Comms Middle East & Africa - July 2010 by ITP Business Publishing

JULY 2010

Critical analysis for telecommunications executives

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Path to LTE

Call to converge A review of the Arab Advisorsâ&#x20AC;&#x2122; Convergence Conference

Eye on Lebanon State ownership continues to hamper telecom development

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Vendors discuss the latest deployment trends

Unlocking value Operators can leverage the value of their assets

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How w a new wave off consoolidaation is sett to reshappe the regionâ&#x20AC;&#x2122;s telecoms sector

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COMMENT 1

COMMENT By Roger Field

Convergent strategies

ut of all of the region’s telecom events, few have the ability to make CEOs speak the hard truth more than the Arab Advisors’ Media and Telecommunications Convergence Conference, and thankfully, this year’s edition was no exception. As the first day played out, it became ever more apparent that the core theme of the event – media and telecoms convergence – had taken on a greater level of significance for the telcos. And it was a perhaps a few simple charts from Capgemini Consulting that said the most about Collaboration between telcos and media and content players is vital. the current position of telecom operators in a world where revenues are rapidly moving to various Certainly, many of the region’s telecom operators forms of online advertising, app stores and other online have started to address the situation in the past couple applications. of years, by forming various partnerships with media One chart (see p29) showed the effect that Apple’s and content companies. app store has had on the mobile applications market, For example, Saudi Arabia’s STC formed a joint which Capgemini estimates will reach some $9.1 billion venture with Saudi Research and Marketing Group and in value by 2014. All Asia Networks to produce media content back in Before the launch of the Apple store in July 2008, and the operator’s international CEO, Ghassan 2008, telecom operators commanded a 50% share of Hasbani, was one of the speakers to strike a more application revenues, according to the chart. But the optimistic tone on the subject of convergence. He frightening part is the second bar which shows the pointed out that new types of content and applications apps revenue share enjoyed by operators after the in fact offer telcos a huge opportunity to develop new launch of the Apple store. Indeed, operators to do not revenue streams. even feature on it – having been largely frozen out of But profiting from these new potential sources of a fast growing source of revenue that has come to be income is another issue. Most of the delegates agreed dominated by the apps developers (69% revenue share), that partnerships – whether collaborative agreements publishers (30%) and porting service providers (1%). or even M&A deals – between telcos and content Of course, mobile applications are just one small companies would be the most likely way for operators component of the telecoms sector, and operators have to profit from convergence. plenty of other issues to consider, but the fast growing Such a model works well by giving both parties apps sector is a reminder of how changing consumer access to expertise they don’t have. Operators gain the habits have caught most telcos off guard. expertise of companies that are used to handling data Reassuringly, CEOs from some of the region’s the way end users want it, and the content players gain leading telcos made it clear that they were well aware access to a mobile and online audience. of the need to diversify their operations and take a While it remains difficult to second-guess where the share of the revenues that are currently being taken by sector is heading next, it is clear that collaboration will companies such as Google, Yahoo, Facebook and Apple. be key to the success of operators.

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CONTENTS

THIS CommsMEA | July 2010 www.itp.net

The region braces for a fresh round of consolidation.

Bharti Airtel reshapes Africa’s telecom landscape.

NEWS • • • • • •

Bharti completes Zain Africa deal Batelco earmarks $38.5 million for LTE STel plans 3G services within 12 months Friendi Mobile launches in Jordan Asiacell expands in Anbar Etisalat outlines investment for Egypt

FOCUS

Mergers & Acquisitions Operators are placing greater emphasis on strategy as the sector braces for a fresh wave of consolidation in the wake of Bharti Airtel’s entry in to Africa.

OPINION

Telcos modify data tariffs With most operators’ networks stretched to the limit owing to massive data demand, the tide finally appears to be turning against so called ‘all-you-can-eat’ data packages.

REVIEW

Arab Advisors’ conference Telecom operators must seize on new types of services and collaborate with companies in related industries in order to prosper, say CEOs.

Batelco CEO Peter Kaliaropoulos was among the speakers at the Arab Advisors’ conference.

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CONTENTS

CommsMEA | July 2010 www.itp.net

Lebanon’s telecoms sector suffers as a result of state ownership.

31 PROFILE

Wireless experts including Ravi Mali of Juniper Networks (pictured) discuss LTE developments.

Lebanon Lebanon’s telecoms sector remains hamstrung by a lack of liberalisation, but with low mobile and broadband penetration, it also holds potential.

NGNs at a national level can have a huge impact on economies and society, according to experts at Booz & Co.

CommsMEA | November 2007 www.itp.net

OPINION

Mobile banking Hannes Van Rensburg, CEO, Fundamo, discusses the growth and development of the mobile financial services industry in Africa.

Q&A

Path to LTE Wireless experts from Huawei, Cisco and Juniper Networks discuss developments in LTE and issues surrounding the migration to LTE in the Middle East.

BACKCHAT

Playing to win Graham Rivers, CEO of UK-based managed services player WIN, tells CommsMEA about his company’s plans for the Middle East.

NEWS BRIEFS Telcos join forces for terrestrial cable system Four of the region’s incumbent telecom operators signed an agreement in June to create a terrestrial fibre optic cable system to connect the Middle East, South Asia and the Far East. Türk Telekom, Saudi Telecom, Jordan Telecom and Syria Telecom have already started work on the project, which will connect the Middle East and Asia via Jeddah, Amman, Damascus and Istanbul, Turkey The Jadi Link, which is set to be fully operational by Q3 will offer an alternative route to existing Mediterranean and Red Sea cable systems for data traffic between Europe, the Middle East and Asia. The four operators will create the necessary connections on the national fibre optic backbones within their borders and will make capacity expansions of 200 Gbps in their systems for the Jadi Link project.

MONTH IN NUMBERS

$10.7bn The amount Bharti Airtel will pay for most of Zain’s African assets

$1.41bn Etisalat’s planned investment in its Egyptian telco over 3 years.

$42 Average ARPU in the UAE - more than double the ME averarage.

CommsMEA | July 2010 www.itp.net

Bharti Airtel completes Zain Africa deal Bharti expands its footprint to 18 countries with a combined population of 1.8 billion people Getty Images

Bharti Airtel has a customer base of some 180 million people after acquiring Zain’s African assets.

India’s biggest mobile operator, Bharti Airtel, has completed its acquisition of 15 of Zain Group’s African mobile operations for $10.7 billion. The deal, which leaves Zain Group with just two operations in Africa, gives Bharti an international footprint covering 1.8 billion people across 18 countries, and increases the company’s customer base to some 180 million. The deal, which is the largest ever cross-border deal in emerging markets, will give the combined group revenues

of more than $12.4 billion and places Bharti Airtel among the five largest mobile operators in the world. As part of the deal, Bharti has the right to operate its African assets under the Zain brand for an undisclosed period. Sunil Bharti Mittal, chairman and managing director, Bharti, said the deal would further strengthen “the historic IndoAfrica economic and social ties”. “Bharti, which has been working towards its vision of expansion into Africa, is committed to contributing to the

growth of telecom in the region by taking networks deep into these countries,” he said. Zain confirmed that it had received $7.868 billion in cash from Bharti and said that it expected to receive up to an additional $400 million in the next six months, depending on “certain milestones being achieved.” The balance of US$700 million is due one year from completion of the deal, according to the original agreement signed on March 30, 2010. Asaad Al Banwan, chairman of the board of directors of Zain, said the deal demonstrated the “significant value” the company had created for its shareholders over the last five years. “The board of directors will consider the best use of the remaining proceeds to further enhance value for all stakeholders,” he added. Zain said it had also repaid the $4 billion revolving credit facility which it entered into in July 2006. The telco intends to use the remaining proceeds to pay dividends and “other corporate matters.”

Batelco earmarks $38.5m for LTE readiness Bahrain’s incumbent telecom operator Batelco plans to invest more than $38 million in upgrading its wireless network to ensure it is ready for the transition to LTE. The operator signed a deal with Swedish vendor Ericsson to work on the project, which it has branded MNE (mobile network expansion) 2010. Batelco said it planned to invest BD14.5 million ($38.5 million) in the project.

“Demand for mobile broadband services continues to grow exponentially as it is driven by the increasing use of mobile data cards and smart phones to access the internet, email and download data whilst on the move,” said Gert Rieder, CEO, Batelco Bahrain. “Our major objective is to enhance, upgrade and expand our mobile voice and internet network to tackle a number

of needs such as providing or enhancing coverage and quality of service in newly developed or remote areas.” He added that the MNE 2010 project would improve Batelco’s network performance and also ensure its readiness for LTE. The project would also allow the network to handle a greater volume of data required to support services such as mobile video streaming, Rieder said.

NEWS 7

STel to launch 3G services within 12 months STel, the Indian unit of Batelco, could launch limited 3G services within 12 months However, he admitted that customers should not expect 3G services to be available in all three of STel’s coverage areas “any time soon” and added that according to its licence agreement, the company was only committed to completing its 3G deployment within five years. “You will probably Kaliaropoulos said many operators in India depend on lower cost see us in the first Chinese tech to make their operations profitable. circle, Bihar or Orissa within 12 months. Batelco’s Indian operation, STel, But 3G is not imminent for us could start limited 3G services - we are still rolling out 2G and within the next 12 months, 2.5G capability,” he said. although the company is Furthermore, STel, along experiencing delays in its wider with other operators in India, 3G deployment plans owing to is facing problems importing new restrictions on the import Chinese telecom equipment into of Chinese telecom equipment the country after the government into India. placed tough - and largely Peter Kaliaropoulos said that the company hoped to launch 3G unexplained - restrictions on the services in Bihar or Orissa within imports. “Right now we have to overcome the challenge of 12 months.

importing Chinese equipment into India, because that has been halted. The whole industry has been notified about new certification requirements, but what is driving that we don’t know,” Kaliaropoulos said. He added that the restrictions could be related to potential malware threats in the software component of some infrastructure, and that the operators expected to gain further clarification soon. The restrictions are a serious blow to India’s operators, which depend on cheaper Chinese telecom infrastructure as part of their business model. “The whole business model was based on lower value equipment... the Chinese suppliers are very competitive,” Kaliaropoulos said. “For the Indian model to work, you have an industry that is working with a very smart business plan and then you also need equipment at a decent cost. When you bring them together you can get a good return from a $2 ARPU,” he added.

Kuwait and UAE mobile ARPU leads in the Middle East Average mobile revenue per user (ARPU) in the UAE is almost double the Middle East average for 2009, according to a recent report from Dataxis Intelligence research. Indeed, on average, each mobile user in the UAE generates $42 or about AED 155 of revenue for telecommunication companies in a month. The Middle East region was found to have one of the highest ARPUs per month at $20 (AED 74) last year, behind only North

America and Europe. Each Gulf country sees deep variation in the amount of money people spend on mobile services. Customers in Kuwait spend the most, representing an ARPU of up to $52 a month, followed by the United Arab Emirates ($42), Lebanon ($40), Qatar ($39), Bahrain ($35), Saudi Arabia ($27), Oman ($25), Palestine ($22), Syria ($18), Jordan ($16), Iraq ($13) and Yemen ($5). “Also interesting to emphasize on is the fact that more than

half of the region’s 14 countries generated a higher ARPU than European average of $23 while only three countries - Iraq, Iran, Yemen- had an ARPU below the worldwide average of $16 per month,” the firm stated. Dataxis Intelligence said that the Middle East region is one of the most dynamic mobile markets in the world. In 2009, the regional mobile market saw a 23% increase in its subscriber base along with a 12% uptake of revenues.

