What Future for Zain? A Rosy One (Part I) – Is the Etisalat-Zain Deal Definitively Over?

May 19, 2011

Last March U.A.E.’s Etisalat decided not to bid for the takeover of Zain’s 46 percent stake valued at around $12 billion (1.7 Kuwaiti dinar the share). The reason for this pull back  was due to four different factors: Zain’s divided board, the extended due diligence, regional unrest in the MENA area and the new Kuwaiti capital markets legal framework (Law No. 7 of 2010, a.k.a. C.M.L., and C.M.L. Bylaws of March 13, 2011) related to takeovers. According to the new law the buyer of more than 30 percent of a Kuwaiti listed firm is obliged to bid for the remaining outstanding shares. “The main reason was the mandatory tender offer … that would mean we would have to tender offer to all shareholders that would make it more than $12 billion” pointed out the chief international investments officer of Etisalat, Jamal al Jarwan.

Right now it’s not clear whether Etisalat will bid a second time for Zain. For the Emirati company it would be much better trying to bid for Zain, which is present in seven MENA markets (Kuwait, Bahrain, Iraq, Jordan, Lebanon and Saudi Arabia, although Etisalat’s offer could not encompass Saudi Arabia). In this way, Etisalat could create a powerful synergy without bidding separately in every country.

With the purchase of Zain, Etisalat could save both economic resources and time.  A consideration stands out immediately: One thing is acquiring a new license with operations to be launched from the scratch (for instance in the case of Syria’s third mobile license), other thing is acquiring the 46 percent of a company already operating in cherry-picked MENA markets and having in all of them a highly estimated goodwill.

Analysts are divided between those who believe that a sale could follow briefly and those who think that the moment has gone. But occurring a sale, the price would be below the price previously envisaged that corresponded to 1.7 Kuwaiti dinar per share ($6.15). To begin with, the price reduction is partly due to the fact that shareholders have already received the 2010 dividend payout in the amount of 200 fils per share ($0.72. This price is due to last year’s sale of Zain’s African assets to India’s Bharti Airtel for $9 billion).

Mr. Al-Jarwan said that at a certain point Etisalat could still bid for Zain’s assets, but that it was important to first understand how events would develop, hinting probably to the diverse positions present within the Zain board of directors. It was a consortium led by the Al-Kharafi Group that wanted to sell the 46 percent stake in Zain. The Al-Kharafi Group — thanks to one of its units the Al-Khair Group — owns directly a 12.7 percent stake in Zain, but analysts estimates that in reality through other companies the Al-Kharafi Group should own or control a 20 percent stake in the Kuwaiti telecom company.

A few weeks after the collapse of the Etisalat-Zain deal two events materialized in April 2011, and both could now have a relevant impact on Zain’s future at least in relation to its shareholding structure.

First, the Al-Kharafi Group has improved its position in Zain's newly elected board of directors. In specific, the Al-Kharafi Groups vice-chairman, Bader Al-Kharafi has joined the board. Second, on Sunday, April 17, 2011, the chairman of the Al-Kharafi Group, Nasser Mohammed Abdul Mushin Al Kharafi (father to Mr. Bader Al-Kharafi) died in Egypt of a heart attack. He was a skilled businessman and the mastermind of the Etisalat-Zain deal. Notwithstanding his death, it could still be possible, although not sure, that the Al-Kharafi still-to-be-appointed new chairman could also push for divesting from Zain. In fact, the Al-Kharafi Group “borrowed to get the Zain shares and borrowed to speculate in other investments. Kharafi has a lot of debt and Zain is a big liquid asset and some of its assets are not so liquid” said Nasid Al-Nafisi, general manager with the Kuwait’s Joman Center for Economic Consultancy. It’s currently estimated that the group has direct and indirect liabilities worth at least $5 billion and selling the Zain’s share could be a means in order to repay its debts.

The negative drawback for the Al-Kharafi Group is that by selling to a purchaser only its 20 percent stake, the buyer will not be able to conquer management control in Zain. Only owing 46 percent of Zain’s outstanding shares may provide a 51 percent stake after excluding Treasury shares.  By selling just a 20 percent stake, the Al-Kharafi Group will be forced to request a consistently reduced price than what it has previously requested.

