Dowidar acknowledges that as the mobile broadband proposition began gaining ground, Vodafone Egypt could have worked harder on offering differentiated services and segmenting its customer base further

Hatem Dowidar, CEO of Vodafone Egypt, is in little doubt that this is the stage of industry development in which mobile network operators ought to be sharing more network elements.

“In Egypt there is a growing amount of sharing, including of rooftops, antennas, and joint maintenance.” Dowidar said. “Tower sharing is a more efficient model when an operator is in the build-out phase of its network, though in Egypt we have reached the stage of talking about sharing backbone and better leveraging fibre.”

It was at the end of 2011 when Mobiserve Holding, a solutions provider for telecommunication infrastructure engineering services in the Middle East and Africa, announced the signing of a cellular network tower sharing agreement with Egyptian telecom regulator, National Telecommunications Regulatory Authority (NTRA), enabling telecom operators in Egypt to share network infrastructure.

The concession conferred on Mobiserve the ability to build its own cellular network sites in Egypt and rent them to telecom operators. 

In an interview with Towerxchange, Magdy Zaky, commercial manager of Alan Dick & Company North Africa, said the three mobile operators in Egypt have become conservative about investing capex, with a considerable reduction in greenfield site rollout, and a preference to deploy rooftops, which can cost a third of the price of a new greenfield site.

“Higher bandwidths and higher spectrum frequencies both tend to drive additional cell sites, which is expensive,” Zaky said. “This has driven passive infrastructure sharing, which the operators have chosen to do on a bi-lateral, one-for-one basis, rather than build their own dedicated and standalone sites. Today, maybe 20-25 per cent of the new greenfield sites are shared and coverage of newly constructed roads is shared also, which saves at least 50 per cent of passive infrastructure costs.”

With the licensing of the likes of Mobiserve, the first phase of the introduction of a towerco model in Egypt was established. Zaky believes the second stage is the lease of the existing passive infrastructure network, which requires the involvement of the big African towerco investors who have the know-how and previous experience in undertaking such.

“The Egyptian operators tend to be quite conservative and very precious about their existing infrastructure, and I do not think it is likely that they will make a deal – for their existing network – with a local contractor to be their exclusive towerco,” Zaky said.

In the United Arab Emirates, Etisalat and Du currently share certain mobile network sites, but efforts to implement network sharing for fixed line services, which could see the rival companies each offer broadband and television services across the country, has yet to be implemented despite direction from the national regulator to do so.

At the moment consumers can only purchase services from one of the operators, depending upon where they live in the UAE, though Du’s CEO Osman Sultan says his company continues to look to drive efficiencies wherever possible in other areas of the business.

“We are advocating much more sharing of infrastructure. Sharing of sites alone is not enough,” Sultan said. “As an organisation, we are actively engaged in the outsourcing model as related to the management and roll out of the network and IP infrastructure.”

At the beginning of this year, for example, Du announced a partnership agreement with Alcatel-Lucent to deploy IP-routing technology to achieve convergence in its telecom services.

Du’s Sultan believes his company could have done more with respect to capitalising on the social media opportunity. However, he is convinced that a single operator cannot be successful in this area in isolation

Under the terms of the agreement, Alcatel-Lucent started deploying an IP/MPLS, as well as providing Du with a set of comprehensive professional services that include project management, network design, installation and commissioning, software integration and operations.

This agreement followed a deal penned with Ericsson, with the technology provider being signed up to a five-year IT management contract. As part of the managed services agreement, Ericsson was made responsible for augmenting Du’s IT applications and delivering development and maintenance for the UAE telco’s IT applications.

Under the terms of the contract, Ericsson agreed to develop and maintain applications for approximately 35 platforms and technologies, including upgrading and consolidation of Du’s software applications domains, transformation of operations and enterprise support systems, and managed services.

Vodafone Egypt’s Dowidar also spoke to how competition has resulted in the commoditisation of telecom services in Egypt, and very aggressive pricing across products and services has resulted in operators seeking larger differentiation alternatives.

“In 2009 there were a total of 209 controlled shops operated by the country’s three mobile network operators combined.” Dowidar said. “Today Vodafone operates 250 on its own.”

The Egyptian mobile incumbents have the prospect of even more competition in the market looming future as it has been reported that the NTRA is to set the final price for the country’s fourth mobile licence by the second half of this year.