BRIEFS Motorola to manage Zain Kuwait’s 3G network Zain Kuwait has become the latest operator in the region to outsource the management of a key part of its network after signing a three-year managed services contract with US vendor Motorola. Under the contract, Motorola will operate and manage Zain Kuwait’s 3G network and will also be responsible for ongoing design, planning, support and optimisation. Khaled Al Hajeri, CEO of Zain Kuwait, said the deal was intended to help the company improve its network while boosting operating margins and increasing productivity. Ali Amer, vice president and general manager, Motorola Networks EMEA, added that the managed services agreement would help Zain Kuwait to “maximise its focus on endusers and revenue” while reducing operating costs.

QUOTE OF THE MONTH “What we see in Lebanon is that the telecoms sector is the result of a fairly hectic political time in which many different parties have been trying to run the country, and up until today it has been very difficult to get consensus on the big topics such as telecom liberalisation.” Mark Kremers, Oliver Wyman (see p31).

CommsMEA | July 2010 www.itp.net

NEWS 9

Friendi Mobile launches MVNO in Jordan Region’s first MVNO targets pan-regional growth as it begins services in Jordan The company, which is targeting a “modest single digit” market share in Jordan, plans to attract customers with an “international element” to their lives, according to Vinter. This includes expatriates and nationals with friends and family overseas. Friendi Mobile, Vinter has big ambitions for Friendi Mobile in the region. which already has a successful operation in Oman using the network of Friendi Mobile launched services incumbent operator Omantel, in Jordan last month. plans to have a presence in at The MVNO staged its official least 10 countries in region within launch following a soft launch four years, according to Vinter. with between 300 to 400 paying “We are now in two countries customers, earlier in the month. and there are a number of other The operator, which is using markets in the pipeline, so we the network of Zain Jordan, generally feel that the business said that the soft launch model, and acceptance of it, is had demonstrated that all picking up speed,” Vinter told components of the operation, CommsMEA. including the call centre, were He added that regulators in working. He added that the other countries were also likely to company would use feedback become more open to the idea of from its first customers to MVNOs following the launches “polish” the operation.

in Jordan and Oman. Vinter added that the company was also actively in negotiations to enter markets under a branded reseller model, rather than a full MVNO. “That is clearly a good model where the regulation is not quite there yet,” he said. “Our focus is on the GCC markets and North Africa: Saudi, Bahrain, Egypt, Morocco - there are a number of markets where we feel there are developments, so we have a good number of discussions ongoing at the moment and I am quite optimistic that we will see more happen this year and next year.” Vinter said he was also optimistic that operators in the region would increasingly recognise the benefits of working with MVNOs. “Being a major operator in the market is still often a bit of a one-size-fits-all approach, so we see very strongly the realisation that segmentation is the key to getting closer to the needs of the customers,” he said.

Asiacell expands its network in Iraq’s largest province Iraqi mobile operator Asiacell has expanded its network to cover Anbar, Iraq’s largest province. Diar Ahmed, CEO, Asiacell, said that the operator’s network now covers 87% of the populated areas of Anbar and will reach 90% by the end of 2010. Asiacell, which is competing with rival operator Zain in Anbar, worked with Nokia Siemens Networks on the deployment of the 2G network. Ahmed admitted that the company faced significant

security challenges during the deployment in Anbar, which is in the West of Iraq and is home to cities and towns including Rawah, Ubaidi, Karbalah, Husaibah, and Haditha. “Many security issues have affected network expansion there,” Ahmed told CommsMEA. “Anbar is widest governorate in Iraq, the area is about 139 km square and most of that area is desert. It shares borders with Syria, Jordan, and Saudi Arabia which makes it imperative

for Asiacell to reach to these borders,” he said. Ahmed added that Asiacell’s presence in Anbar would mainly benefit the general population. “They can enjoy using our services fully and have another option instead of having only one network to communicate,” Ahmed said. Asiacell, which competes with mobile operators Zain and Korek in Iraq, has 7.9 million subscribers and a market share of about 37%.

BRIEFS Zain restructures its group operations following sale Zain Group announced a restructuring of its executive management following the completion of the sale of most of its African assets to India’s Bharti Airtel. The Kuwait-based company, which is now present in Kuwait, Bahrain, Jordan, Iraq, Lebanon, Saudi Arabia and Sudan, appointed Barrak Al Sabeeh as chief operating officer, Haitham Al Khaled as CTO, Bashar Arafeh as chief commercial officer, Ossama Matta as CFO, and Lynne Dorward as chief regulatory officer. Zain also appointed Khalid Al Omar as CEO of its Kuwait operation and Emad Makiya as CEO of Zain Iraq. Zain Group’s CEO Nabil bin Salama said in April that the company would be undertaking a “comprehensive” restructuring of its management team. Du launches customer advisory board Du is set to unveil its first customer advisory board (CAB), which will help to drive strategy for the telecoms operator. The CAB will be comprised of enterprise customers from Du, and other C-level executives from leading UAE and regional companies. The group will meet on a quarterly basis, to discuss industry trends and business priorities and strategies, which Du says will help influence the telecoms industry for the benefit of all.

CommsMEA | July 2010 www.itp.net

NEWS 11

VC funding cuts stifle telecom innovation Dwindling VC funding and pressure on vendors likely to hit innovation - report new technologies and an aversion to introduce proprietary technology, even when it is shown to be superior to existing technology. Furthermore, problems stemming from the decline in VC funding are likely Western vendors could cut R&D budgets amid fierce competition. to be exacerbated by trends in the global vendor market, with fears that Declining venture capital aggressive pricing from Chinese investment in the telecom sector vendors Huawei and ZTE could threatens to stifle innovation lead their Western counterparts, in key areas of the industry, such as Ericsson and Nokia according to a report from Siemens Networks, to cut back research firm Ovum. on R&D spending. VC support for telecoms “Because of recent market vendor start ups has fallen consolidation and cost pressures steadily in the past few years to brought on by hard-bargaining just $1.18 billion between the second quarters of 2009 and 2010, carriers and aggressive Chinese vendors, many big Western down from $1.82 billion for the vendors are cutting back staff four quarters ended 3Q08. and closing facilities,” said Matt While Ovum admitted that Walker, a principal analyst telecom patent filings continued at Ovum. “This may lead to to rise last year, it believes that lower R&D/revenues ratios a decline in VC funding could in the future. More important lead to slower introduction of

is the trend we have already observed in venture capital, which typically funds the ‘gamechanging’ ideas that big vendors often ignore.” Annual investment as a share of revenues for a group of the 10 large telecoms vendors was between 13% and 14%, on average, during the last three years, according to Ovum. But the Chinese vendors, Huawei and ZTE, were below average at around 9% to 10%, while Juniper, Nokia Siemens Networks, and Ericsson were well above average. As a percentage of the ten big vendors’ internal R&D expense, vendor VC funding has fallen from 5.6% in 3Q08 to just over 4% in 1Q10. “We believe this poses a substantial risk to carriers in the level of innovation they will be able to internalise by working with, acquiring, or even copying successful start-ups,” Walker said, adding that Chinese vendors could seek to exploit the situation by increasing their own R&D spending.

Atheeb Telecom replaces CEO as results disappoint Saudi Arabian WiMAX operator Atheeb Telecom has appointed Raed Kayyal as acting CEO following the resignation of Ahmad Abbas Sindi. Sindi, who had been CEO since the company was established in 2008, resigned last week following poor financial results at the firm. The company, which offers fixed broadband and voice services using WiMAX, has accumulated losses of almost 40% of its capital after starting operations in June 2009, according

to a report from Reuters. In May, the company posted net losses of SR379 million ($101 million) for the year to March 2010, with sales of only SR35.4 million, which is below half the cost of sales themselves, the report added. Atheeb Telecom is backed by Saudi Arabia’s Atheeb Group and Bahrain’s Batelco, which has a 15% stake in the company. The remaining 35% of the company was divided between an IPO and a Saudi retirement fund before the

company launched. Atheeb’s failure to generate sufficient revenue underlines the problems faced by WiMAX operators in some markets. Atheeb, which operates under the brand name ‘Go’ launched services in one of the Middle East’s most competitive ISP markets. The company is currently competing with three mobile operators, each of which offer mobile broadband services, as well as fixed services from incumbent operator STC.

BRIEFS Etisalat forms alliance with Korea Telecom Etisalat, the UAE’s incumbent telecom operator, has formed an alliance with Korea Telecom to jointly develop new services. Under the agreement, which was signed by Essa Al Haddad, group chief marketing officer, Etisalat, and Hansuk Kim, head of global business unit, Korea Telecom, the two operators will share skills, intellectual capital and expertise to help develop new products and services. The collaboration will focus on creating services around global roaming on Wi-fi, machine-to-machine telecommunication, IPTV and managed services. The telcos will also work towards creating points of presence in South Korea and UAE, which will eventually provide improved direct links for their customers in the two countries. Du completes $272 million rights issue UAE telco Du completed a rights issue that raised AED1bn ($272m) in June. The company said the issue was oversubscribed by shareholders with a total of 571,428,571 new shares taken up by shareholders. The company said the capital raised will be deployed to “transform the company from a high growth early stage venture to a more mature company with efficient management of future funding requirements”.

CommsMEA | July 2010 www.itp.net

NEWS BRIEFS Ericsson and Econet sign network expansion deal Zimbabwean mobile operator Econet Wireless has signed an expansion deal with Swedish vendor Ericsson. Under the agreement, Ericsson will be responsible for the expansion of Econet’s core and access networks and business support. Ericsson will expand Econet’s existing network, provide transport and transmission technologies and services including system integration and business consultancy. The agreement will also enable Econet to provide most of Harare with full 3G coverage. ICASA invites applications for LTE spectrum South Africa’s telecoms regulator, the Independent Communications Authority of South Africa (ICASA) extended the deadline for companies to submit applications for spectrum on the 2.6GHz and 3.5GHz until July 30, 2010. The previous deadline was May 28, 2010. Under the new guidelines, bidding for the spectrum, which is suitable for the deployment of LTE services, will start at ZAR 750,000 (USD98,000), according to a report from Telegeography. Furthermore, ICASA said it requires 2.6GHz licensees to achieve population coverage of 50% within two years of being granted spectrum. South African operators including Vodacom, MTN, Cell C, Neotel and Telkom are reported to be interested in the spectrum.

CommsMEA | July 2010 www.itp.net

Etisalat to invest $1.41bn in Egyptian operation Etisalat earmarks $1.41 billion investment for expansion of Egyptian network EGP 8 billion more in the coming three years as networks expansion is a priority for the company,” Omran said in a statement. The planned investment was also part of Etisalat’s strategy to expand its operations beyond its home market of the UAE, Omran added. “Etisalat’s Etisalat said it plans to invest some $1.41 billion in its Egyptian strategy is to operation, Etisalat Misr, in the next three years. develop a significant international footprint and to benefit from economies of Etisalat plans to invest EGP scale. This will serve for the future 8 billion ($1.41 billion) in its and provide satisfying returns for Egyptian operation, Etisalat our investors, of whom the UAE Misr, in the coming three years, government is the largest. doubling the investment that it “However this desired growth has already made in the unit since cannot be achieved by having a its launch back in May 2007. presence in one market only and Mohammad Omran, requires more operations and chairman, Etisalat, confirmed the investments in markets that are planned investment as Etisalat open for growth and development. Misr announced it had reached We have achieved what we were 14 million subscribers in its three planning for so far and now we years of operation. “Our investment in the network operate in 18 markets serving 107 has reached EGP 8 billion till date, million customers covering around 2 billion customers,” he said. and we expect that we will invest

Etisalat Misr, Egypt’s third mobile operator, was the first to launch 3G services in Egypt, a factor which many analysts believe helped the operator to gain traction in the market. The company was also the first to complete a nationwide HSPA+ network, offering mobile data speeds of up to 21Mbps. Omran added that the company had “exceeded all expectations” in terms of its targeted subscription rates. “We have achieved during the first two years what was planned to be achieved in five years, and by the end of the third year the number of our subscribers exceeded 14 million,” he said. Egypt is widely viewed as a market with significant potential for the mobile sector, with the mobile penetration rate reaching just 65% in 2009. Javier Alvarez, a partner at Dubai-based telecom consultancy Delta Partners, said that Egypt’s mobile sector is expected to grow by about 16% in 2010 to reach 64 million subscribers, giving a mobile penetration rate of about 75%.