Another viable option for the Al-Kharafi Group could be to sell some of the assets belonging to Zain, similarly to what happened last year with the sale of Zain’s African assets to Bharti Airtel. “Selling assets would be a way for shareholders to raise money without triggering a buyout of the whole company” affirms Nomura’s telecom analyst, Martin Mabbutt. And a step toward this direction has already been taken with the decision to sell Zain’s 25 percent stake in affiliate Zain Saudi Arabia to two joint bidders: Saudi Arabia’s Kingdom Holding and Bahrain’s Batelco. The agreed price is $950 million. Probably, by Q3 2011 this Saudi deal will be closed. This Saudi deal was also a precondition for  Etisalat’s failed acquisition of Zain’s 46 percent stake.

If Etisalat had acquired Zain’46 percent stake, it would have been forced to sell Zain’s 25 percent stake in the Zain Saudi Arabia subsidiary, which is currently competing with Etisalat’s Mobily in the Saudi Arabian telecoms markets. Saudi Arabia’s I.T.C. regulator, the Communications and Information Technology Commission (C.I.T.C.) could have never accepted to have two out of three mobile licenses controlled by the same operator (in this case Etisalat).

Moreover, in the wake of the last global financial crisis Kuwait has introduced a new legal framework for capital markets. This framework — whose aim is to regulate the financial markets and the mergers and acquisitions sector — is based upon Law No. 7 of 2010, a.k.a. C.M.L., and C.M.L. Bylaws of March 13, 2011. According to article 271 of the C.M.L. Bylaws, any person (or his affiliates of alliances) having an ownership interest (directly or indirectly) of more than 30 percent of the total share of a company listed on the Kuwaiti stock exchange (K.S.E.) is obliged to produce an offer to purchase the remaining outstanding shares (70 percent).

So, if Etisalat decides to bid for a stake in Zain, two are the available options. The first option for Etisalat means not getting management control. The second option means bidding for more than Zain’s 30 percent shares.  But as a consequence, the second option would mandatorily force Etisalat to bid for the entire company. Indeed, the second option requires many more economic resources. All this said, it is unlikely that the government of Kuwait sells its estimated 30 percent stake in Zain, so when trying to get management control, Etisalat would be obliged to fund up to 70 percent of Zain’s share (leaving aside the Kuwaiti government’s 30 percent stake.

The price proposed some months ago was 1.7 Kuwaiti dinar per share when at the beginning of October 2010 the price at the Kuwait Stock Exchange was around 1.4 Kuwaiti dinar. The selling shareholders would have received a premium of around 0.3 Kuwaiti dinar or an 18 percent price increase in trading their shares. Assuming that the proposed price was still right, acquiring the additional 24 percent (70 percent—46 percent=24 percent) would require additional $6.2 billion, which  would increase the whole investment up to $18.2 billion. With no doubt a lot of resources also for a cash-rich company such as Etisalat, which since 2006 has spent on acquisitions around $33 billion, according to Dealogic, a data provider.

The price proposed last year is not anymore reliable because two factors contributed to reducing its entity: the consistent dividend already passed to the shareholders and Zain’s share value that is in mid-May 2011 around 1.06 Kuwaiti dinar versus 1.4 Kuwaiti dinar in October 2010. Today’s current market capitalization is $16.4 billion, while on October 13, 2010, it was $21 billion (6.1 billion Kuwaiti dinar). If Etisalat decides to bid a second time — no matter what available option it chooses — the price will be consistently lower than 1.7 Kuwaiti dinar per share. Moreover, for some analysts also the current price is still too high. “… Zain is an expensive stock, and so we are cautious because we think it’s trading at too high a multiple compared to the rest of the sector” points out Mr. Mabbutt.

Apart from its board of directors’ divisions about the ownership of the company, Zain is operating in quite interesting markets, namely in Iraq, Kuwait and Sudan. It was before, and it is still a very expensive target notwithstanding the additional share price reductions.

The only regional alternative to a purchase by Etisalat could be a bidding offer from Saudi Arabia’s Saudi Telecom Company (S.T.C.), which overlaps its assets with Zain’s only in Kuwait and Bahrain, but not in the two most promising Zain’s markets: Iraq and Sudan. As the table above shows, the problem is that S.T.C. has a lot less cash and cash flows equivalents (73 percent less) than Etisalat’s in order to guarantee a financing plan with banks. In this regard, given the volatility of the MENA region’s capital markets, also Etisalat’s proposed financing scheme for the failed acquisition would have probably been revisited forcing the U.A.E. company to pay more. In addition to this, S.T.C. did not show interest in Zain, while it’s currently refining and consolidating its overseas portfolio (see Indonesia) or bidding for single licenses (for instance in Syria). Telecoms firms not belonging to the MENA region (but already operating there) could also be tempted by the possibility of creating related synergies, but the problem is always the same: Zain is a big and valuable company. Purchasing it means only one thing: borrowing huge economic resources.   