Amr Badawi, CEO of the NTRA confirmed that the licence is being allocated automatically to Telecom Egypt as part of a wide-ranging review that will see the incumbent mobile networks permitted to resell landline services provided by the state-owned telco.

The fate of Telecom Egypt’s 45 per cent stake in Vodafone Egypt is still being debated. There have been concerns that a sale could affect the landline monopoly’s profits, which are heavily dependent on its Vodafone shares.

Dowidar also acknowledged that as the mobile broadband proposition began gaining ground Vodafone could have worked harder on offering differentiated services and segmenting its customer base further.

The operator has since undertaken a programme to focus on customer experience; improving its retail store design amongst other things. Vodafone has also introduced simpler tariff plans and is looking to drive innovation with respect to services to be provided to small and medium size businesses (SMEs).

“We are aiming to make SMEs more effective in their business operations, and to utilise tools such as cloud computing to achieve this,” Dowidar said.

Dowidar also spoke to the Vodafone Ventures initiative, which is the strategic corporate venture capital arm of Vodafone Group and is led out of the Vodafone xone office. Vodafone xone is a state-of-the-art incubation centre for ground-breaking technology solutions. Vodafone xone is dedicated to partnering with start-up companies, entrepreneurs and venture capital firms in Silicon Valley and beyond.

Launched in September 2011 in Silicon Valley, Vodafone xone offers start-ups onsite ventures, development and integration support. A subsequent office was opened in Egypt and Vodafone’s investments, made in conjunction with top-tier venture capital firms, focus on the following areas:  Consumer, enterprise, infrastructure and devices. Vodafone’s current portfolio consists of companies such as ItsOn, CellEra, Caringo, Perfecto Mobile, Pontis, Finsphere, VoucherCloud and LocalResponse.

Du’s Sultan believes his company could have done more with respect to capitalising on the social media opportunity. However, he is convinced that a single operator cannot be successful in this area in isolation and this is part of the reason why he believes a cooperative approach would stand the greatest chance of success, and has been championing the proposition of an operator alliance.

The proposed alliance would allow a digital platform to reach far more users, providing the scale that would allow it to compete effectively. The majority of over-the-top (OTT) services and social networks generate network traffic but not so much operator revenue, with Sultan noting: "Network traffic doubles every eight to nine months, but revenue is heading to a plateau, so we need to claim part of the new revenues alongside OTT players."

Sultan has gone on record in the past stating that he does not believe it is practical for individual operators in a given market to build their own app stores, despite the allure of generating incremental revenue through the sale of such applications. Sultan said the industry was still looking to figure out the most effective way for new applications to be purchased and used over mobile channels, with network operators gaining a reasonable share of the revenues.

“Vodafone live!, Orange World and Vodafone 360 are examples of operators trying to develop their own app stores, and I don’t think they have been so successful,” Sultan said. “Social networking is what made data communications successful, and I believe aggregation is what is needed in the Arab world where a partnership between OTT players and mobile operators is established,” he added.

SITC’s failure highlights the dominance of speculative retail traders in the Saudi market, who chase rising prices with little regard for fundamental valuations.

The Capital Market Authority (CMA) bourse regulator halted trading in SITC’s shares on February 5 when the stock was trading at SAR24.35 (US$6.51), more than double the initial public offer price of SAR10 but half the all-time closing high of SAR50.50 hit in March 2012, which valued the company at 5.05 billion Saudi riyals ($1.35 billion).

However, some shareholders at least could be in line to receive a pay-out from the liquidation committee, which comprises the CMA, the ministry of commerce and the telecom regulator, as the company had 100 million shares in issue and reported net assets of SAR910 million at the end of 2012.

King Abdullah’s decree said that the company should be liquidated within six months and the priority in the repaying of its obligations is to its non-founder subscribers and shareholders.

The monarch ordered the company’s liquidation last month after promising in 2012 to ensure trading rules applied to everyone, including the ruling Al-Saud family. The company’s chairman is Prince Saud bin Khaled bin Abdullah Al Saud.

Prince Saud owned a 43 per cent stake in SITC as recently as last September, according to Thomson Reuters data. This was held through various holding companies and these and other founding shareholders made a winning bid in 2007 of SAR1 billion for a licence to provide fixed-line services.

The founding shareholders were to pay SAR650 million of this fee, with the other SAR350 million to be raised through an IPO and a five per cent stake sale to the state pension fund.

SITC concluded its IPO and listed in June 2011, despite still not receiving its telecom operating licence and recorded no revenue that year or in 2012, Thomson Reuters data shows.