MTN Nigeria secures $2.15 billion loan with 15 banks Mobile operator MTN Nigeria has signed loan agreements worth more than $2 billion with 15 Nigerian banks and two foreign banks to fund its ongoing expansion. MTN Nigeria, a division of South Africa’s MTN Group, said a consortium of 15 Nigerian banks would provide it with a Naira 250 billion ($1.6 billion) five-year syndicated loan, while Germany’s KfW Ipex would

provide a $250 million credit export facility for the purchase of equipment from network vendor Ericsson. Meanwhile, the Industrial and Commercial Bank of China agreed to provide $200 million worth of credit for MTN Nigeria to purchase equipment from telecom vendor Huawei Technologies. The development comes as MTN Nigeria anticipates

increasing competition, with India’s Bharti Airtel likely to inject investment into Zain Nigeria, which it acquired along with most of Zain’s Africa assets. MTN Nigeria competes with rival mobile operators Globacom, Zain, Etisalat and M-Tel in one of Africa’s most competitive mobile markets. Nigeria, which has a population of some 151 million people, is Africa’s biggest telecom market.

NEWS 13

iPhone 4 will launch in UAE by year end But online retailers will start selling Apple’s latest smartphone by early July By Vineetha Menon

Apple’s earlier iPhone models were initially available in the region via unofficial channels.

The new iPhone 4 will be officially available in the Middle East by the end of this year, according to the CEO of online store EmiratesAvenue.com “Like for the iPad which is still not sold by Apple in the UAE, the iPhone 4 should be sold only by the end of the year or maybe even later, from the information we have now,” Julien Pascual, CEO of EmiratesAvenue.com said. EmiratesAvenue.com is presently accepting early orders for iPhone 4 smartphones, sourced from the United Kingdom and France, for AED 3,499 ($952) for the 16GB model, and AED 3,999 for the 32GB version. “Currently we had over 200 pre-orders for the iPhone 4. We should receive the first pieces

on the first week of July,” said Pascual. “The iPhone 4 has more pre-orders than the iPad for the same period of time so we can expect a higher demand”. EmiratesAvenue.com’s iPhone 4 prices are more than double the $299 and $199 launch prices announced through a contract with AT&T Wireless in the United States. Pascual said they closely match the $915 price tag (AED 3,360) of unlocked units announced by Apple, especially after factoring in customs and shipping costs. If the phones come unlocked from the factory it can essentially be used with any carrier, including UAE mobile operators Du and Etisalat. Online retailer AlShop.com, which witnessed ‘crazy demand’ for the iPad tablet in the UAE,

are also accepting pre-orders for the iPhone 4 but have not divulged exact pricing as yet. CEO Sheriff Rizwan estimates the iPhone 4 16GB will cost around AED 4,000 to 5,000, with the 32GB costing a few hundred dirhams more. “We’ve seen roughly around 200 to 300 pre-orders in the first week itself,” revealed Rizwan. “Our suppliers are selling it to us at a very high premium but we are committed to offering it to our pre-order customers at a very very minimum margin.” AlShop.com guarantees it will be one of the first retailers in the country to have the iPhone 4 by the end of the month. Rivals Nahel.com have a different take on the situation, saying it is still too early to talk about availability in the Middle East especially since Apple have halted sales of the phone in the U.S. temporarily. Apple and its carrier partners took in record pre-orders of more than 600,000 for the new iPhone 4 on the first day. The demand was ‘far higher than anticipated’ and resulted in online ordering systems getting overloaded and supplies running out. “If a store here is already accepting pre-orders, we think that is premature. We (Nahel. com) will position ourselves very well as soon as the phones are available through our suppliers and fulfill customer demand. This is one of our specialties,” stated Saeed Hamideh, business development manager for the Consumer Electronics division at Nahel.com.

BRIEFS Strong outlook for mobile payment this year The number of people using their mobile phone to make and receive payments will exceed 108 million this year, according to US-based research firm Gartner. Last year there were 70.2 million mobile payment users and that figure will more than double to reach 108.6 million in 2010. “We continue to see strong growth in developing markets in Asia, Eastern Europe, the Middle East and Africa for mobile payment, while adoption in North America and Western Europe lags behind due to the plentiful choices of payment instruments that consumers have,” said Sandy Shen, research director at Gartner. “Developing markets have found the right formula for mobile money services functions that users want and an ecosystem that can sustain the service.” The EMEA region alone had 16.8 million mobile payment users last year, and the segment is expected to top 27 million in 2010, but only represents 2.1% of mobile users in the region. Shen said that the strong demand for mobile payment in developing markets is being driven by people that do not have ready access to the banking infrastructure or PC, positioning mobile as the natural choice of access platform. Shen also said that SMS remains the dominant mobile payment tech for its ease of use.

CommsMEA | July 2010 www.itp.net

NEWS

ANALYSIS 15

M&A BACK ON THE AGENDA Bharti Airtel’s acquisition of Zain’s African assets has helped put M&A firmly back under the spotlight. By Roger Field Reports that the UAE’s incumbent operator Etisalat is keen to take an equity stake in India’s second biggest mobile operator, Reliance Communications, is yet another indication that M&A is firmly back on the agenda in the region’s telecom sector. But while much of the M&A activity in the years running up to the financial crisis was founded on bravado and a philosophy based on ‘growth at any cost’, the recent deals that have been mooted are of a very different nature. Whether looking at Bharti Airtel’s decision to acquire most of Zain’s African assets, MTN’s desire to buy operations from Orascom, or Etisalat’s rumoured pitch for a stake in Reliance Communications, this new breed of deal is based on a more strategic attempt to create economies of scale while also strengthening existing foreign investments. While some analysts believe Bharti Airtel might have a tough time extracting a decent profit from some of Zain’s African operations, it is reasonable to assume that the Indian operator, which has proven adept at generating profits from extremely low ARPU markets in parts of India, will be able to replicate the model in Africa. While MTN’s pitch for some of Orascom’s African assets stalled in June, the reasoning behind the proposal made sense, given the geographic fit of their assets and the fact that MTN will soon be facing increased competition from Bharti in some of its African markets. In the same way, Etisalat’s – and more recently also MTN’s – rumoured interest in taking a significant equity stake, perhaps up to 45%, in Reliance Communications, also appears to be based on sound reasoning from both parties. As India’s second biggest operator, Reliance no doubt watched Bharti’s acquisition of Zain’s African assets with a

certain amount of envy. If, as reports suggest, Etisalat is interested in eventually taking a 45% stake in Reliance, the deal would give both operators a genuine vested interest in each other’s markets, which for Reliance could mean a foot in the door in Africa. Furthermore, Etisalat, which has operations in Benin, Burkina Faso, the Central African Republic, Gabon, the Ivory Coast, Egypt, Niger, Nigeria, would almost certainly benefit from Reliance’s experience of operating in low ARPU markets, particularly in the light of recent reports suggesting that many of its foreign operations are struggling. Indeed, according to a recent State Audit Institution report in the UAE, Etisalat made an AED1.24bn ($338m) loss across ten of its overseas operations in 2009. By the end of that year, the value of loans and debts granted by Etisalat to affiliate companies totaled AED10 billion, which constituted 35% of the value of Etisalat’s investment in these companies. The SAI said these were granted without the proper collateral, which put the company finances at risk. Etisalat, which spent some $900 million for a 45% stake in an Indian telecom operation in 2008, would also find an equity stake in Reliance a far more lucrative project than battling away with Etisalat DB, its Indian operation which is yet to launch in 15 circles of India that are already fiercely competitive.

RIPE FOR CONSOLIDATION Furthermore, according to a panel of CEOs of leading operators including Zain Saudi Arabia, STC and Etisalat, the region’s telecoms sector is set for further consolidation and the number of operators in the region is likely to fall dramatically. Speaking at the Arab Advisors Convergence Conference in Amman last

Deals are inevitable in the coming years as the sector consolidates.

month, Saad Al Barrak, CEO of Zain Saudi Arabia and former CEO of Zain Group, said that with about 50 operators in the region’s 22 countries, M&A “is a must”. “I think 50 operators in the Arab world must reduce to six or seven,” he said. “But hopefully the acquisitions will not be made by companies that are mainly government owned, because that is against the history of natural economic development. “You need good quality shareholders and I don’t think governments are good shareholders to start with,” he said. Ghassan Hasbani, CEO of international markets, STC, agreed that consolidation was likely in the wider region, including India, but said that it probably remained a few years away owing to the strong profits being enjoyed by many of the region’s operators. “Market consolation in the Middle East is still probably a few years away, the reason being that operators are still enjoying good margins, paying good dividends and haven’t reached a point where this type of market consolation is absolutely necessary,” he said. While the rumoured deals between MTN and Orascom, and Etisalat and Reliance, may ultimately amount to little, the reasoning behind the deals at least indicates a far greater level of maturity than has been seen in the past. It also points to some interesting times to come.

www.itp.net July 2010 | CommsMEA

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WORLD NEWS USA Qualcomm secures Indian spectrum Qualcomm, a US wireless technology specialist, has won unpaired broadband wireless access (BWA) spectrum in the 2.3 GHz band in four telecom circles in India, for $1 billion. Qualcomm, which was one of 11 bidders participating in the BWA auction, won spectrum for Delhi, Mumbai, Haryana and Kerala, which will allow the company to deploy LTE services and also to offer capacity to other operators. Kanwalinder Singh, president of Qualcomm India and South Asia, said: “Our bidding objective was to secure an enabling role in the continued success of Indian operators with 3G and beyond. “With its ecosystem partners, Qualcomm will now foster the deployment of LTE, so Indian consumers can enjoy the benefits of 3G now and 3G plus LTE in the future.”

GettyImages

INDIA Reliance Industries to gain pan-India BWA spectrum Reliance Industries Ltd (RIL) entered into an agreement to acquire a majority stake in Infotel Broadband Services, a company that emerged as a successful bidder in all 22 circles of India’s auction for broadband wireless access (BWA) Spectrum in June. RIL will invest about Rs 4,800 crore ($1.03 billion) in Infotel Broadband, giving it a 95% stake in the company, which will then become a subsidiary of RIL. RIL said in a statement that it sees broadband as a major opportunity in India and believes it can take a “leadership position” in the industry by rolling out 4G services.

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FRANCE France Telecom gains permission for quad-play French incumbent France Telecom has finally been granted permission to offer quad play services after the country’s telecom regulator, Autorite de la Concurrence, removed restrictions that barred the operator from offering bundles of fixed and mobile services. The conditions were originally placed on the telco more than a decade ago when the market was first opened up to competition. The change of rules means that France Telecom will now be able to compete with rivals including Bouygues Telecom and SFR which already offer bundled services comprising internet, fixed telephony, TV and mobile calls. Reports indicate that France Telecom intends to launch quad play services by mid-August.

CommsMEA | July 2010 www.itp.net

WORLD NEWS 19 Hong Kong PCCW Global and Dialog sign network agreement HKT Global (Singapore), a subsidiary of Hong Kong’s PCCW Global, has signed an inter-carrier-interconnection (ICI) agreement with Dialog Telekom, a telecom operator in Sri Lanka. The agreement will allow the two companies to interconnect their Multi-Protocol Label Switching (MPLS) networks. This will allow Dialog to leverage PCCW Global’s MPLS network to provide corporate customers with access to a wide portfolio of international data, voice and video applications, in addition to value-added and managed services. It will also give Dialog a competitive edge over its rivals by allowing it to become a global service provider for converged enterprise solutions. Meanwhile, PCCW Global will be able to capture the rising demand for international connectivity to Sri Lanka.