 

Syria’s Third Mobile License: A Middle Eastern Saga?

  

 

April 11, 2011

When five months ago in November 2010 the knights started the journey they were six: Three were from the Arabian Peninsula (one from the Kingdom of the Nahyans, one from the Kingdom of the Thanis and one from the Kingdom of the Sauds), one was French, one was Persian and one was Turkish. Soon they became five because the Persian cavalier was absolutely not fit for the adventure. The remaining five seemed all brave, strong and committed to completing the adventure. It seemed … In fact, two months ago another knight, the Turkish cavalier, announced his retirement (officially sanctioned only two months later with a skinny statement) while around ten days ago, two other knights, the one from the Kingdom of the Nahyans and the French one stopped their epic adventure. Now, the competing knights are just the one from the Kingdom of the Thanis and the one from the Kingdom of the Sauds. The final fight is set for April 27. The two survivor knights do appear to be committed to their goal — they stated their will to play and battle in the last days — but things change very fast and no one knows what is going to happen …. And, most importantly, no one knows who will be the winning hero.

The story told in the previous paragraph is not a medieval saga set between Europe and the Middle East and filled with brave and courageous knights. What was recounted above is the bidding process for Syria’s third mobile license. In fact, at the beginning of the process there were six companies, now only Saudi Arabia’s S.T.C. and Qatar’s Qtel are still into the game for the final phase, said on April 2, Mohammed Al-Jalali, the Syrian deputy telecommunications minister. He continued saying that on April 14, S.T.C. and Qtel would be given notice about the evaluation phase (the phase where companies have been requested to submit technical and investment proposals) and that the auction would take place on April 27. The auction will start at $122 million.   

 

 

On March 30, 2011, U.A.E.’s Etisalat stated that it would not compete anymore for the Syrian license. “Etisalat … has determined that the terms and conditions of the bid would not enable Etisalat to achieve its objectives regarding the technology and value it wishes to bring to the market nor for its investors and shareholders” said the U.A.E.’s company through a released statement. No additional details were disclosed. According to the Middle East Economic Digest (MEED), Etisalat was not convinced of bidding as a consequence of the 25 percent revenue share requested by the Syrian government. After, the failure to purchase 46 percent of Kuwait’s Zain at the value of $12 billion (adduced reasons: Zain’s divided board, extended due diligence and political unrest) it was presumable Etisalat’s interest for other smaller investment opportunities, like Syria’s third mobile license or Iraq’s fourth mobile license. According to Mr. Irfan Ellam, a telecom analyst with Al Mal Capital, Etisalat’s decision could be very positive because, given the 25 percent revenue share to be transferred to the Syrian government, it would have been very difficult to extract some value. In fact, Etisalat’s 2010 income margin was 24 percent. In addition to this, the Syrian Telecommunications Establishment (S.T.E.) will obtain a 20 percent stake in the new mobile operator. Mr. Ellam continued saying that this retrenching should not be considered a missed opportunity. If there is no profitability of any kind there is no value for shareholders — and in the end there is no lost opportunity. The same line of thought was expressed by Simon Simonian, a telecom analyst with Shuaa Capital, who stressed positively Etisalat’s rigor and discipline in its expansion strategy.

On April 1, 2011, France Telecom stated that it did not want anymore to bid for the license. The company confirmed its interest towards an expansion in both Middle East and Africa. This task should be accomplished through two or three acquisitions per year notwithstanding the current political unrest in the MENA region. France Telecom wants to spot countries with low mobile penetration and high growth potential. Syria was a perfect target, but the costly license price coupled with the poor spectrum resources on offer pushed France Telecom to drop its candidature. "We want to build a real center of activity in the Middle East but very carefully” said France Telecom’s vice president Elie Girard to Reuters while he officially admitted that political unrest in Syria was not a significant element in relation to the drop out from the Syrian license bidding process. Officiously, France Telecom’s choice could be linked to the decision of the new ad interim Tunisian government to seize a controlling stake in Orange Tunisie. The new institutions want to review the joint venture between France Telecom (49 percent) and Divona Telecom (Divona Telecom is owned by Investec, the Tunisian unit of privately held Mabrouk Group). Political instability and business opportunity do not well overlap.

