Monday, March 28, 2011

Are the Four Remaining Telecoms Companies Committed to Bidding for Syria’s Third Mobile License?


March 28, 2011

Last February, Syria's deputy minister of telecommunications, Mohammed Al-Jallali affirmed that the minimum reserve price for the upcoming auction for Syria’s third mobile license would be set at $122 million (SYP5.6 billion). At the end of 2010, five telecoms companies, Etisalat (U.A.E.), France Telecom, Qtel (Qatar), Saudi Telecom Company and Turkcell (Turkey) pre-qualified for the license auction. Still last February, Turkcell declared that it was not interested anymore in bidding for the license. The reason for pulling out was linked to restrictions of the Syrian markets.  

At this stage of the process it’s not clear which of the four remaining companies will really fight hard to get the Syrian license in the next auction planned for next April 12.

It’s possible to assume that — given Etisalat’s failure to buy 46 percent of Kuwait’s Zain for $12 billion (DH44.07 billion) — the Emirati company will now probably focus its attention on the remaining regional but smaller opportunities such as Syria’s third mobile license and Iraq’s fourth mobile license. The adduced reasons for the failure were political unrest in Middle East and disagreement among the different shareholders. “The successful completion of the Zain deal would have given Etisalat control of a number of market-leading mobile operations in the Middle East, and positioned them as the leading pan-regional mobile operator in the region. Now, Etisalat’s international investments team will most likely focus its efforts on the remaining, smaller, opportunities in the region, such as Syria’s third mobile license and Iraq’s fourth mobile license,” said Matthew Reed, senior analyst with Informa Telecoms and Media, a research company. For Etisalat, the pursuit of international revenues is a priority because its domestic market is flat, if not declining, because of increased competition. Zain’s deal would have been perfect for Etisalat because it would have given the Emirati company direct access to several markets in the Middle Eastern region (Iraq, Kuwait, Bahrain Jordan). Now, Etisalat has no other possibility than going after regional telecom assets one by one. This new strategic posture could still be implemented, but, with no doubt, it will be costlier and it will require more time.   

If Qatar’s Qtel is still interested in some purchasing activity in Syria, some doubts were emerging. “… [The] process is not completely clear to us. And it’s quite hard to understand how much the license will cost. … Clearly we won’t do it if we’re not happy with the financials and we’ve pulled out of license bids before, principally in Egypt and Saudi because the economics were just wrong” says Qtel’s chief strategist officer, Jeremy Sell. Finally, on March 27 during the Annual General Meeting of Qatar Telecom, Qtel’s chairman, Sheikh Abdullah bin Mohamed bin Saud al-Thani confirmed thatour board has taken the decision to pursue the third license in Syria. We are going into Syria ... and we think it is an important country to be in.” In particular, asked about the possible difficulties of investing in Syria following the current political unrest, Sheikh Abdullah stated that he is absolutely not concerned by recent events.

S.T.C. Group’s most recent financial results showed an increasingly tough competition in relations to the Saudi domestic market. In Q4 2010, S.T.C. posted a 23 percent decline in net profit to SAR2.29 billion ($610.7 million) while S.T.C.’s operating profit increased 15 percent to SAR3.03 billion. S.T.C.’s full-year net income declined in 2010 by 13 percent to SAR9.4 billion. These results were in line with analysts’ expectations. S.T.C. said that in 2010 profits partially fell because of capital investments domestically and abroad like in Bahrain and Kuwait. S.T.C. purchased Bahrain’s third mobile license in March 2009 for around $240 million and launched its operations in March 2010, while in Kuwait, S.T.C. owns 26 percent of the third mobile operator Viva. “We already have a good traction on subscriber and revenue growth. Kuwait and Bahrain are similar stories, with steady growth and a good cost management approach, because they are both lean, small operations,” says Ghassan Hasbani, S.T.C.’s C.E.O. for international operations. It’s so quite possible that the third Syrian mobile license — pertaining to an almost untapped market — will be an attractive target for S.T.C., which is trying to implement an expansion on a regional dimension in order to increase its net profits.

Last month, rumors surfaced about France Telecom’s concerns on the price and technical aspect of the license. In fact, some France Telecom executive told Reuters that the French company had still to decide whether bidding for the Syrian third license. “The process seems too fixated on the price of the license, when we also have strengths to bring in terms of technology and services” stated Elie Girard, France Telecom’s executive vice president of group strategy and development. In specific, Girard pointed out that France Telecom had concern in relations to the frequencies that would be offered through the auction. In reality, the frequencies being sold with April’s auction are in the lower band, while the current two mobile operators, Syriatel and M.T.N. Syria, have frequencies in the higher band. The winning bidder could be required to build a denser — and obviously more expensive — network in order to well utilize the lower band frequencies.   

April 12, 2011 is coming soon and the next two weeks will be a crucial moment in order to understand which companies are really committed to entering the Syrian mobile market. In the meanwhile, mobile users hope that the entrance of a third operator could really increase competition so that prices may be lowered. Facebook has already served as a tool for calling boycott campaigns against Syriatel and M.T.N. Syria, both accused of maintaining exorbitant rates for low-quality services in comparison to Syrian salaries (the daily wage is around $8).