The founding shareholders did not pay up for their part of the licence fee until January this year, according to a stock market filing, but the company told Reuters it had provided the regulator in the interim with a bank guarantee in lieu of immediate payment of the fee.

1. Since only Iraqi-domiciled joint-stock companies can list on the ISX, Zain Iraq’s shareholders, led by Zain, are in the process of establishing a joint-stock company under the name of Al-Khatem Telecommunications Company (Al-Khatem).

2. The Iraq Companies Law requires that Al-Khatem invite the public to subscribe to the capital at the time of incorporation. As such, Al-Khatem is offering 55.9 million shares for subscription for a period of thirty days from June 4, 2013.

3. After completing this constituent public subscription process, and the fulfilment of other regulatory requirements, Al-Khatem expects to receive a final approval for incorporation from the Companies Registration Department. This will allow Al-Khatem to commence the necessary steps towards a subsequent offer of 25 per cent of its share capital on the ISX, subject to approval by the telecom and capital market regulatory authorities in Iraq.

This constitutes the first large-scale wireless broadband services in Iraq, with Alcatel-Lucent providing its end-to-end 4G LTE solution, including base stations, IP mobile backhaul for 4G LTE and existing 3G CDMA traffic, Evolved Packet Core (EPC) and elements of its platforms, which will allow Regional Telecom to introduce a rich portfolio of advanced IP-based services.

“High-speed mobile broadband is the major growth opportunity for the foreseeable future, and we are excited to be able to bring this impressive capability to our customers in Iraq,” commented Kawa Junad, Chairman of Regional Telecom.

Finalisation of the process and the granting of licences is expected to occur between July and September.

This latest evaluation will consist of both a technical submission evaluation and subsequently a spectrum licence fee offer evaluation. For the applications that meet the minimum requirements set in the invitation to tender, the assessment committee will determine a score, based on a total of 1,500 points, with the following weighting:

• Technical submission evaluation: 1,000 points (67%); and

• Spectrum licence fee offer evaluation: 500 points (33%).

The list of successful applicants is as follows:

#	Name of Applicant (listed by order of opening)
1	KDDI Corporation + Sumitomo Corporation + MICTDC + A1 Construction
2	Qtel (“Ooredoo”)
3	Millicom International Cellular
4	France Telecom Orange + Marubeni Corporation
5	Axiata Group
6	Bharti Airtel + Palazio Ventures
7	Telenor Mobile Communications
8	Digicel Group + Quantum Strategic Partners + YSH Finance
9	MTN (Dubai) + M1 Telecom + Amara Communications
10	Viettel Group
11	Singtel + Royal Myanmar Transport Co. (KBZ) + M-Tel

Only the 12 pre-qualified applicants from the previous pre-qualification stage of the tender were eligible to participate in the final stage of the licence award process. Out of the 12, 11 applicants submitted an application.

Communications and Infrastructural Development minister Nicholas Goche told local media that Telecel’s mobile phone licence would not be renewed until it had addressed what he called its "shareholding anomaly".

At the same time, if the licence is renewed, it will be at a higher rate of US$137 million. The licence expires next month.

The company’s Egyptian parent, Orascom Telecom owns a 60 per cent stake in the company. The remaining 40 per cent of Telecel is owned by a holding company controlled by president Robert Mugabe’s nephew, Leo Mugabe.

Telecel is required to offer a further 20 per cent to local shareholders to bring its foreign shareholding down to 40 per cent.

The sale of the Zimbabwean stake would resolve the foreign shareholder compliance, but it also reduces the likely value of the company as the pool of potential buyers is reduced to just Zimbabwean investors. That the stake has to be sold within the next few weeks would also put pressure on the owners to sell at a discount just to secure a deal.

Zimbabwe’s Indigenisation and Economic Empowerment Act aims to transfer at least 51 per cent control of all foreign-owned firms, including mines and banks, to locals.

Gegenheimer’s first full quarter as Zain CEO has seen him shift the company’s focus to several key areas, including customer experience, operational excellence and synergies, human resources, and new business areas

Zain Group reported a 27 per cent decline in its first-quarter net profit to end-March, blaming steep devaluation in the Sudanese pound and loss-making unit Zain Saudi Arabia as the main contributing factors for the fall.

The operator recorded net profit of KWD52 million (US$182.6 million) in the three months to March 31, down from KWD70.9 million a year ago.