 

 

Turkcell, Turkey’s biggest operator, officially pulled out of the competition few days ago, but already in February it was known that the company was out of the race. Last week’s statement only gave legal authority to a position already taken, although the unique details released were that after the evaluation of the tender conditions Turkcell decided not to compete for the license. (For additional information about Turkcell's decision not to compete in Syria please see:
http://www.turkcell.com.tr/c/docs/announcements/20110331-syria-tender.pdf). 

In the end the two remaining (and competing) companies are Saudi Arabia’s S.T.C. and Qatar’s Qtel. “[S.T.C.] announces that it submitted on Wednesday, March 30, its technical and operational offer … The offers that are qualified by Syria’s [telecommunications] ministry will enter the final [financial] phase of the auction on April 27” said S.T.C. with a statement. 

 

 

“Qtel confirms that it has submitted both the financial and technical bids for the third license in Syria” reported a Qtel’s statement emailed to Reuters. On March 27, during the Annual General Meeting of Qatar Telecom, Sheikh Abdullah bin Mohamed bin Saud al-Thani, Qtel’s chairman, confirmed that Qtel’s board took the decision to pursue the third mobile license in Syria.

 

 

There is no doubt that the Syrian government established a thorny legal framework in order to obtain and then operate the license. In the end, the problem is how to get some profits when a 25 percent revenue share has to be transferred to the Syrian government, which has a 20 percent stake in the new established company. All this said, notwithstanding the Syrian government has raised the bar so high, it has still two capable bidders that have some experience working in complicated environments.



 

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 that “our 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).   

 

 

 

 

Syria: Facebook Is Again Directly Accessible Without Proxy Servers

February 20, 2011

On February 8, 2011 Syrian internet users affirmed that Facebook and YouTube were again available in Syria. The removal of the five-year ban looked like an appeasement measure aimed at relaxing the political and social environment in the country. Presumably, the government wanted (and still wants till today) to stave off the unrest emerged after the recent political events in Tunisia and Egypt.

At the beginning of February, President Bashar al-Assad openly said in an interview with the Wall Street Journal that he wanted to continue with the political reforms and that in 2011 he had the targets to initiate municipal elections, grant more power to N.G.O.s and pass a new media law.

The ban — related to Facebook, YouTube and other social networks — had been introduced three years ago (Facebook was blocked in November 2007) as a move to reduce hostile political activism in the country. Lifting the ban seems to be an important step toward a more democratic Syria, but — as human rights advocates pointed out — it will be important to closely monitor the events of the coming weeks. In fact, lifting the ban could now permit the Syrian government to better monitor people and political activities through social networks websites. Facebook, for instance, requires its users to disclose their real identities and not to use false or anonymous accounts.

Debbie Frost, a spokesperson for Facebook explained that Facebook was not thinking of modifying its terms of service in relation to those countries where users may be alarmed by revealing their real name for security reasons. Susannah Vila, with Movements.org, a non-profit organization devoted to supporting grassroots digital activists around the world, said that “while access to social media sites presents an opportunity for Syrians to better mobilize one another, it also makes it easier for the government to identify activists and quash protests”.  Recently, in relations to Sudan there was such a kind of worries.

In Tunisia, in December and January, protesters used the internet to gain support for their movement. They broadened the influence of their message and eventually they were successful in toppling Ben Ali’s government. Once the protests started in Egypt, some Syrian opposition groups created a Facebook page called "The Syrian Revolution 2011" (http://www.facebook.com/Syrian.Revolution) while at the same time they initiated a Twitter campaign whose target was to invite people to join together for the “Day of Rage” rallies against the President al-Assad in the first week of February (on February 20, 2011 the Facebook members of this group are 21,636).

In the last three years, Syrians have been successful in using Facebook and other banned websites thanks to proxy servers that were able to circumvent the Syrian government’s firewall. Proxy servers vehicle internet requests through servers located outside the country. In this way they bypass the government’s firewall and hide I.P. addresses. Now, Syrian netizens could be attracted by the possibility of accessing the internet through Syrian servers (and not proxy servers), which permit the government to easily monitor their online activities.