MONTH IN NUMBERS

$104 MILLION

The sum invested by Vietnamese operator EVN Telecom in its 3G network, which covers some 46% of the country.

$1 BILLION 95%

The amount paid by Qualcomm for BWA spectrum in India.

The stake Reliance Industries will hold in Infotel Broadband.

VIETNAM EVN Telecom launches 3G EVN Telecom has become the fourth operator to launch 3G services in Vietnam. The company has invested VND2 trillion ($104 million) in its network, including the installation of about 2,500 3G base stations in 63 provinces, covering some 46% of the country, according to local press reports. Vo Quang Lam, deputy director, EVN Telecom, said that under the first phase of the deployment, the company planned to focus on the cities of Hanoi, HCM City, Hai Phong, Da Nang and Can Tho. In the second phase of the roll out, the operator said it would install more than 5,000 BTS by the end of 2010. The telco hopes to gain one million 3G subscribers within 12 months of launching.

COLOMBIA UNE-EPM wins LTE spectrum Colombian operator UNE EPM is looking for LTE vendors after winning 2.5 GHz spectrum in the country’s BWA spectrum auction last month. UNE-EPM, which offers fixed line and pay TV services, enabling it to offer mobile Internet and content services, acquired 50 MHz of spectrum in the 2.5 GHz-2.69 GHz band for 80 billion pesos ($40 million). The competition was hard fought, with USE-EPM beating rival DirectTV over 14 rounds of bidding, according to local press reports. UNE-EPM plans to invest some 150 billion pesos ($75 million) in fixed-line, TV, Internet, broadband, long-distance and mobile services, according to Columbia’s Ministry of IT and Communications.

www.itp.net July 2010 | CommsMEA

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MERGERS & ACQUISITIONS

FOCUS 21

ACQUISITION PLAN Operators are placing greater emphasis on strategy as the sector braces for further consolidation. By Roger Field

he years running up to the financial crisis of 2008 were marked by some frenzied deal making in the Middle East telecoms sector, with many of the region’s incumbent operators bidding huge sums for foreign licences and stakes in other telecom operators. Kuwait was just one example of a relatively small country that attracted disproportionately large bids from operators,

with STC paying $900 million for a 26% stake in Kuwait’s third mobile operator in 2008, while Zain and its partners paid $6.1 billion for the the second mobile licence in Saudi Arabia the previous year. But with the onset of the financial crisis in 2008, the region’s telecom sector retreated into a more bearish phase, with most of the operators concentrating on developing their existing assets.

The lull in deals experienced throughout 2009 came to an end as Zain, one of the region’s previous champions of M&A, decided to sell off most of its African assets. And with India’s biggest mobile operator, Bharti Airtel, having completed its acquisition of most of Zain’s African assets last month (see p6), and with numerous M&A talks and deal rumours being reported, M&A is firmly back on the agenda.

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“The pure land grabbing type mentality of just planting flags around the world is over because we haven’t seen much in the way of results or shareholder value being created by that type of approach.” Zoran Vasiljev, Value Partners Zoran Vasiljev says operator approaches to M&A have matured.

The trend was also noted by delegates at the recent Arab Advisors’ Convergence Conference in Jordan last month, with a number of CEOs from the region’s telecoms sector predicting further consolidation in the telecom sector. However, this new round of M&A appears to differ significantly to the pre-2008 deals. This time, not only are prices lower, but proposed deals also appear to driven by more clearly defined strategies. Zoran Vasiljev, a partner at Dubai based consultancy Value Partners, believes further consolidation in the sector will be markedly different from past deals. “The pure land grabbing type mentality of just planting flags around the world is over because we haven’t seen much in the way of results or shareholder value being created by that type of approach,” he said. He added that the economic downturn had given many of the most acquisitive telcos time to re-think their strategies and also to assess the merits of the acquisitions they had made and to consider why some operations had struggled to generate income. “These realisations in some of the groups have come through, and probably the maturity of the management at the group level has also evolved. We can see these trends emerging, which should be good news for the shareholders of all these companies,” Vasiljev added.

PAN REGIONAL CONVERGENCE Furthermore, Bharti’s entry into Africa, and rumours that UAE incumbent Etisalat was in talks to buy a stake in Reliance

CommsMEA | July 2010 www.itp.net

Communications, India’s second biggest mobile operator, also pointed to growing ties between the telecom sectors of the Middle East and Africa, and India. Indeed, Bahrain’s Batelco is already present in South India through its stake in STel, while STC is present in India through its investment in mobile operator Maxis, which is the majority shareholder in Aircel, India’s fifth largest mobile operator. Etisalat, aside from its rumoured talks with Reliance Communications, also already has a presence in the country via its stake in Etisalat DB, a joint venture between Etisalat and Indian real estate company, DB Group. For Vasiljev, the Indian operators may well have more to gain from the African market than the Middle East operators have to gain from India. He said that the Indian operators, namely Bharti Airtel, will be “very well positioned” to take advantage of operations in Africa. “This is not necessarily what Middle East operators are, because they come from home countries where ARPUs are quite high, and where they enjoyed quite a nice ride, and the sudden shift into a very competitive, low ARPU operation where you need to be quite lean is probably not something that they are accustomed to,” he said. While operating in India might be a steep learning curve for Middle East operators, it could also benefit them in terms of the learning that can be taken back to other low ARPU markets they are in, such as Africa. “The winners will be the ones that actually learn from the process and get some good knowledge of how to operate there, so they

can then expand further and make it a more profitable venture,” he said. On the subject of the rumours about Etisalat being interested in buying a stake in Reliance Communications, some analysts have said that the motivation for such a deal could be driven as much by Reliance wanting to gain a foothold into Africa as by Etisalat’s keenness to enter the Indian market. A relationship with a successful Indian operator could certainly prove beneficial to Etisalat, which has been struggling to profit from some of its foreign assets. Indeed, speaking to CommsMEA on the sidelines of the Arab Advisors’ conference, Mohammad Omran, chairman, Etisalat said that the “Indian” telecom model was of interest to Etisalat. He also confirmed that the telco was in talks with a number of Indian companies, without naming individual players. But Etisalat’s interest in taking a stake in Reliance, or another Indian operator, may also be driven the sluggish pace at which its existing Indian operation, Etisalat DB, has progressed. Despite paying $900 million for a 45% stake in Swan Telecom back in 2008, the operation, which has a licence to operate 2G services in 15 circles in India, only staged a soft launch in late May 2010, according to local press reports. Furthermore, Etisalat’s decision to abandon India’s recent 3G auction – at which Batelco’s STel unit gained 3G spectrum for three circles – also suggested the company had put its Indian operation on a back burner.

MERGERS & ACQUISITIONS

FOCUS 23

“There can be little doubt that MTN shareholders are growing impatient and there is now likely to be a great deal of pressure on the MTN executive body to deliver new growth streams and revenues for the company.” Lindsay McDonald, Frost & Sullivan

Furthermore, under Indian telecom regulations, a single company is prevented from holding stakes of 10% or more in two operators competing in the same area. This would mean that, in the event of a deal happening, Etisalat DB would either have to be sold to a third party, or acquired by Reliance Communications. One industry insider, speaking to CommsMEA on condition of anonymity, said he viewed Etisalat’s interest in Reliance as unusual given that the company usually takes controlling stakes when it makes deals. However, he conceded that such a deal would also make sense given the short cut it could offer Etisalat to the Indian market. Certainly, in terms of cost, an investment in Reliance Communications would make more sense for Etisalat than making further investments in Etisalat DB. Reports suggest that Reliance intended to sell a 26% stake valued at about $2 billion, which would compare favourably with the $900 million that Etisalat paid for its 45% stake in Swan Telecom, which had no operations or customers at the time of the deal. Bharti Airtel’s entry into Africa did not only spur competitors in India to look to the Middle East for potential partners, and Africa’s two biggest operators, South Africa’s MTN Group and Egypt’s Orascom Telecom, have also been assessing their options. Indeed, for South Africa’s MTN Group, which has operations in 16 countries in Africa, the entry of Bharti into many of its markets is a major development and the Indian operator is likely to prove to be a hardier competitor than Zain.

“What is clear though, is that there can The development was enough to spur MTN and Orascom to discuss a possible deal be little doubt that MTN shareholders are growing impatient and there is now likely in April. However, the proposed deal, which to be a great deal of pressure on the MTN could have led to MTN acquiring some of executive body to deliver new growth Orascom’s African assets collapsed amid streams and revenues for the company.” intervention from the Algerian government, which said it would block the sale of Djezzy – one of Orascom’s most lucrative operations VALUE ADDED ACQUISITIONS – to MTN. While it tends to be operator acquisitions However, the collapse of the talks does that command most attention, Vasiljev indicate that some of Orascom’s operations believes operators in the region might look could still be for sale, and that MTN Group to expand the scope of their operations is still open for talks with other players. through deals with various VAS (value added Indeed, MTN has already been associated services) providers. with numerous deal negotiations in the past “If you look at the value added services couple of years, including discussions with as a contribution of revenues, or overall Bharti Airtel and Reliance Communications. revenues, into the [Middle East] operators, When Orsacom announced that it had they are quite small still compared to your called off the talks with MTN Group, it led European average,” he said. to speculation about what the South African In Europe, VAS accounts for about company’s next move might be. “There are still a couple of RETURN OF M&A investment prospects for the operator in Africa,” said Lindsey McDonald, For STC international CEO, Ghassan Hasbani, the recent surge consultant, ICT practice, of interest in M&A in the telecoms sector is a sign that the MENA, Frost & Sullivan. market is “waking after a year of ‘wait and see strategy’”. “It is now up to “People see that we are emerging out of the economic management to decide downturn globally. Financing is more available than it was whether they are going to before and certain opportunities are starting to emerge here follow a historical approach and there.” where they try to acquire a Deal talks have also been spurred on by some high profile group, or if there are markets exits, such as Zain’s sale of most of its African assets. that are valuable enough, “Since we have seen some interest from some people to exit where they would consider certain markets, we have seen other people interested in the purchase of a telecom entering them, so that has been a kind of trigger in addition company operating in a to a better financial market,” he said. single market,” she said.

www.itp.net July 2010 | CommsMEA

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MERGERS & ACQUISITIONS

“Our strategy is very focused and balanced, so we always look for targets that would complement our capabilities at the right price point and with the right growth opportunity and synergy opportunity.” Ghassan Hasbani, STC Ghassan Hasbani predicts further consolidation in the sector.

10-11% of revenue, while in the Middle East it is barely even 3-4% of revenue according to Vasiljev. “Many operations are looking to increase their scope and one way could be through looking at these adjacent businesses which could be content or VAS providers that can immediately add value to their business, and especially on a group level,” he said. “If you really put a good VAS organisation under your umbrella you can immediately reap the benefits in multiple countries and in multiple operations that you have. I think that is one of the sectors where we will see M&A happen.” He added that this is likely to include the acquisition of companies involved with the management and creation of content, which is already emerging as a major driver of data use.

