People who aren’t customers can download it for free from Google Play and Apple’s App Store, with subscription charges kicking in after a month.
Terzioglu, still sporting his mustache at the Lifecell event in Barcelona, forecasts revenue growth at Turkcell of 13-15 percent and core EBITDA profit margins of 33 to 35 percent this year.
“Today Turkcell is the fastest-growing telecom in the world,” the former Cisco executive told a packed crowd at his company’s stand. “We gained a market edge - this happened through an enormous focus on digital services.”
Reporting by Douglas Busvine; Editing by Susan Fenton