“We are all using it (Facebook) anyway — so I don’t see what difference it makes,” said one Facebook member, Ahmad. Technically, the Syrian firewall is extremely omnipresent and it blocks, in addition to Facebook and Co., many other websites like Amazon, Blogspot and Israeli newspapers.

Facebook’s Debbie Frost said that Facebook always monitored some internet traffic from Syria, but honestly not the average number of internet users whom a country like Syria should have. Immediately after the lifting of the ban, Facebook did not notice a significant increase in its traffic in Syria. It’s true that for people it could take hours or also days before getting full internet access. On the other side, there is a very different representation of the current situation by YouTube. The graph below clearly shows that after February 8 and 9, 2011, Syria’s YouTube traffic spiked hugely passing from values between 0 and 3 to values between 20 and almost 100 (97.37 on February 14) . These values are units of Google’s scale, which runs from 0 to 100.

“This is great news” said Mazen Darwish, the president of the Syrian Center for Media and Freedom of Expression (a Syrian organization founded in December 2004 and since December 2007 affiliated with Reporters Without Borders). “After what happened on the 4^th and the 5^th the authorities now know that the Syrian people are not the enemy. We are not stupid and we know how to use these sites with intelligence …. This is not just about Facebook; this is about a change in the mentality that the population needs somehow to be controlled. Things are changing. I hope this is the first step in a broader reform program”, he added.

Lifting the ban in Syria was cheered in Washington, although there are still concerns related to the relevant restrictions on the freedom of speech and the freedom to assemble. Mr. Alec J. Ross, senior advisor for innovation to Secretary of State Hillary Clinton (Mr. Ross organized a delegation of American business I.C.T. leaders to Syria in June 2010. For more information about this event please see: BACCI, A., U.S. Trade Delegation to Syria, June 2010) openly declared that Syrian citizens should immediately understand the risks of using Facebook and the other websites as if they were in a country with no restrictions on the freedom of speech.     



 

The Regional Cable Network (R.C.N.), a Reliable and Powerful New Communications Infrastructure for the Middle East

January 22, 2011

Last December, a few days before Christmas, seven regional telecommunications operators announced their goal of building the longest fully redundant terrestrial communications infrastructure in the Middle East. This is the first time that a communications cable will be capable of covering the entire Persian Gulf region thanks to a single uniform infrastructure. Currently in the Middle East, the historic growth levels of the mobile markets are unlikely to continue so robustly, while instead there is a growing interest in relation to fixed line markets with specific attention given to optic fiber (fiber to the home, F.T.T.H.). This new fiber road could bring the F.T.T.H. to the Middle East, transforming internet access in the area and allowing Middle Eastern countries to communicate with the rest of the world with an enhanced speed and access — no more communications with inadequate infrastructures.

The Regional Cable Network (R.C.N.) — this is the name of this cable infrastructure — will run for 7,750 kilometers (round trip route). It will  from the city of Fujairah (U.A.E.), which is one of today’s busiest nodes for submarine and fiber cables, to Istanbul (Turkey), passing through Riyadh (Saudi Arabia), Amman (Jordan) and Tartus (Syria) before entering the Turkish territory. From Istanbul this cable will be extended also to Europe. In fact, there are already 15 available access points located along the Bulgarian and Greek borders with Turkey. This project will be a relevant entryway to the internet for approximately two billion people. The project will cost approximately $500 million.  

The R.C.N. cable will have a 12.8 terabit per second data carrying capacity and it should be operational by the second quarter of 2011. The basic idea for this project is that it will guarantee that every site along the cable path will always be accessible no matter whether a network’s service is intermittent or interrupted. Up to now, Middle East’s high-speed internet has been totally dependent on submarines cables, which are more expensive both for deployment and servicing. The R.C.N. infrastructure could be repaired in a few hours in the eventuality of a breakdown. Conversely, underwater cables normally take several days to be fixed.