OPERATOR PERSPECTIVE While Etisalat and MTN have been linked to deal rumours, both have remained tight lipped about their plans. Meanwhile, Saudi Arabia’s incumbent operator, STC, recently stated that it was continuing to look for opportunities, while Peter Kaliaropoulos, CEO of Batelco, Bahrain’s incumbent operator, also said that his company was continuing to look at opportunities in North Africa and Asia. Ghassan Hasbani, CEO international at STC, says that India and North Africa are of interest to the operator, although any decision the company takes will be carefully timed. “Both markets have demographics that have potential for growth,” he said. “The

CommsMEA | July 2010 www.itp.net

with Saudi Research and Marketing Group question is that of timing. When will the (SRMG), a Middle East publishing group, growth come given that there is a youth and All Asia Networks (ASTRO), a leading population and there is economic growth cross-media operator with operations in being projected, and there is a capacity to Malaysia, Brunei, Indonesia and India, to use telecom services. The question is one of aggregate and manage content for telecom timing, when will that growth start showing and we are starting to see early signs of that.” services. Hasbani says that these types of deals STC is also scrutinising the regulatory effectively represent the creation of entities climate and market dynamics of the markets that “operate semi of fully independently it is considering, Hasbani says. “Both are from the existing entity but with a high critical success factors for capturing the degree of synergy and collaboration between growth and for succeeding in operations in them.” He added that these types of services those markets. can be instrumental in attracting and “They are both emerging markets and retaining customers, and that the services can we are watching to see which one will be also be adapted for different markets where emerging faster.” the parent group is present. Hasbani added that STC, which has a “It gives the right scale to build presence in India through a stake in mobile and efficient and effective content and operator Maxis, and in Africa though its applications platform,” he says. investment in Oger Telecom, is looking closely at developments in India. Indeed, Maxis is the majority DEALS IN NUMBERS shareholder of Indian mobile operator Aircel, which won 3G spectrum in 13 circles of India in the recent auction. The sum paid by Zain and its partners in 2007 for the second Hasbani also highlighted Saudi Arabian mobile licence. North Africa as a potential opportunity for STC. “Furthermore, STC is not The value of Kuwait’s third mobile license, for which STC paid just looking expand its $900 million for a 26% stake in 2008. operations geographically,

$6.1 BILLION $3.5 BILLION

but is also looking to expand its scope, through deals and partnerships in the VAS sector. Indeed, in 2008, STC established a joint venture

$2 BILLION

The estimated value of Swan Telecom in India (now Etisalat DB) when Etisalat bought a 45% stake of the firm for $900 million in 2008.

REVIEW

ARAB ADVISORS’ CONFERENCE

STAYING THE COURSE Telecom operators must seize on new types of services and collaborate with companies in related industries in order to proposer, according to CEOs gathered at last month’s Arab Advisors’ conference in Jordan. By Roger Field

t is not very often that the telecom sector finds itself compared to Marilyn Monroe, but then the annual Arab Advisors’ Media and Telecoms Convergence Conference – where the unusual comparison was made – is far from being a run-of-themill event. While Hakam Kanafani, chief business development and synergy officer, Oger Telecom, initially raised eyebrows among a crowded conference room, his passing references to past Hollywood stars soon made sense. Indeed, for Kanafani, the telecoms sector is suffering from the “Marilyn Monroe syndrome”, and must seek ways to reinvent

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itself. Just as the famous actress fell out of favour in the 1950s as attention turned to the likes of Jane Fonda and Sophia Loren, so the region’s telecoms sector is also facing an upheaval as attention shifts to applications such as social networking sites. “We were also the star of stars,” Kanafani said of the telecom sector. “We were the industry that created so much shareholder value, we were an industry where everyone wanted to be. “But all of a sudden, heads are turning the other way, heads are looking to the Googles, the Facebooks, the Twitters, even customer-generated content, and the iPhone. “When everybody expected that mobile

companies will serve these technologies, people are now looking at Apple.” Kanafani also gave a sober appraisal of some of the challenges facing the telecom sector, including lower margins, increased competition, and growing pressure from capex combined with declining voice revenues, and the difficulty of profiting from a surge in data use. These challenges became a recurring theme broached by the CEOs at the event, indicating just how operators have been forced to play catch-up amid the growing popularity of data, applications and userdriven content that is often being carried at the operators’ expense.

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“We keep forgetting that other companies around us are creating a tremendous customer experience and taking value away from our industry.” Peter Kaliaropoulos, Batelco

For Peter Kaliaropoulos, CEO, Batelco Group, much of the problem has been due to a fixation by operators on technology rather than customer experience. “We as an industry keep focusing too heavily on the technology and how quickly we can roll out new technology. “We keep forgetting that other companies around us are creating a tremendous customer experience and taking value away from our industry,” he said. “So we should spend a little more time focusing on customer segments, not just looking at customers generically, but looking at specific segments of customers and at what drives their decision making.” Kaliaropoulos said that operators needed to consider offering more tailored services and bundles to create a more customer friendly operation. However, he conceded that for many operators, the task would be difficult. “We have a long way to go in terms of creating a customer experience,” he said. “The value long term will come from those companies that deliver the best experience, which is a combination of many things, not just pricing. He added that the reason Apple had overtaken Microsoft in terms of market cap was because it had focused on customer experience ahead of technology. “It has got nothing to do with technology but the way they bring together technology applications and make it easier for customers to actually buy and deliver a totally new experience. That is one challenge for us, how do we improve the customer

experience,” Kaliaropoulos said. Aside from putting the customer at the centre of their strategies, operators are also battling to maintain profits as ARPUs fall, and to ensure that they can gain a decent ROI on costly data networks. For Kaliaropoulos, this situation is partly the fault of the operators themselves. Indeed, operators have “conditioned customers over many years to get a lot more for a lot less”, and are now struggling to shift away from this model. The observation was certainly timely, given that AT&T in the US, and O2 in the UK pulled away from all-you-can-eat packages in June. Kaliaropolous said that even Batelco had stopped such tariffs in one of its markets. Mohammad Omran, CEO, Etisalat, agreed that increasing data use – particularly since the launch of the Apple

i-Phone –had led to the need for different pricing structures. Etisalat has seen data use increase hugely in the past couple of years, with the trend showing few signs of abating, Omran said. “I see now that the move has become much faster with people moving more and more to using data. “I am sure 3G was designed for everyone on Earth […] however things are moving much faster and we will see more data use, and voice is going down in revenue.” In one of its operations, Etisalat offers an unlimited data package with a ‘fair usage’ policy. With this plan there is no charge for up to 30 gigabytes per month, but if a user exceeds this amount, Etisalat will reduce the speed for that user. Just as operators need to find ways to charge for data, so operators also need to find other means of generating revenues

The Arab Advisors’ Convergence Conference, which was held in Amman, Jordan, in June attracted some 600 delegates.

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REVIEW

ARAB ADVISORS’ CONFERENCE

Peter Kaliaropoulos, Mohammad Omran, Sam Barnett, and Saad Al-Barrak discussed the challenges of convergence.

from their networks, Kaliaropoulos added. “Profitable growth is very important and we need to find ways to keep generating more margins in the future, rather than just getting more customers to use our services and increasing packages,” he said. “It is the Googles and Microsofts of this world who have been cleverer than us to take all of that, so we need to monetise together what we deliver to the customer, so finding profitable growth is probably one of the biggest challenges that we have.”

DATA PLAN Certainly, most of the CEO’s in the panel, which included operators and broadcasters, agreed that collaboration between telcos and content providers would be essential for both parties to prosper in a converged landscape. “We do not have total solutions for the customer, so we need to work with other players,” Etisalat’s Omran said. As COO of Dubai based broadcaster MBC Group, Sam Barnett offered a clear view of the need for content providers and telecom operators to collaborate. “In terms of convergence between media and telecoms, if that convergence means us working more closely together then I am sure that will happen, and will happen much more quickly now,” he said. Barnett added that as 3G and HSPA networks become more widespread, so interest in MBC’s content from mobile users and operators grows. “We have now done deals with many of the telcos in the region, supplying content to both mobile and fixed. We even have a

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few co-production deals, so we will jointly players, according to Barnett. produce content,” he said. However, while Barnett conceded that “With Etisalat we launched our catchrevenue models for broadcasters and up TV service and its ‘Shahed Online’ TV telecom operators are likely to change offering, and we are seeing good growth on significantly in the coming years, he was that one.” optimistic about the prospects of the He added that while the growth broadcast industry. experienced in this area remained small “If you look at international markets compared with its mainstream TV offering, where they have a more developed the services were experiencing good growth. infrastructure, such as the US and Japan, Barnett also pointed to social networking people are watching more TV than they and gaming as potential sources of revenue were 10 years ago. I think that is a lesson going forward, and said that both MBC and we can afford to be optimistic going Group and its telecom partners were forward,” he said. “getting bolder” in terms of their plans. Barnett added that in terms of pricing “I expect over the next few months some reasonably large HUMAN FACTOR announcements on both those fronts,” he added. While much of the discussion at the Arab Advisors EASING TENSIONS conference was based on the need for operators to put While operators and content customers at the centre of their operations, Saad Al-Barrak, providers stand to gain CEO, Zain Saudi Arabia, sought to remind delegates of the much from working together, importance of staff. tensions can arise, according He described the management of human resources as to Barnett. being the “greatest challenge” facing telecom operators. He “Inevitably, when you said that a failure to manage people properly would stifle start to dance close together innovation and ultimately harm operators. you find you step on each “We tend to look [at human resources] from a generic others’ feet, and we are mindset that we have led our companies with for many seeing that as well,” he said. years,” he said. “There are various tensions.” “We tend to think of people as assets and we keep them One potential cause of much like our networks. This is a service industry, and the conflict is the tendency of only way to innovate is to have the finest human beings some telecom operators around and you cannot have the finest human beings to over-bid for content, around unless you are giving them an incentive and which drives prices up and invigorate them.” damages the market for all

ARAB ADVISORS’ CONFERENCE

REVIEW 29

“If you look at international markets where they have a more developed infrastructure, such as the US and Japan, people are watching more TV than they were 10 years ago.” Sam Barnett, MBC Group

structures, he had no problem with operators offering content over broadband via a subscription model, but warned that if operators became involved in the freeto-air broadcasting sector, it could create a “bloodbath”.

FOCUS ON STRATEGY Ghassan Hasbani, CEO-international at STC, said that the growing emphasis on social networking, applications and content is really a sign that the sector is going through what he deemed an “evolutionary transformation”. He also made the observation that a resurgence of user-generated content, made popular by websites such as Youtube, is not as alien as some people might initially think. “Throughout the history of our industry the dominance of data carried over networks has been predominantly user generated – user generated data and voice, and today we are moving into more user generated multimedia,” he said. He added that while there is likely to be consolidation in the region’s telecoms sector in the coming years as operators strive to gain scale, scope will prove to be equally important for telcos. “Scale alone is not enough,” he said. “Scope is also very important as well since this industry has re-invented itself. “We are seeing scope growth through partnerships, and we believe that partnerships are the way forward. Indeed, STC formed a joint venture to produce media content in 2008, with Saudi Research and Marketing Group (SRMG),

While the panel discussion gave a and All Asia Networks (ASTRO), a media clear indication of the challenge that the operator with operations in Malaysia, growth of data presents to operators, it Brunei, Indonesia and India. also became clear that demand for content Hasbani said that STC created this and applications should be viewed as an company because it was convinced that opportunity for telcos. while there would be much content pushed As Hasbani said, changes in the telecom on to its networks, telecom operators and media landscape present opportunities, lacked the ability to handle data the way and it is the operators that are best consumers want. positioned to benefit. “We are not experienced at that, it is not “The way the new generation is our business, and this is why we created this transforming the social interfaces of the business at arm’s length,” he said, adding world is creating more opportunities for that partnerships with banks and financial us as telecom operators to build more institutions to allow financial transactions infrastructure, and to innovate applications over its networks were also important. and services that allow infrastructure to In this way, demand for new types of be used effectively, and to create more content and applications offer operators a opportunities for innovation.” major opportunity to create new revenue streams, as long as they can find the right models and form APPS STORES ARE A GROWING MARKET the right partnerships to exploit BUT TELCOS FACE REVENUE SQUEEZE them. Alex Shallaby, chairman, Mobile Apps Market % of Total Revenues Retained by Mobinil, agreed that (USD Billions), 2008-2014 Various Players in the Value Chain forming partnerships would Developer Porting Service Publisher Operator Provider be vital in order to profit 10 100 the growth of data. “We 30% are challenged by the fast 8 80 50% 9.1 growth in data, there is no 1% question that is where it 6 60 CAGR: 38% is happening. We can only 4 40 survive if we do the right 69% 28% partnerships, team up with 3.8 2 2% 20 the vendors, aggregators, 20% the players in that space and 0 0 maintain that relationship 2009 2014 Pre-Apple’s Post-Apple’s Apps Store Apps Store with our customers,” he Source: CapgeminiTME Strategy Lab analysis; Ovum, “Telecoms 2020”, Dec 2009; Informa, “Mobile content and services forecast tools-2009-2013”; said.

