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In a hurry for growth

01 March 2006

MTC has ambitions to become one of the biggest mobile operators in the world. But CEO Saad Al Barrak has wider ambitions. He is looking for a global brand that will work from China and Gabon, in Rio de Janeiro and Madras, in Moscow and Iceland at the same time

Saad Al Barrak:
Organic growth will
lead us to more than
22 million subscribers by
the end of 2006
Dr Saad Al Barrak, CEO of the Kuwait-based MTC group, is an ambitious man. "Our plans are based on our long-term vision, which is to expand regionally, then internationally, then globally."

And he's already heading along that road. "We've started in January 2003. We were only in one country at that time, with 600,000 subscribers. Today we are in 19 countries with 15 million plus subscribers."

It won't stop there, he says: "We will continue expanding in our emerging markets, such as the Middle East and Africa, and part of Asia such as Pakistan, India and Bangadesh."

MTC operates in Kuwait as MTC Vodafone, as it does also in Bahrain. It has other brands in neighbouring countries: Fastlink in Jordan, MTC Touch in Lebanon, and MTC Atheer in Iraq.

But in April 2005 it made its biggest move so far, by buying Celtel, a Dutch-registered company with operations in 13 African countries, for $3.3 billion. And in December, under MTC's ownership, Celtel bought a majority stake in Madagascar's mobile operator, Madacom, for an undisclosed sum.

Early in 2006 Celtel took over the remaining 61% of Mobitel in Sudan from the incumbent, Sudatel, in a deal valued at $1.3 billion, taking ownership to 100%.

So that's growth from one country to 19 countries in three years. Celtel brought operations in Malawi, Kenya, Tanzania, Uganda, Zambia in the east, both the Congos in the middle, Burkina Faso, Gabon and Sierra Leone in the west, and Chad and Sudan further north.

Al Barrak doesn't want to stop there: "Africa is definitely a prime target for us. Through our company Celtel we definitely are determined to be the leading African mobile operator."

The company is already "pursuing opportunities in the biggest 20 economies in Africa to start with", which implies he has ambitions in Nigeria and South Africa. Yes, he confirms: "We are looking at opportunities in Nigeria, Ghana, Senegal, Angola and South Africa as well."

The company announced in February that it was applying for the third mobile licence in Egypt, but there are, so far as we know, no plans for additional mobile licences in South Africa. There are three operators in the republic: MTN, which has no connection with MTC, Vodacom, which does have a connection with Vodafone, and Cell C.

Is he looking for an extra licence or at one of the existing operators. "No we're looking at one of the existing," says Al Barrak.

And what sort of deal would that be? "Acquisition," he says, bluntly. What is available in South Africa? "Anything could be available for the right value."

That implies he has a large budget for acquisitions. Yes, "we have $5 billion", he confirms, "for the next two years".

Islamic finance deal

MTC, which is the second largest company on the Kuwaiti stock exchange, has usually relied on conventional funding arrangements. But earlier this year in concluded a $750 million Islamic finance - or murabaha - facility. A total of 20 financial institutions, from the Middle East, North Africa, Asia and Europe, took part in what has been one of the larges Islamic financings.

ABC Islamic Bank, Calyon, Gulf International Bank and Kuwait Finance House were joint bookrunners.

Proceeds were uses to partly pre-pay a $2.4 billion bridge facility that MTC used in May 2005 to fund part of the Celtel acquisition.

Mandated lead arrangers were ABC Islamic Bank, Calyon, Gulf International Bank, Kuwait Finance House, Arab Bank and National Bank of Abu Dhabi. Gulf International Bank was the modareb and facility agent.

NBK Capital, the investment banking arm of the National Bank of Kuwait, acted as financial advisor to MTC, which decided to tap the Islamic market for the first time, in line with the its overall strategy to diversify sources of funding.

And how does he plan to spend that $5 billion over two years? "It's mainly acquisitions but we are looking for some greenfield licences," says Al Barrak. "For example, the third licence in Egypt, the third licence in Saudi Arabia. In general it's mainly acquisitions."

Does he have any particular preferences for technology? Is it GSM all the way through or is he also looking at 3G. "For us, it's either. We are a mobile telecommunications company, mainly in GSM and 3G, but we will not exclude other options of mobile communications."

Most of the revenue is voice. "It will continue to be voice for a very long time. You're talking about 90% of the revenue."

Subscriber growth

Let's project forward those two years. When he's spent that $5 billion, where does he hope to be in terms of subscriber numbers?

"At the end, if we organically grow, our organic growth will lead us to more than 22 million subscribers by the end of 2006. But we are hoping to reach 30 million in two years."

At the beginning of the interview he spoke of a progression from regionally, to internationally, to globally. Does that mean he is looking further afield that in the markets where MTC is established now?