Sudan accounted for nearly a third of Zain’s customer base and a fifth of group revenue in 2012, but the country has been mired in economic turmoil following South Sudan’s succession in 2011.

Zain stated the devaluation of the Sudanese pound against the dollar, by 53 per cent in the 12 months to end-March, was a significant contributing factor in reducing group revenue by US$179 million, EBITDA by US$76 million, and net profit by US$44 million.

Group revenue was down eight per cent year-on-year to KWD299 million, while the operator added 1.386 million subscribers in Q113, up from just 37,000 in Q112. Zain reported 44.1 million active subscribers as of end-March.

Amongst the most concerning areas of Zain Group’s Q113 operating results was the fall in revenue and net profit despite the strong recapture of lost subscribers in comparison to the same period in 2012, compounded by the 16 per cent year-on-year decline in EBITDA, pointing to margins being squeezed and the cost of doing business rising. Indeed Zain reported that its EBITDA margin in the first quarter had fallen to 42.4 per cent, down from 46.3 per cent a year earlier.

Severe competition in Zain’s historical cash cow market of Kuwait continues to also impact the group’s results as does its unpredictable operations in Saudi Arabia, Sudan and South Sudan.

Despite these key performance indicators showing signs of being under pressure, it is clear that Scott Gegenheimer’s arrival at Zain Group last December has brought with it an acknowledgement that work needs to be done, and more importantly, a resolve on the part of the company’s executive management to work at turning things around in an active and determined fashion.

One example of Gegenheimer’s impact on the operator’s outlook is that for the first time in numerous quarters, the Zain Group’s management opened itself up to scrutiny from the analyst community by hosting a conference call and offering more details and insight into the company’s strategic direction. This included referencing a number of problem areas and discussing what plans are afoot to resolve them.

“I’m genuinely enthusiastic to be at the helm of such a great company,” Gegenheimer said before identifying what he believes to be some of Zain Group’s strategic assets including its regional footprint; its market leading positions in six out of the eight markets in which it operates; and the company’s willingness to use technology as a tool to work more efficiently and to deliver cutting-edge products and services to end-users.

However, Zain’s operational results do point to a number of problem areas, which Gegenheimer will be under pressure to resolve. At a group level, the company has suffered from a type of corporate inertia since Etisalat Group’s pursuit of the company ended officially in March 2011. Since that time, the Kuwait-headquartered operator has found it challenging to re-establish a corporate identity of its own, with a vision of where it currently stands and where it intends to go.

Gegenheimer says Zain is now executing strategies that will address the challenges that it faces. “Having had an opportunity to assess the businesses, I have reshaped the strategy of the group to focus on several key areas, including customer experience, operational excellence and synergies, human resources, and new business areas,” Gegenheimer said.

The main aim of Gegenheimer’s strategy is to stem the company’s decline in revenue and profitability, and like operators the world over, look to new services and delivery mechanisms to drive incremental income. Interestingly for a business in which size and scale is an important success factor, Gegenheimer has chosen not to focus on subscriber acquisition and subscriber growth as one of the company’s driving priorities.

“From a group perspective, we have not really focused specifically on the growth of the customer base as we want to be careful about flooding the market with SIM cards and multiple SIM cards,” Gegenheimer said. “…We don’t particularly want to give a forecast for that [customer growth] because it is not one of the KPIs that we want to drive the market with,” he added.

Mobile broadband is a definite area of interest to Gegenheimer and Zain, and with commercial LTE deployments in Saudi Arabia, Kuwait, and Bahrain the company is staking its claim to being one of the leading regional innovators. Zain Group’s data revenues increased 14 per cent year-on-year during the first quarter with data now accounting for 12 per cent of overall service revenue, without the inclusion of value added services and SMS revenues included. With these other non-voice services included, data would account for 21 per cent of Zain’s overall service revenue as at the end of March.

On a country-level, there is work to be done across much of Zain Group’s footprint. In its home market of Kuwait, competition is squeezing the operator’s margins significantly, and generating incremental revenues from the subscriber base is proving challenging.

Revenues in Kuwait were down five per cent year-on-year in Q113 to US$287 million, while EBITDA was down eight per cent to US$136 million, and net income dropped 13 per cent to US$90.4 million. The operator attributed the decline in EBITDA and net income mainly to the cannibalisation of voice revenues due to the increased use of VoIP and over-the-top solutions, as well as the heightened level of competition in the market. However, Zain Kuwait continues to generate a healthy ARPU of US$39.