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www.comptel.com

Head in the clouds?

OSS for Cloud

LEBANON

COUNTRY PROFILE 31

PATH TO PRIVATISATION Lebanon’s telecoms sector remains hamstrung by state ownership, but holds huge potential.

f the rise in Lebanon’s mobile penetration rate in the past couple of years was anything to go by, the country could have been mistaken for having one of the world’s fastest improving telecom markets. Indeed, the country’s mobile penetration rate has doubled since June 2008, reaching about 62% in June 2010. But this growth, which was led by a significant reduction in mobile tariffs, was a rare achievement in a market that remains among the most expensive mobile markets in the world, lacks any 3G services, and has a broadband penetration rate of about 15%. Lebanon ranked last in Arab Advisors’ recent Cellular Competition Intensity Index, which awards each Arab country’s telecoms sector with a percentage score, taking into account factors including the number of operators, packages and services available.

Lebanon trailed in last place, with a score of 31.2%, behind Syria and Libya. And while the low mobile and internet penetration rates may indicate huge opportunities for telecom operators and vendors in the future, it is clear that telecom players in Lebanon remain frustrated by ongoing political problems that stifle the development of the sector. For most people involved with the sector, the problem afflicting the Lebanese telecoms market mainly stem from a lack of political consensus on how to improve the country’s two state-owned mobile operators and single fixed operator. The mobile sector is dominated by two operators, MTC Touch and Alfa, which are run by Zain Group and Orascom Telecom respectively. These two operators run mobile services under two-year build operate and transfer (BOT) contracts for the country’s

Ministry of Communications. The system has been broadly criticised for failing to incentivise the two mobile operators, which are reluctant to invest heavily in their networks in case they lose their contracts to continue running operations. The BOT system also stifles innovation and leads to a lower rate of investment in telecoms infrastructure. Indeed, Mark Kremers, an associate partner at consulting firm Oliver Wyman, points out that only about 8% to 9% of revenues are re-invested in mobile infrastructure projects in Lebanon, compared with an average of about 20% in other countries in the region. Kremers has spent significant time analyzing the Lebanese telecoms sector, and he sees politics as being at the centre of the country’s telecom problems. “What we see in Lebanon is that the

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COUNTRY PROFILE

LEBANON

“We have been focusing our efforts during the last two years on broadband, and we have developed a clear plan and vision of what is needed.” Mahassen Ajam, Lebanon TRA Mahassen A. Ajam remains optimistic about Lebanon’s telco sector.

telecommunications sector is the result of a fairly hectic political time period in which many different parties have been trying to run the country, and up until today it has been very difficult to get consensus on big topics such as telecom liberalisation,” Kremers says. “Based on our analysis, Lebanon is roughly six to seven years behind the average mobile market that we see in the Middle East. “We are not even comparing it to very advanced markets, but if you look at the fact that there are still two operators, there is a controlled duopoly and basically no commercial freedom for the operators to really compete, and there is a very low level of competition and penetration rates are around 70%,” he says. He adds that the lack of 3G services and the fact that some 98% of revenues still come from voice services also clearly indicates just how much the sector lags behind its regional peers. The problems are exacerbated by the lack of freedom the two operators have to set their own tariffs and special offers, or to launch any new services. To implement any changes such as these, the operators must apply to the Ministry of Telecommunications. But despite the apparent lack of will to privatise the telecom sector in Lebanon, many industry insiders think that the country is now edging closer to change, with the subject being discussed more openly and the benefits of a liberalised telecoms sector evident from other countries in the region.

CommsMEA | July 2010 www.itp.net

But even without taking the full leap to privatisation, Kremers thinks that the Ministry of Telecommunications and the TRA could start implementing certain changes that could have significant benefits for the sector and end users. “As industry observers we say try to forget thinking about only the long term. There are also things that you can do in the short term that are probably less difficult to agree on that could set some changes in motion,” he says.

KEY PROBLEMS To clarify his views, Kremers first explains the main faults he sees with the way the mobile operators are controlled. And among the main faults is the lack of freedom the telcos have to compete on price, a cumbersome approval process for implementing any new initiatives, and a lack of rewards aimed at encouraging improved quality of service.” “There are very few levers that they can use to compete and on top of that, pricing is fully regulated and is equal between the operators,” Kremers says. “You basically take the key competitive lever away from the operators and as a result we see very low penetration and fairly low quality of service levels and all the things that you don’t want to see.” And on the subject of approval processes, Kremers says that the operators must navigate a “painstakingly long process” to get formal approvals for the changes they are allowed to implement. Given the extent of these restrictions,

Kremers is adamant that while full liberalisation should be the objective, much can still be achieved by making a number of smaller changes to the way Alfa and MTC Touch are allowed to operate. He adds that the operators would benefit if they had more freedom on pricing and were also rewarded financially for fulfilling certain KPIs. Furthermore, while the price reduction in mobile tariffs that was implemented about two years ago led to a huge increase in mobile penetration, there remains room to reduce prices further, Kremers says. Further price reductions would also be most likely compensated for with increased consumption. “We feel that there is still a lot more elasticity in the market if you drop that price further,” Kremers says. “Lebanon has been notably the most expensive country in the world for mobile tariffs. It has done something about it but it is still far beyond everything else we see in the region. “We would very much like to see a balanced approach where little steps are taken to create momentum while they [the government] are building out a broader platform of consensus to finally set course on a liberalisation path for the industry, which ultimately is the only way to get out of the current situation,” he says. “It is good for everyone if they install a bit more competition and give a bit more freedom on the commercial side, so pricing regulation should be less strict and probably less painful to go through in terms of proposals.”

LEBANON

COUNTRY PROFILE 33

“Based on our analysis, Lebanon is roughly six to seven years behind the average mobile market that we see in the Middle East.” Mark Kremers, Oliver Wyman

Kremers adds that if Lebanon were able to “pick up the pace” and begin implementing changes that inject more competition into the market, and also overcome political obstacles to agree on a path to liberalisation, much could be achieved. This is not only important for the sake of the telecom sector itself, but also for the wider benefits that a healthy telecom market has on the rest of society. Indeed, a liberalised telecom sector could lead to improved services, a boost in employment, improvements in education, as well as a general boost in the competitiveness of the country, Kremers says. “The country would get an overall boost and would attract more FDI. It will also grow several sectors that are heavily reliant on a better telecom infrastructure,” he adds. While Kremers says that it is difficult to assess whether the Lebanese government will be able to agree on a path towards liberalisation any time soon, he believes that it is the only rational approach. “I don’t think anybody with a long term and best interest for the country in mind can honestly say that the current set up should remain in place to drive the development of the country,” he says. “I think now there is a willingness to change but there is a heavy debate about what that change is and what the different milestones are,” Kremers adds.

REGULATORY CHALLENGES Given that Lebanon’s Telecom Regulatory

ready for liberalisation, but is waiting for Authority was only formed in 2007, the political agreement on the subject from the organisation has made some serious inroads government. in improving the country’s telecoms sector, “For the moment, privatisation of mobile and it is probably no co-incidence that is subject to a political agreement by parties the mobile penetration rate of the country in the country,” she says. has more than doubled since the regulator “This is at the Council of Ministers started to encourage a path towards level, and not at the TRA level, we are liberalisation. technically and logistically ready to launch But while Lebanon’s mobile sector has the privatisation within three months, once improved significantly, a clear timeline for the political decision is taken by the Council privatisation has continued to elude the of Ministers.” country, and rumours have also persisted of disagreements between the regulator and the Ministry of Telecommunications. BOOSTING BROADBAND These disagreements appeared to come to Given the ongoing disagreements over the a head in April, when the TRA’s chairman, decision to privatise the mobile networks Dr. Kamal Shehadi, resigned. VENDOR PERSPECTIVE Local press reports suggested that Shehadi believed the role of the regulator was Hou Shu, who heads up ZTE’s operations in Lebanon, says being undermined by that from one point of view, he sees Lebanon as a market of Charbel Nahhas, Lebanon’s great potential. “We all know that the economy of Lebanon telecommunications minister. is booming but currently there is only one fixed line network While Shehadi’s and two mobile networks and the penetration is low and the resignation was no doubt rates are high, it is still expensive,” he says. a setback for the TRA, the “This means big opportunities for vendors and even in the organisation is continuing existing network there are still a lot of opportunities.” to lay the foundations for Meanwhile, Huawei offered Lebanon an insight into LTE privatisation so that the technology in June when its LTE roadshow truck visited the process can be started as country. The roadshow, which comprises an articulated lorry soon as the government complete with 3G and LTE demos, is touring the region and gives the go ahead. presenting live demonstrations of LTE technology to telecom Mahassen Ajam, executives and officials in North Africa and the Middle East. commissioner, board In Lebanon, the road show was held under the patronage member, head of information of the telecoms minister Charbel Nahhas. Huawei gave LTE and consumer affairs demonstrations to the TRA, both mobile operators, as well unit, Lebanon TRA, said as ISPs and Lebanese Universities. that the regulator itself is

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COUNTRY PROFILE

LEBANON

“Lebanon has notably been the most expensive country in the world for mobile tariffs. It has done something about it but it is still far beyond anything else we see in the region.” Mark Kremers, Oliver Wyman.

