Rebranded Zain plans to end Middle East roaming charges

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Kuwaiti-based operator Zain claims success for its One Network strategy in Africa, allowing Celtel customers across 12 nations to make and receive cross-border calls at local rates. Now it plans to introduce the scheme in Saudi Arabia and its other Middle East operators, says CEO Saad Al Barrak

Saad Al Barrak: More than two million people have already used the One Network service. It is playing a crucial role in helping to promote and boost cross-border trade

We interviewed you two years ago, when you had 15 million subscribers in 19 countries. What are the current numbers, and how has that met your plans at that time?
Since we started operating in Kuwait as the region's first mobile operator in 1983 we have experienced strong growth. Through the disciplined implementation of our "3x3x3" expansion strategy in 2003, we have grown exponentially, becoming the fourth largest telecommunications company in the world in terms of geographic presence.
Our footprint covers 22 countries serving 42.4 million active customers across the Middle East and the African continent — as of January 2008.
We are on target to reach our ambitious goals of achieving 110 million customers and an EBITDA of $6 billion by 2011 based on organic growth of our existing operations.

How far has the rebranding as Zain reached so far, and what are the plans to expand it throughout the company?
In September 2007, four country operations in Kuwait, Bahrain (both formerly MTC-Vodafone), Jordan (formerly Fastlink) and Sudan (formerly Mobitel) simultaneously re-branded to Zain.
Our operation in Iraq, previously called MTC Atheer, which successfully acquired Iraqna in December 2007, re-branded to Zain in January 2008.
After being awarded the third mobile telecommunications licence in the Kingdom of Saudi Arabia in July 2007, we will commence operations in Saudi Arabia under the Zain brand in early 2008.
Operations in Africa currently function under the Celtel brand but will adopt the Zain master brand in the near future.

What has been the effect of eliminating roaming charges on the business models of your African operations, and how has ARPU changed?
With the introduction of One Network, Celtel is leading a paradigm shift in the mobile industry focusing on customers' needs rather than geographic borders between countries.
The launch of the service in East Africa in 2006 followed by the recent extension to 12 countries has been crucial to Celtel's strategy of ensuring that our customers in Africa are connected through one borderless network; a world's first.
Additionally, One Network plays a crucial role in helping to promote and boost cross-border trade while helping to drive economic growth across Africa.
More than two million people have already used the One Network service which covers a geographic area that is more than twice the size of the European Union.

Can you explain in detail what Zain customers get in this area — calls just to other Zain numbers, to any number, to fixed numbers, and so on?
All postpaid and prepaid Celtel customers in Burkina Faso, Chad, Malawi, Niger, Nigeria, Sudan, Republic of Congo, the Democratic Republic of Congo, Gabon, Kenya, Tanzania and Uganda enjoy the benefits of One Network; the world's first borderless mobile phone network.
Based on Celtel's unparalleled contiguous footprint across the African continent, the One Network experience allows customers to make calls at local rates using their home country SIM card, receive all incoming calls free of charge and top-up their pre-paid phones with locally-bought airtime cards.
Alternatively, Celtel's prepaid customers may top up their accounts with airtime cards they have brought from their home networks. The One Network service is automatically activated upon crossing the geographic border into any of the other 12 countries, with no prior registration required or sign-up fee charged.

How have you been able to afford this move? For example, have you had to increase charges to call countries outside the area?
No, we have not increased any rates for our customers. Traditionally, roaming charges have not been a major part of Celtel revenues. However, since the introduction of the One Network service, customer loyalty has increased significantly. We have also signed up some important post-paid customers who are attracted by the One Network offering.

Do you plan to expand the policy into other Zain operations — either by expanding the current area or by creating one or more separate areas?
Our Middle East operations are looking to roll-out a One Network service wherever the infrastructures and regulatory environments permit.
During the course of this year we are planning to deliver such this service in Bahrain, Iraq, Saudi and Jordan.
In Kuwait, we are still waiting to be provided with our own international gateway — direct access to international networks, necessary to enable One Network service.
As soon as this is provided by the Ministry of Communications we will include this important market in our roll-out plans.
One Network will be just one example of real and tangible benefits of our extended family operating under one brand and seeking to deliver one, exceptional customer experience wherever our customers use our services.