The telecoms operators that during a ceremony held in Ankara (Turkey) signed for the R.C.N. project are: Etisalat (U.A.E.), Mobily (Saudi Arabia), Jordan Telecom/Orange (Jordan), Mada and Zain’s partnership (Jordan), the Syrian Telecommunications Establishment (S.T.E., Syria), and a Turkcell’s subsidiary, Superonline (Turkey). During this ceremony, Ali Amiri, the consortium chairman and Etisalat’s carrier & wholesale executive vice president said that the R.C.N. cable would be an unrivalled infrastructure with reference to speed, quality, upgrading possibilities, redundancy and reliability and he underlined that, given the increased demand for intercontinental connectivity in the Middle East, the region’s governments were committed to encouraging investments in the I.C.T. sector as a tool for improving their economies. Moreover, “operators are deploying Next-Generation Networks (N.G.N.s) for both fixed-line and wireless environments, which in turn allow an increasing volume of services to be provided to always more and more consumers. These factors, as well as the growing technical literacy of the local population and availability of rich local content, are all driving the demand for ever more capacity. Etisalat is delighted to partner with six of the region’s leading operators in a project that will enhance the lives and increase the reach of over two billion people”, affirmed Ali Amiri.

The country that could benefit the most from this new I.C.T. infrastructure is Jordan. Apart from the increased competition of its internet access and prices reduction, the cable should allow Jordan to attract many investments in its I.C.T. sector. In fact, although only 10 percent of the cable will run through the Jordanian territory, two points really push Jordan to become a regional hub for the I.C.T. sector. First, the Jordanian part of the cable is exactly in the middle of the infrastructure and secondly, it will give Jordan more I.C.T. capacity and redundancy. “The project is a strategic step as it will help make Jordan an I.C.T. hub exporting new developed internet content and becoming an incubator for new I.T. companies interested into value added services. Global I.C.T. companies will be encouraged to open their regional offices in Jordan as the new cables increases Jordan’s capacity and redundancy” said Abdul Malek Al Jaber, the C.E.O of Zain Jordan. At the same time, Marwan Juma, the I.C.T. minister, pointed out that the cable project would increase Jordan’s I.C.T. capacities four times as much, so that his country would have the opportunity to be the Middle Eastern regional center for mega-I.C.T. companies.

The R.C.N. cable is competing against another Middle Eastern new fiber-optic project: the JADI Link. This network will be connecting Jeddah (Saudi Arabia), Amman (Jordan), Damascus (Syria) and Istanbul (Turkey). The JADI Project is the result of the collaboration among Turk Telecom (Turkey), Saudi Telecom Company (S.T.C., Saudi Arabia), Jordan Telecom (Jordan) and the Syrian Telecommunications Establishment (Syria). The JADI Link is a totally terrestrial alternative to the Mediterranean and Red Sea corridors. According to the signed agreement the four involved telecommunications operators will deploy the required physical connections among their national fiber-optic networks and in addition to this, they will be implementing a 200 Gbps capacity expansion to their network systems  so that the JADI Link could be operational. 

 

 

 

Third Mobile License: Syria Shortlists Five Companies but Disappointment Looms Out

 

December 20, 2010

Of the six firms that had submitted applications to compete for Syria’s third mobile license only five qualified for the second phase of the process. According to the list of the prequalified candidates, which was published on November 29, 2010 (the day when the pre-qualification phase was terminated) these companies are: Saudi Telecom Company, Etisalat (from the U.A.E.), Qtel (from Qatar), France Telecom and Turkcell. With the second phase, the offers proposed by the five mentioned companies will be evaluated and only the selected candidates will participate in the third phase, which is the real auction. According to the terms of the tender, the auction for the license will be held on April 12, 2011.  

 

The Syrian Ministry of Communications and Technology (MOCT) explained that only Iran’s Tamco was not admitted to the second phase. The evaluation committee (formed jointly by the MOCT and Germany’s advisory consultancy Detecon) did not accept Tamco’s proposal because of the company's inadequacy in meeting the tendering standards. Also before this pronunciation it was quite evident that Tamco was not capable of reaching the two main pre-qualification criteria (having operated a network with at least 1.5 million subscribers in at least two countries for a minimum of three years by the end of August 2010 and having started at least one network and operating it for 12 months by the end of August 2010). Etisalat and Turkcell have now the best chances of gaining the contest according to David Leach, a global telecoms analyst with TeleGeography, a research company. 

 

One week after the end of the pre-qualification phase, on December 8 2010, the MOCT organized a Pre-Application Conference at the Four Seasons Hotel in Damascus with all the involved parties: the five prequalified candidates, members of the MOCT among them Minister of Communications and Technology Imad Sabouni) and members of Detecon (this is the German consultancy advising the MOCT on how to award the license). The basic idea behind the decision to call up this conference was to implement an efficient coordination between the MOCT and the five candidate companies in order to have a high level of transparency in the process. Moreover, the MOCT wanted to have an information exchange with the five companies about the tendering process, the Syrian telecoms market and the opportunities for the third license operator. The second phase (Qualification Phase) started immediately after the end of the conference with the launch of the Request for Proposals (R.F.P.s).