Mark Kremers says operators need more control over pricing.

at government level, the TRA has decided to concentrate on improving the country’s broadband sector. “We have been focusing our efforts during the last two years on broadband, and we have developed a clear plan and vision of what is needed,” Ajam says. At face value, Lebanon’s ISP sector appears to be relatively competitive. It has 16 internet service providers, most of which offer DSL services using the fixed copper network of the fixed line monopoly Ogero, while about four companies offer nomadic services via pre-WiMAX technology. But despite this apparent abundance of competition, the companies face similar restrictions to the mobile operators in terms of being able to set their own prices and launch special offers. In 2009, ADSL services experienced a growth of about 63%, with subscriber numbers reaching 130,000 in October 2009, or around 13% of households, with most opting for the 256 kbps download package, according to the TRA. In the wireless internet sector, the number of subscribers reached 30,000 by October 2009, although the TRA conceded that prices remained the same. However, in some cases, upload or download speeds of some of the cheapest packages were doubled, and data traffic was slightly increased. In its 2009 annual report, the TRA also admitted that residential broadband tariffs for low speed services (less than 1Mbps) in Lebanon remained expensive. It stated that Lebanon’s broadband services were

CommsMEA | July 2010 www.itp.net

ranked among the highest rated Arab of Lebanon’s broadband sector. Mediterranean countries and were 2.4 times “We are always very optimistic, we more expensive than OECD countries. believe that in the interests of the country In 2008, the regulator said it planned they [the Council of Ministers] will end up to hold an auction for technology neutral agreeing on some major things to do for the national broadband licenses and broadband benefit of the market. I think we are close access licenses at the end of the first quarter to a decision at this level, at least for the of 2009. broadband,” she says. While Ajam concedes that this target Furthermore, the government’s ambitions has been missed, she says that the TRA is to deploy a fibre optic network also give hopeful that it will succeed in implementing some room for optimism. its plans for the broadband sector soon, even Indeed, the government said recently that though further targets have been missed. it was planning to invite international firms “We were expecting to launch an to bid for a contract to create a $100 million international auction for broadband fibre optic network. licencing at the national level in 2010, “We need to expand our domestic capacity allowing them [the winning bidders] and in this sense we have finalised the tender international gateway plus fibre backbone,” documents to deploy fibre inside Lebanon,” she says. telecoms minister Charbel Nahhas told But the TRA has so far failed to convince Reuters in April. the Council of Ministers “of the validity of such an MOBILE PENETRATION EVOLUTION OVER TIME approach”, according to Ajam. However, the TRA 120 Lebanon Arab peers is still working to define a regulatory framework for the 100 In the period 2000 and 2007 benefit of potential investors. annual growth rate between was more than 7 times as high in the Meanwhile, with only 80 region as Lebanon one international gateway controlled by the Ministry of 60 Communications, the sector faces some major problems. 40

ROOM FOR OPTIMISM But despite the setbacks, Ajam is optimistic that the TRA will be able to achieve its goals for the development

Penetration rate as percentage of population

20 0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 WCIS, Buddecom 2010, Informa. (Oliver Wyman)

Q&A LTE

DATA DRIVERS

Middle East operators are busy testing LTE, but the smooth transition to the new technology is no mean feat. The experts: Zheng Xiang, vice president for Middle East, Huawei Rabih Dabboussi, director, systems engineering, Cisco UAE Ravi Mali: Regional director, service provider business, Juniper Networks Middle East & Africa

he past year has seen significant investment from the regionâ&#x20AC;&#x2122;s operators to develop and improve their mobile broadband networks. And while HSPA+ technology has already given customers in some markets a taste of speeds of up to 21Mbps, a number of operators in the region, including Etisalat, Mobily, Zain Bahrain, and STC are also conducting LTE trials. With the value of the LTE infrastructure market expected to top $11 billion by 2014, according to Infonetics Research, CommsMEA spoke to three industry players about their views of LTE deployment in the Middle East. COMMSMEA: HOW DO YOU VIEW THE DEVELOPMENT OF LTE IN THE REGION? Zheng Xiang: In the Middle East market, the use of data services and demand for bandwidth are exploding among subscribers, driven primarily by smart phones. New video and internet based devices attract immense traffic to networks. Huawei forecasts the number of mobile broadband subscribers to increase tenfold, reaching 3 billion in the next 5 years in 2014. To cope with the challenge of huge

CommsMEA | July 2010 www.itp.net

Dabboussi: ME telcos are typically early adopters of new tech.

Ravi Mali: Some countries in the region could bypass 3G for LTE.

traffic demand and improve cost efficiency, operators need to boost the network capacities, increase throughput and improve customer experience with cost reduction to remain competitive and maintain profitability. Based on market demand and technical perspectives, LTE is the ideal solution to these challenges and requirements. Huawei identified the growth potential of LTE in the Middle East at an early stage and has invested heavily in LTE technology globally. We see our business momentum in the Middle East continuing in 2010 and expect year-on-year revenue growth of 20%, driven by increased deployments of mobile and fixed broadband networks, further takeup of customised smart devices, and higher demand for professional managed services.

has been on the rise in the region and the adoption and penetration weâ&#x20AC;&#x2122;ve enjoyed in the Middle East is very encouraging. Mobile data has also been widely adopted, many factors have helped with this adoption. Most importantly, the cultural aspect where most Middle East subscribers are heavy users of their mobile devices.

Rabih Dabboussi: We have historically seen very strong adoption of new technologies in the service provider space in the Middle East. More specifically, mobile proliferation

COMMSMEA: HOW DO YOU VIEW THE OPPORTUNITY FOR PRODUCTS AND SERVICES BASED AROUND SUPERFAST WIRELESS BROADBAND IN THE REGION?

Zheng Xiang: By far, the Middle East has become another hotspot for LTE network construction after Northern Europe, North America and East Asia. Before the first quarter of 2010, Huawei has gotten more than 60 contracts for LTE commercial and experimental networks around the world. In 2010 Huawei developed precommercial LTE trials with Etisalat in the UAE, STC and Zain in Saudi Arabia as well

LTE

Q&A 37

“While operators will support market demand by quickly deploying new radio technologies such as LTE, they must continue to support the existing GSM, Edge, UMTS and HSPA networks for many years.” Zheng Xiang, Huawei

as with Viva in Kuwait. Preceding full LTE network commercialisation, many operators are deploying LTE trial networks. As the rapid increase in data subscribers for mobile broadband reaches up to 5 billion in future, LTE will provide a platform for mass scale utilisation across industries such as e-Govt applications, enterprises, public and private healthcare, electricity, transportation, security, public safety and others in parallel to telecom industry. COMMSMEA: WILL THERE BE A GRADUAL UPGRADE TO LTE FROM HSPA+, RATHER THAN A ‘LEAP FROGGING’ FROM 3G TO LTE?

Ravi Mali: Most of the mobile operators have set up planning teams to lead the R&D and evaluation of the business case of LTE and at a certain time in the next two to three years they would like to deploy. I also know of certain countries that have not yet issued 3G and might go straight to LTE, because it doesn’t make sense to do intermediary stuff. If they haven’t rolled out 3G yet why would they now? In a couple of Gulf countries I would say the way they are planning the roadmap is definitely ahead of how you could plan the same thing in Europe. The reason for that is the geography. The size of the countries are not as big so the capex is less and the return is quicker. On the opex side, it makes more sense for them to take the latest technology and deploy it. Zheng Xiang: While operators will support

market demand by quickly deploying new radio technologies, such as LTE, they must continue to support the existing GSM, EDGE, UMTS and HSPA networks for many years. Rather than building a complex “vertical” network of separate radios, the need is for a “horizontal” integrated radio network that supports voice, narrowband data and mobile broadband. Huawei’s solution for this is SingleRAN. Coping with the surge of growing data traffic is a daunting challenge that operators have to take on and overcome, while LTE is poised to be a solution that can provide the right capacity at reduced cost for networks. LTE networks are now being installed or planned for commercial service in MEA countries including Bahrain, Jordan, KSA, UAE and South Africa. Rabih Dabboussi: We have historically seen very strong adoption of new technologies in the service provider space in the Middle East. More specifically, mobile proliferation has been on the rise in the region and the adoption and penetration we’ve enjoyed in the Middle East is very encouraging. Mobile data has also been widely adopted, many factors have helped with this adoption. Most importantly, the cultural aspect where most Middle East subscribers are heavy users of their mobile devices. We have seen significant opportunities during the upgrade phase of legacy GSM networks to 2.5G many years ago, and then later on to 3G. Next generation mobile wireless networks including 4G have one

very important aspect in common, that is the Internet Protocol. IP has now become the standard networking technology to help converge legacy systems and next generation systems onto a common, highly capable, single network. COMMSMEA: WILL HSPA+ SPEEDS START TO GIVE PEOPLE A TASTE OF WHAT WILL BE POSSIBLE WITH 4G? Rabih Dabboussi: HSPA+ and other forms of high speed mobile packet access are key in driving the adoption of mobile broadband technologies and services. It all started when 3G was officially rolled out in the region, where users started to get a sense of the unleashed capabilities that mobile broadband could bring. Nonetheless, 3G remains challenged to deliver true broadband experience over the airwaves. 4G technologies, specifically LTE, uses a completely different radio interface and data bandwidth which will enable true internet applications and services to be delivered to our smartphones. Users will soon be able to enjoy different experiences over their mobiles than what they are used to. The majority of these services will be around video conferencing, video streaming, VoD, IPTV, and communications applications such as video calls, video blogs, and video social networking participation. We strongly believe that the majority of the paradigm shift taking place in the next wave of the internet will be around mobility and mobile broadband.

www.itp.net July 2010 | CommsMEA

SA S ALE L S AND AN A ND LEASEBACK LEA LE AS SE EB BACK ACK AC FOCUS FOC CUS SALES

UNLOCKING VALUE Sale and leaseback of assets can prove to be a valuable tool for operators, particularly in tough economic times, but striking the right deal is essential

he global financial crisis created a kind of climate that encourages organisations to start considering alternative financing options. It is this climate in which sale and leaseback has begun to emerge as an appealing creative financing strategy, particularly in the telecoms sector. A classic sale and leaseback transaction involves the owner of an asset (“Seller”) selling or otherwise transferring this asset to a purchaser (“Purchaser”), who in turn then leases it back to the Seller. Of course, there can be variations on this classic approach. Sale and leaseback transactions are typically very complex and their structure is dependent on the type of assets being transferred and the limitations and restrictions that, more often than not, exist in relation to such transfer. In this article we discuss various practical commercial considerations and strategies organisations should consider before, during

CommsMEA | July 2010 www.itp.net

and after the actual sale and leaseback transaction takes place, in order to maximise its benefits.

KNOW YOUR PROPERTY Although it may seem obvious, accurately identifying the asset portfolio for the sale and leaseback is critical. Even more important, however, is determining whether or not the assets are legally capable of being disposed of in the manner contemplated. • Tangible Property Tangible property may either be real immovable property (which typically includes land or buildings) or movable property such as infrastructure, equipment, office fittings, tools and any other tangible items. The nature of the Seller’s rights in tangible property is generally either (i) freehold / ownership; or (ii) leasehold / lease. Typically, a sale and leaseback asset portfolio will include tangible property from both of these legal categories. For example, in the telecoms

By Lenka Glynn and Kelly Tymburski

space, mobile towers are typically owned by the operator. However, the land on which these towers are erected is often leased by such operator from the land owner. Where the Seller owns the relevant asset, it is generally able to freely dispose of it. However, the Seller will need to identify instances where it is not the sole owner of the property or where its right to freely dispose of the property is limited by operation of an encumbrance or other third parties’ rights. In such circumstances, the Seller should establish what approvals need to be secured or what actions need to be taken in order for the Seller to be able to legally effect the transfer of its title in the asset. Lease of the relevant asset is typically dealt with through the assignment or novation of the lease by the Seller to the Purchaser. Once again, it is essential for the Purchaser to be aware of limitations that may hamper such an arrangement. In almost all cases, the prior written approval of the

SALES AND LEASEBACK

FOCUS 39

“Although it may seem obvious, accurately identifying the asset portfolio for the sale and leaseback is critical.” lease assignment or novation by the actual owner of the relevant asset will be required. The parties should also ensure that the terms of the original lease allow for the subsequent sub-leasing back to the Seller. Parties should also bear in mind that in certain jurisdictions, real property transactions will need to comply with certain formalities in order to become legally effective and binding. • Intellectual Property Rights More often than not, intellectual property rights (“IPR”) such as designs, know-how, patents or copyright will be included in the asset portfolio. Indeed, IPR is often required for the effective management and operation of the property the Purchaser is acquiring through the sale and leaseback. For example, the Purchaser is likely to request the IPR in the network design or operating manuals. It will be essential to identify who owns the relevant IPR and what the Seller’s rights are in respect of that IPR. Where the Seller is the sole owner of the relevant IPR, it will typically be free to transfer such IPR to the Purchaser. Both parties will need to be prudent about ensuring such IPR transfers are duly recorded by contract and the relevant intellectual property registers. Where the Seller uses the IPR on the basis of a licence agreement, it will be necessary for the Seller to establish whether the licence is transferrable and if so, under what conditions. • Importance of contracts Assets being transferred under the sale and leaseback often need to be maintained, operated, managed and to receive utilities

by or from third parties. For example, the operation and maintenance of network infrastructure may be outsourced to a specialist company. Assets, such as infrastructure, may also be shared or otherwise utilised by third parties. These relationships with relevant service providers, tenants or other third parties are typically governed by contracts - which will also need to be transferred to the Purchaser to the extent it wishes to directly utilise the services or other benefits provided under these contracts. • Personnel In some sale and leaseback transactions, the Purchaser may be interested in taking over some or all of the Seller’s personnel involved in the part of the business that is being transferred to the Purchaser. The Seller will also need to consider what will happen in respect of personnel forming part of the transferred business unit that the Purchaser, for whatever reason, may not want to take on. No matter what the commercial issues are, the parties will need to take account of applicable labour law considerations. For example, the parties will need to consider whether any of the relevant personnel are members of a labour union, or if there are any provisions in their respective employment contracts which might adversely impact the proposed transfer, redundancy or redeployment, as the case may be.