Gegenheimer’s experience extends to a decade working in various management positions within Ooredoo-controlled Wataniya Telecom in the Middle East and North Africa

“Clearly it’s [Kuwait] a very competitive and tough market for us. We have been undertaking a number of measures to improve results there,” Gegenheimer said. These measures include locking customers into long-term contracts in preparation for the introduction of mobile number portability later this year.

Saudi Arabia continues to be a loss making entity, though losses are narrowing year-on-year. What investors will be most pleased to learn about with respect to Zain Group’s exposure to Zain Saudi Arabia, is that the group does not expect to inject any more cash into the operator beyond what it had already committed to in last year’s capital restructuring arrangement. Zain Group management is also confident a settlement is imminent between Zain Saudi Arabia and creditor banks over a Murabaha loan that is set to be restructured.

There is limited proactive action that Zain can take with respect to the macro-economic and political issues adversely affecting its operations in Sudan. The significant depreciation of the Sudanese pound against the dollar has adversely affected the country operations as well as denting the group’s metrics, and Gegenheimer is hopeful that a measure of stability will return to the region soon, allowing for more predictable performances from both Sudan and South Sudan.

The shortage of foreign currency in Sudan has resulted in unpredictable remittances of cash from the local operations, another area of concern that is beyond the group’s immediate influence.

Initial public offerings are also on the horizon for Zain’s operating companies in Iraq and Bahrain. The requirement to list in Iraq, and in the process comply with its licence conditions, has loomed since the latter part of 2011, and finally seems to have kicked into high gear. The goal is to float 25 per cent of Zain Iraq before year-end, which in turn is expected to generate in excess of US$1 billion. Local competitor Asiacell listed on the Baghdad Stock Exchange at the start of this year, raising in excess of US$1 billion, while the country’s third mobile operator, Korek Telecom, is yet to list.

In preparation for its own listing, Zain Iraq is in the process of forming the requisite joint stock company, with the company initially in possession of the operating licence having been an offshore entity, which is in the process of being brought onshore.

With respect to Bahrain, the regulatory requirement is for Zain to float 15 per cent of the issued share capital prior to listing or 13.04 per cent post-offering, and the operator expects to accomplish this before the end of the year. Zain Group also awaits the licensing of 3G spectrum in Iraq and given the emphasis the company places on driving new revenue streams through digital services, is keen to have the network operational as soon as possible.

“I am confident that in the years ahead the group will continue to deliver exceptional value for our shareholders,” Gegenheimer predicted, perhaps referencing the multi-billion dollar windfall received by shareholders through the sale of Zain Group’s assets in Africa to Bharti Airtel in 2010. However, with the company’s share price under pressure, down around 10 per cent since the start of the year, Gegenheimer will need to work hard on developing organic revenue streams rather than relying on inorganic windfalls in order to drive shareholder value.

In Kuwait for example, Zain intends to push actively into the small and medium size business sector, believing this to be a prime area for growth. The expectation is that other segments and niches across its areas of operation shall continue to be tapped and developed, with Zain expected to articulate a group-wide corporate strategy in the coming months.

The South African firm was forced to walk away from a merger with India’s Bharti Airtel in 2009 following domestic political opposition to the deal. Before that, talks with Reliance Communications broke down, but are now reportedly back on again.

Citing four people familiar with the talks, Bloomberg News reported that MTN is evaluating potential assets in the Indian market again.

MTN also has the upper hand in any deal as its share price has soared in recent years, while the Indian networks have seen their share prices hit by the on-going regulatory confusions and low returns for investors.

The South African firm is also shortlisted as one of the bidders for two mobile licences in Myanmar.

Altimo already owns just under 48 per cent of VimpelCom which in turn already owns 52 per cent of Orascom Telecom, and last month launched a bid to buy the outstanding shares in the company, through a Cyprus based holding company.

The deal would have given Altimo effective control over the company through its direct and indirect holdings.

The takeover bid valued Orascom Telecom at around US$3.67 billion, a small premium on the then stock market valuation of US$3.4 billion.

However, the board of directors at Orascom Telecom rejected the takeover bid as undervaluing the company, and with just 16 per cent of the shares tendered, it would appear that the majority of the shareholders agreed.

The tender offer required that at least 26.6 per cent of the outstanding shares be tendered for the purchase to go ahead.

Although a bad result for the Russian buyer, it is seen as positive for the Cairo stock exchange, which was faced with the delisting of yet another company from its market.