 

The intentions for convening the conference were undoubtedly positive, but then the results were partly messed up. In fact, the executives of the five telecoms operators strongly contested the necessity of providing to the Syrian government revenue projections for their prospective businesses.  The third license will be auctioned so this request seemed very invasive as for the companies’ business strategy. Another pressing point for the contenders was the inevitability of regulating roaming agreements with Syriatel and M.T.N. Syria, the current two mobile operators already working in the country. It’s important that the new entrant does not face any disadvantages against both Syriatel and M.T.N. With reference to this last point, Mr. Sabouni expressed MOCT's intention of absolutely avoiding advantages and disadvantages, but rather of having a level playing field. Still during the conference, Mr. Sabouni was remembered about the need to comply with the Arab League boycott rules against Israel. With no doubt the vagueness and unclear applicability of the boycott rules play against a transparent and clear utilization of the third mobile license.

 

Vagueness about certain crucial clauses is inacceptable by modern business-oriented telecoms operators. Especially this time, with five foreign competing companies (none of the competing companies is Syrian), business pros and cons should be easily calculated. It’s still a very clear memory that nine years ago when the first two licenses (in reality BOT agreements) were awarded, later many irregularity surfaced (Egypt’s Orascom retired the investment in Syriatel just after two years in 2003). When two independent public figures criticized those irregularities, they were sent to prison for a total of twelve years. This time clarity is a must. Apart from this, good news for the telecoms sector is that, according to  the daily al-Watan, Mr. Sabouni announced that, by the end of December 2010 or at the latest at the beginning of 2011, the Syrian telecommunications authority would  be established.

 

 

 

 

Six Telecoms Companies Go at War for Syria’s Third Mobile License

 

November 19, 2010

As it was easily understandable given the appeal of the Syrian mobile market, six telecom companies have submitted bids for the third mobile communications license (it has a 20-year validity) in Syria. Regional and international operators are vying for this third mobile license that should increase the level of competition in the mobile market, which is expected to double in size by 2014. Moreover, the government has specified that once this license will be awarded, there won’t be any new licenses for the next three years.    

“There is heightened interest for the third operator. Syria remains a market operating under its true potential because the two operators are in a comfortable duopoly. With three operators, we will see penetration rates exceeding 100 per cent in the next four years and effectively doubling the market” said Jawad Abassi, the founder of the Arab Advisors Group, a consultancy.

The companies that presented their proposals in this pre-qualifying stage are Etisalat (U.A.E.), S.T.C. (Saudi Arabia), Qtel (Qatar), Turkcell (Turkey), France Telecom and Tamco (Iran). Kuwait’s Zain previously had expressed a strong interest in this bidding, but in the end it did not submit any tender. Zain’s reason for not tendering is linked to the fact that Etisalat is currently acquiring 46 percent of Zain for around $11.7 billion and Etisalat itself proposed its candidature for the third Syrian mobile license. Etisalat is aggressively expanding out of the U.A.E. and has activities through joint-ventures or real subsidiaries in 17 countries apart from the Emirates. With no doubt, Syria could be an interesting choice for the Emirati company.

France Telecom (F.T.) is the only one firm not belonging to the MENA region (in reality also Turkey’s Turkcell does not belong to the World Bank’s definition of MENA region, but following other classifications also Turkey belongs to the so-called extended MENA region). F.T. is already operating in the MENA region thanks to its 71.25 percent ownership of Egypt’s first mobile operator Mobinil. In the last months, there have been rumors that other European companies have been attracted by an expansion in Syria, but, in the end, France Telecom is the only European telecoms operator actively searching for opportunities in the Middle East and North Africa.

Notwithstanding the close political relations between Syria and Iran, Iran’s state-owned Tamin Telecom Company (Tamco) seems to be the competitor with fewer chances to get the license. In fact, already the pre-qualification criteria appear to be a difficult hurdle to overcome for this quite new Iranian company. According to its website, Tamco was established three years ago and it is currently operating only in one country: Iran. Recently, this year, Tamco has won the third mobile license awarded in Iran. Tamco belongs to Shams Tamin High Tech Investment Company, one of the ten holdings of Iran’s Social Security Investment Company (S.S.I.C.), which is the company that manages pension funds in Iran. Not being successful in raising financing resources — given the international sanctions applied to Iran — could be another big difficulty for Tamco.  