KNOW YOURSELF The parties should assess whether there are any legal, regulatory or commercial imperatives that in any way restrict or

prohibit their ability to deal with the asset pool. This is especially relevant in the telecommunications sector, as well as other highly regulated industries. Firstly, the operation of certain telecommunications infrastructure is often restricted to entities that are licensed for this purpose. Therefore, where the Purchaser is not a telecommunications licensee, then it would lack the requisite legal capacity to operate such infrastructure unless it secures the required licence. A sale and leaseback transaction may also need to be considered from a competition law point of view. Both parties should ensure that their sale and leaseback transaction will not be considered anti-competitive by relevant competition authorities. Lastly, and from perhaps the most basic standpoint (and yet one that we have seen parties overlook), each party must ensure it obtains all internal approvals required for the transaction. This is especially relevant where such approvals might include those from a Board of Directors or a Chairman that may not be readily available, or where approval of the transaction might require a shareholder vote.

PRICE IS RIGHT There are a vast number of issues that may impact on the value of the asset portfolio in the context of a telecoms sale and leaseback. Some examples of these issues are as set out below. • Site leases. Factors to be assessed should include how critical the specific site is within the Seller’s telecommunications

www.itp.net July 2010 | CommsMEA

FOCUS SALES AND LEASEBACK

“No matter what the commercial issues are, the parties will need to take account of applicable labour law considerations.” infrastructure, the financial terms of the lease, how long is left on the term of the lease and whether there are any automatic rights of renewal at the end of the term. • Economic life of assets. The applicable economic life of each asset comprising the sale and leaseback must also be assessed. In respect of infrastructure, the parties should evaluate the reasonable economic life expectancy of the relevant asset and to what extent it has already been depreciated, as well as its current state of repair and any encumbrances. • Regulatory compliance of infrastructure. Infrastructure (especially telecoms towers) that is not compliant with applicable regulatory and statutory requirements can significantly devalue a transaction. For example, facilities that are not compliant with health and safety radio frequency levels may be prohibitively expensive to bring up to code. • Impact of sharing arrangements. The financial impact of assets which are shared or will be subject to sharing arrangements amongst multiple tenants in the future will also need to be factored into the valuation of the asset portfolio. Indeed, such sharing arrangements may increase the value of the asset portfolio and correspondingly decrease lease payments. • Personnel related costs. As discussed above, personnel may also need to be transferred (or otherwise dealt with) as part of the transaction. Depending on the decided approach, this could incur severance / redundancy pay-outs, decreases (or increases, as the case may be) in salaries, additional

CommsMEA | July 2010 www.itp.net

Lenka Glynn: Many issues affect the value of an asset portfolio.

Kelly Tymburski: Every sale and leaseback transaction is unique.

training costs for redeployed staff or any number of other cost considerations. From a tax standpoint, understanding how the applicable tax framework will apply to the transaction and ensuring it is structured in the most tax efficient way are critical factors to deriving optimal financial benefit from the sale and leaseback arrangement. Improperly addressed tax implications could have far-reaching repercussions, including unexpected tax treatment of gains and an inability to claim deductions and capital allowance.

which are more conventionally encountered in telecoms sale and leaseback transactions. Of course, because every sale and leaseback transaction is unique in terms of its scope and ultimate imperatives, the commercial implications will also be unique to each of the parties involved. Therefore, undertaking a complete and thorough evaluation of the commercial implications of your proposed transaction is imperative to its success. Lenka Glynn is partner and head of telecoms, media and technology (TMT) for the Middle East, Africa and South

CONCLUSION

Asia, Pinsent Masons LLP. Kelly Tymburski is associate at

The commercial considerations discussed above are merely a sampling of some of those

the TMT Dubai office, Pinsent Masons LLP.

MOBILE BANKING

OPINION 41

In the money Hannes van Rensburg, CEO of Fundamo, discusses the mobile financial services market in Africa.

obile financial services are already playing a profound transformational role in Africa by extending the privileges associated with a financial identity and improving economic inclusion, contributing to a sustainable increase in national GDP. The GSMA predicts mobile financial services will also create the opportunity for 1.7 billion unbanked in developing countries with mobile phones to secure a financial identity by 2012. The economic downturn has cast a shadow over this positive growth, African banks had limited exposure to toxic investments and survived the crisis with little impact on their balance sheets. The downturn did affect the mobile financial services sector indirectly by reducing the availability of capital in Africa. This has made the establishment of mobile financial infrastructures extremely difficult as the funding needed to start up new operations has been largely unavailable. The mobile financial services market in Africa for banks, as it stands, is devoted to customer acquisition in order to rapidly gain market share. The market is dominated by the first and second largest banks. Therefore, it is difficult for vendors and smaller mobile companies to develop sufficient traction needed to provide a positive cash-flow business case. In order to survive the next two years, the smaller players in the market need to be acquired by the leading telecoms providers and banks to sustain their growth. Consolidation is crucial. We are already seeing consolidation in some markets like Nigeria. But in fast organic growing markets such as Kenya, the banks and operators are in the planning stages to grow their transaction volumes and customers in the countries within which they operate, by merging and consolidating. Consolidation is a major drive for many banks and lots of scope for growth exists

Hannes van Rensburg sees huge potential for mobile banking.

as the untapped market for financial services is vast. The introduction of bank and operator consolidation allows banks to extend their market share without the need for investment in tangible bank branches, while allowing operators to provide mobile financial services. Furthermore, the provision of mobile financial services will differentiate banks and operators from their competition and, in turn, generate additional revenues for both parties. Over the next two years, as the macrobenefits of offering mobile financial services to lower income segments become more apparent, we expect the introduction of government incentives to deliver these services. These types of incentives are currently driven primarily by NGOs such as the Mzanzi initiative in South Africa. As the mobile industry develops and retailers make a bid to become involved, the mobile banking industry in Africa is set to evolve. Examples of this progression are already emerging, from cash-in and cash-out functions on mobile wallets being made available at retail outlets, to new cashcollection mechanisms for retailers, and payment services for small businesses.

As this market grows and matures we expect the services to go beyond transferring money to relatives, to more transformational services, such as bill payments and loans. With these new mobile services we will also see a reduction in technology CAPEX for operators as more flexible and secure solutions become available for less. Further benefits for African banks include reduction in overhead costs, such a building maintenance and staff. It is a broad belief in the industry that operators and banks will go head-tohead for large customer bases within the mobile financial services market. I believe that operators and banks can create a relationship based on mutual understanding where banks deliver the banking credibility and mobile operators deliver distribution of the service. By each contributing their own strengths, they will generate larger, more profitable markets from which they will both benefit. Examples of market improvements can already be seen from the mergers between M-Pesa and Equity Bank, and Mobile Money and Standard Bank. This will deliver win-win business models and drive growth within the market. For example, ten banks could collaborate with one operator for a single mobile financial solution on one platform boosting economies of scale and market share for a minimal investment. Relationships between banks and operators are already evolving in this direction with the shared platform in Pakistan being a case in point. In the coming months, growing mobile infrastructure and win-win business models along with new pressures and catalysts will continue to spur mobile financial services growth in Africa. By working together on mutual opportunities banks and operators will ensure that Africa leads the world on mobile financial services.

www.itp.net July 2010 | CommsMEA

RESEARCH

JORDAN TOPS TELECOM SURVEY

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Jordan and Saudi Arabia most competitive telco markets

ordan emerged as the country with the most competitive telecom sector in the Arab world, followed closely by Saudi Arabia and Palestine, according to a survey from research firm, Arab Advisors Group. The Cellular Competition Intensity Index, which takes into account factors including the number of operators, packages and services available, gave Jordan a score of 80.7%, while Saudi Arabia achieved a score of 75.3%, and Palestine 69.3%. All three companies improved their rankings compared with last year’s survey. The survey found Lebanon to be the least competitive market, with a score of 31.2%, while UAE, Syria and Libya also performed poorly, achieving scores of 45.4%, 38% and 34.3% respectively. In total, eight countries, comprising Jordan, Saudi Arabia, Palestine, Oman, Tunisia, Yemen, Bahrain and Qatar ranked higher than in June 2009. Meanwhile, the same number of countries, consisting of Algeria, Sudan, Mauritania, Kuwait, UAE, Libya and Lebanon, ranked lower. The remaining three countries, Egypt, Morocco and Syria, maintained their June 2009 ranks. “In addition to having four cellular operators, Jordan has intense competition in the ILD (international long distance) segment and has the highest number of prepaid plans amounting to twenty four plans,” said Faten Bader, senior research analyst, Arab Advisors Group. Bader added that Jordan was also the second highest performer, after Morocco, in terms of the number of postpaid plans, which amounted to thirty seven. The impact of MVNOs was also noted by the survey for the first time, with Oman achieving a score of 67.1% and moving to fourth place compared with fifteenth place in 2009, according to Zeena Al Borgan, also a senior research analyst at Arab Advisors Group. By end of April 2010, the market hosted five operational MVNOs, in addition to the two mobile operators, Oman Mobile and Nawras.

THE NUMBERS

45.4% The UAE’s score in the Arab Advisor’s Cellular Competition Index, which placed the country near the bottom of the rankings.

$32 BILLION The value that mobile location based applications are expected to create by 2015, according to Juniper Research.

60,000 Smartphones being shipped per day, according to ABI Research.

CommsMEA | July 2010 www.itp.net

Google’s Android platform is gathering momentum and taking a lead among Linux-enabled smartphones

SHARP GROWTH FOR LINUX PLATFORMS Linux-enabled smartphones, led by the success of Google’s Android, will comprise 33% of the worldwide smartphone market by 2015, according to a report from ABI Research. With an average of more than 60,000 smartphones being shipped each day, Android has catapulted ahead of other Linux mobile platforms, the report indicates. “Due to its low cost and ability to be easily modified, Linux in the mobile market today is nearly as disruptive as Linux was in server markets a decade ago,” said Victoria Fodale, a senior analyst, ABI Research. Fodale added that much of the interest that handset OEMs and mobile operators have in Android can be traced to its flexibility. “The Android platform can be modified so that OEMs can differentiate their products and the licensing terms allow OEMs to innovate while still protecting proprietary work,” she said. But although Google has built early momentum, Android is not without competition. Industry heavyweights Intel, Nokia, and Samsung recently announced two other new Linux-based operating systems, bada and MeeGo.

MOBILE APPS REVENUES TO SOAR The combined revenues from apps funded by pay-per-download (PPD), value-added services and advertising is expected to rise to $32 billion in 2015, from just under $10 billion in 2009, according to a report from UK-based Juniper Research. But while Apple’s App Store has achieved app downloads on an unprecedented scale – 4 billion by April 2010 – the report cautions brands and developers against ignoring users of other platforms and handsets. According to Juniper, such a move could be counterproductive, particularly in developing markets, where the user base of iPhones, and smartphones in general, is extremely low. “If the mobile industry wishes to introduce a model based on applications, then it must ensure that those applications are accessible by a wide range of handsets ranging from smartphones to mass market devices,” said Dr Windsor Holden, author of the report.

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