What lessons does this move have for other operators, either in Africa and the Middle East or elsewhere?
The lesson is clear — to survive in today's world customer experience is of paramount importance. One Network is an initiative that comes from listening to what customers want and then pro-actively providing a service that helps them to save money.

Your expansion has been in the Middle East and Africa, through the acquisition of Celtel. You said in 2006 that you wanted to expand into India , Pakistan and Bangladesh : how are those plans going?
Zain assesses new accretive opportunities when they arise provided they meet the group's strict investment criteria and demonstrate long-term value for our company and our shareholders.
In January 2007, the Group launched ACE — an implementation strategy to realize the target of our 3x3x3 vision of becoming a top ten global mobile operator by 2011.
ACE seeks to extract superior value from existing assets through three main thrusts: accelerating growth in Africa; consolidating existing assets; and expanding into adjacent markets.

And what plans do you currently have for investing in or expanding into other parts of the world? Within your current footprint, of Africa and the Middle East, are there plans to expand into other countries not currently served by Zain?
As stated above, Zain will assess opportunities if they meet our strict investment requirements and help us achieve our strategic objectives.

How much have you spent in the past two years on developing current operations and expanding into new operations? How much do you plan to spend in the next two years?
In many of our operations in the Middle East and Africa in particular significant investment in network expansion is required to meet our customers' needs in terms of coverage and service quality. In 2007 and 2008, the group's capex requirements will exceed $2 billion. Following this significant programme of investments, we expect our capex requirements to reduce sharply.

You are primarily a 2G GSM operator: what are your plans to move into 3G and more advanced technologies? And fixed line services?
In Bahrain and Kuwait we already operate 3/3.5G networks — alongside WiMax and HSPA high-speed data services respectively.
Zain in Jordan will shortly launch 3G and we have already committed over $900 million in advanced technology infrastructure including a 3G network for Saudi Arabia when we launch operations this year.
We also plan to selectively introduce 3G services in Nigeria in Q2 of 2008.
Our African operations, Sudan, Iraq and Lebanon all operate 2/2.5G networks.
Fixed services are not part of the Zain business model as we focus on wireless technologies which better suit the needs of our customers.

How do you plan to expand within your existing areas in Africa and the Middle East?
Africa and the Middle East are clearly key growth areas for slightly different reasons. In Africa growth will come from customer acquisition and geographical expansion (3x3x3) into adjoining markets.
In Africa we operate in 14 countries, with the addition of operations in Ghana later this year, and although in the majority of these countries we are the market leader, there remains room for greater penetration and customer growth.
In the Middle East, where market penetration is generally higher and geographical expansion is more limited, growth will come through value added services such as high-speed wireless internet access and increased ARPUs from the existing customer base.
However, Saudi Arabia offers us access to a huge addressable market hungry for high-speed services and our shortly to be introduced One Network service.
Iraq too, with a market penetration of only some 40%, offers great potential for growth and customer acquisition. Here we have some 7 million customers in a country with a population of some 25 million people.

How are you tackling the enterprise market?
We see the enterprise market as a growth area and one that is dependent on the availability of high-speed data networks (3G upwards).
In Kuwait, late last year we launched an HSPA service that provides speeds up to 7.2 megabits a second and in Bahrain early in 2007 we launched the world's first nation-wide WiMax service that again gives high-speed data connectivity.
With these speeds, our enterprise customers can enjoy most business services and applications — such as email, internet and intranet access and access to other business applications — without being tied to a fixed connection.

How important are broadband internet services: will this be achieved through wireless or wireline services?
Broadband simply means high-speed, high-quality data service. The nature of today's consumers — business, residential and especially the youth sector — is that they want access to the web, video clips, music and so on at a time and place that suits them and not necessarily tethered to a hard-wired computer terminal on a fixed network.
With 3 and 3.5G networks and services such as Kuwait's eGO product — a wireless high-speed USB plug in modem — there is little that can't be achieved wirelessly in comparison to a fixed connection.