"The priority is, if there are enough opportunities in our direct markets, that's fine. Otherwise we would definitely entertain opportunities in eastern Europe, Russia and places like this."

What particular skills does MTC have that means they will be good territories for the company? "The skills we have in MTC: we have the most diverse countries and economies and cultures that any company has," said Al Barrak.

But doesn't that make it hard to get synergies? "No, I think synergies are there. The point is we want to be a leading company in emerging markets. That's an area we can handle, vis-à-vis other international players who have not done well at all in emerging markets - you can see that from their track record."

Why have they failed? "They are not geared to leverage such opportunities. It would be a stupid mistake by them to try to address it at this stage. They have enough on their plate and they should keep busy with what they have."

What is MTC's policy with regard to suppliers? Does he plan to work with the same suppliers across all territories? "No, it's really value addition. We have a great relationship with all renowned suppliers. Obviously with a footprint which is the fourth largest mobile company worldwide, definitely suppliers are highly interested in MTC and therefore we are talking openly all the time with all of them, looking at new technologies and better economics."

This is a programme that has run for three years, and he plans to spend $5 billion over the next two, but has Al Barrak got a strategy for the longer term? Does he have an idea of where he wants to take MTC after the next two years?

Vision for the world

"Yes, of course. We have our vision, which is three by three by three. In the first three years we wanted to be a regional company, and we are already beyond that. In the second three years we wanted to be an international company, expanding beyond the Middle East and Africa, to Asia and other parts of the world."

The final three years of this programme? "The final stage we would aspire to be a global company, in the big league. This is our dream. And we started the implementation of this vision only three years ago."

In started in January 2003, and since then it has expanded to 19 countries "and achieved a geographic area which categorises us as the fourth largest company worldwide". That is, to be clear, the geographic area that MTC covers: and Niger, Chad, Sudan, the Democratic Republic of the Congo, Zambia, Tanzania and Madagascar between them cover around 9.6 million square kilometres. There are some large spaces in Africa.

Does he plan a country-by-country or network-by-network acquisition strategy, or is he looking for a deal similar to the Celtel purchase, acquiring a group of operations in one go?

"I think we are looking at both," says Al Barrak. "It depends on the country size. There are some big countries where, yes we'll look at a company that serves that country. But for smaller countries, we are looking at groups such as Celtel, where we could be in 10 countries in one move. We are in a hurry. We don't have time."

He is in a hurry in more senses than one. The interview is being conducted in a noisy meeting room at the 3GSM conference in Barcelona, with advisers around him. Al Barrak has cancelled a series of interviews with other journalists, as other meetings have taken priority, but not that with Global Telecoms Business, for which we're grateful. Even we don't have as much time as ideally we'd like.

But why is he in a hurry? "Our window is really the next five years. After that the whole world will be deregulated." The World Trade Organisation "will have its pervasive impact over all these areas", he says. "Big players will come and freely service this market, so we want to be at least as big as them before the end of this phase."

Rebranding plan

Following the takeovers he has already achieved, does MTC plan to rebrand its new properties as MTC? "Yes, of course, but not as MTC. We are looking at new options. We are looking at a new brand, and a global brand, that could be understood and appreciated and celebrated and embraced from China and Gabon, in Rio de Janeiro and Madras, in Moscow and Iceland at the same time. It's tough, but we'll try."

He laughs. "Definitely it'll be better than all these brands that come from big companies, that belong to the stone age of mobile telecommunications."

What's the timescale for a new branding? "We expect to do that by the end of 2006 to settle on a global brand," says Al Barrak. "Within 2007 we hope to implement it completely."

So what is Al Barrak's own background? "Very simple," he says. "I was an engineer. I failed so I got promoted to be a manager. And I failed as a manager, so I was promoted to CEO."

If he fails in that, he'll be a consultant, he jokes. "If I fail as a consultant I'll be a politician."

Seriously, "I was an IT man all my life, for 19 years. I'm a stranger to the world of telecommunications." It was only three years ago that he joined this industry, though he was serving the telecoms industry from an IT perspective. "But, you know, IT people have a lot of ego and they think they should control the world. They think they know much better than others. So I came with this attitude to MTC."

And has he been proved right? "So far, from the financial results. We were a $2.8 billion company when we started three years ago. We are a $14 billion company today. That's our market capitalisation. Our profits today are approaching $600 million. It was only $200 million three years ago. So the numbers are really good, thanks to the great effort of the great people at MTC." There are 6,000 employees, he adds.

The next step: is he in negotiation at the moment with anyone else about a deal? "Oh yes, we are in negotiations with a number of countries. We are in negotiations all the time. We thrive on negotiation."

And the next announcements? "Mid March, insh'Allah," he says. That's just after this issue of Global Telecoms Business goes to press. By the time you read this, it might have happened. GTB




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