Which types of services are likely to generate most opportunities — content, banking, networking, or advertising?
Zain is not in the business of creating content. Rather we provide access to it and as such high-speed networks accessing content will generate greater ARPUs.
Financial transactions using wireless networks is set to grow. In Kuwait recently we worked with National Bank of Kuwait to deliver a service that allows customers to make micro-payments using their handsets to pay for goods remotely from points of sale.

What is the mix between organic and acquisitive growth?
With operations spread across two continents, we are looking at a mix of both organic growth — in the more established markets such as the Middle East — and further acquisitions in those parts of the world that meet our stringent investment criteria and strategic fit with our ACE — accelerate, consolidate and expand — strategy.

What is the biggest challenge you face in achieving your 3x3x3 strategy?
The challenges we face are simply those associated with any business that is on such a rapid ascendancy as Zain. Since we started operating in Kuwait as the region's first mobile operator in 1983 we have experienced strong growth.
The challenges are to ensure that all of our 22 operations get the attention and support they need to ensure that local plans and goals are met and that customers are provided with the best services and a great brand experience.

You recently acquired a mobile license in Saudi Arabia. Coming in as the third operator, what are your plans to gain market share?
From day one, we will offer the best products and services. We plan to invest over $1 billion to put in place a state-of-the-art 3G network that will give technology-sophisticated Saudi's high-speed access to a host of services such video-streaming and other multi-media applications.
Although mobile penetration in Saudi is high, currently around 85%, the latest figures also show a SIM penetration rate of 143% in UAE and 136% in Bahrain at the end of 2007.
This highlights that that there is still room for further penetration in Saudi. On top of this, Saudi demographics — with half the population below the age of 20 — and prospects of growth are very promising for the economy in general and consequently for the telecom industry.
Importantly, we intend to introduce into Saudi what is effectively the world's first borderless mobile network that eliminates cross-border roaming charges.
One Network will therefore be a key attraction for Saudi and other Middle East customers and is but one example of real and tangible benefits of our extended family operating under one brand and seeking to deliver one, exceptional customer experience wherever our customers use our services.

How does sector policy and regulation impact your global strategy and how do you balance the regulatory requirements across 22 countries?
Aside from ensuring customer welfare — reasonable pricing, monitoring for anti-competitive practices and so on — and legislation for interconnection and access arrangements, we see the role of the regulator to ensure a fair and equitable marketplace for all operators.
Regulation is a fact of business life in the telecom sector and we therefore take regulation, and the different regulatory environments within which we operate, very seriously.
Nearly all of our 22 operations in Africa and the Middle East operate in regulatory environments that are at varying levels of maturity and development. In many of our operations, regulation is sometimes still in the development or early implementation stage.
We recently held a regulatory workshop in Bahrain that saw representation from all of our 22 operations. The workshop invited industry experts and a regulatory representative to address our delegates and share not only their perspectives on regulation but also to provide training and coaching on the complexities of the regulation sector.
By sharing experiences and skills across our own operations, we will raise the standards of our own teams that will be of direct benefit and make a positive contribution to the regulatory environments in each country.

With the aggressive growth strategy you have, how will you manage shareholder expectations? How do you ensure strong corporate governance with such a diverse portfolio of operating companies?
The answer to the first question is addressed in the second; clear and transparent reporting, corporate governance and world-class best-practice and standards are fundamentally crucial for Zain.
In every country where we operate we view good corporate citizenship as paramount. Aside from our responsibilities to our shareholders and the need to provide them with good returns on their investments, each region and each country has its distinct priorities, but generally speaking each year we spend millions of dollars on education, health and social welfare are key themes.
We also prioritise the well-being and development of our 15,000 employees. Not only is this good for Zain but it is also good for the personal development of our people. Increasingly, the environment is coming into our corporate spotlight with initiatives such as that launched last year in Kuwait where we recycle tons of paper, plastic and metal waste and are looking to also recycle the huge batteries that are necessary to drive remote base stations.
But there is also an element of fun and entertainment that adds much to the societies where we operate. In Africa it could be sponsorship of musical events and concerts; in the Middle East it is more likely to be Islamic celebrations such as Ramadan and Eid occasions. GTB