Some telecoms executives evaluate that competition for the third Syrian license will be fierce because the bidders constitute an interesting group of companies mixing both relevant economic resources, like Saudi Telecom, Qtel and Etisalat (their respective governments have important equity stakes in the companies and all the three companies have already implemented an expansion strategy in the MENA region) and significant knowledge of MENA’s telecoms markets, like France Telecom and Turkcell. In particular, Turkcell — the leading operator in Turkey — has already quite good an understanding of the Syrian telecoms, given its attempt to purchase Syriatel in December 2007. 

The current six bids will be assessed by a joint committee formed by Syria’s Ministry of Communications and Technology (MOCT) and by Germany’s Detecon, an advisory consultancy. By the end of December 2010, this joint committee has to evaluate the applications of the six candidates and decide which companies are allowed to the second phase of the competition. The decision will be taken according to the following pre-qualification criteria:

A) Having operated a network with at least 1.5million subscribers in at least two countries for a minimum of three years by the end of August 2010;

B) Having started at least one network and having operated it for 12 months by the end of August 2010.  

With the second phase, bidders will be requested to submit technical and investment proposals. The technical and investment proposal will be opened by mid-March 2011. At that point, the companies that will score at least 70 percent of the available points during the second phase will be admitted to the one-day auction in April 2011. Bids may be improved during the development of the procedure. 

The MOCT has now specified that the Syrian Telecommunications Establishment (S.T.E.) will own a 20 percent stake in the new company that the winner will set up. In addition to this, the winner will mandatorily pay 25 percent of its gross revenue to the Syrian government and an additional 0.5 percent that will be used to pay for the costs of the soon-to-be-established regulatory authority. 

Some sources inside the telecoms sector in Syria point out that it is quite possible that the winner will be the company offering the highest sum. Minister of Communications and Technology Imad Sabouni said that the reference price for the license is around S£25bn (US$500m), reported the Syrian newspaper Al Watan.

 

 

S.T.C.’s Interest for Syria’s Third Mobile License

 

October 31, 2010
 

Last week state-owned Saudi Telecom Company (S.T.C.), the largest listed telecom operator in the Middle East, showed a great interest in bidding for a mobile license in the Syrian Arab Republic. In September, Syria tendered to sell a third mobile license. The deadline to submit pre-qualification applications will expire on November 14, 2010.

Given a very low rate of mobile penetration (44 users per 100 inhabitants) and promising growth chances, Syria is an attractive market. Out of a population of around 20 million Syrians and 3 million expatriates, Syria has 10.4 million of subscribers, comprising pre-paid cards, reports the Telecom Ministry. These numbers well explain that the market is absolutely not saturated. Currently in Syria there are two mobile operators Syriatel (55 percent of the market) and South Africa’s M.T.N. (45 percent of the market).

In the last four years telecoms deals in the Persian Gulf alone have been worth $33 billion. Once U.A.E.’s Etisalat acquires 46 percent of Zain (one Kuwait operator) for around $11.7 billion, Etisalat will be forced to sell Zain’s 25 percent stake in the subsidiary Zain Saudi Arabia, which is currently competing again Etisalat’s Mobily in the Saudi Arabian telecoms markets with reference to both 2G and 3G services. In fact, the Saudi I.T.C. regulator (Communications and Information Technology Commission, C.I.T.C.) could never accept to have two out of three mobile licenses controlled by the same operator (Etisalat). But apart from the Etisalat’s bid for Zain and the subsequent sale of Zain Saudi Arabia, from now on, according to many bankers and analysts, the telecommunications industry in the Gulf should develop a more designed and structured growth. This trend, which is also a necessity, comes out of scarce acquisition targets and increased competition in all of the Middle Eastern domestic markets, with declining ARPU (average revenue per user).

So, Syria’s license for sale is a very first-class target in a region where presently the only other attracting opportunities (obviously, excluding the Etisalat’s bid for Kuwait’s Zain and the Zain Saudi Arabia’s sale) could be Lebanon’s long-delayed privatization plans. In fact, many other players in the region are government-controlled companies and it is quite possible that at least in the medium term none of these will be sold or will change its proprietary assets.

On October 25, 2010, S.T.C. submitted its expression of interest to bid for the Syrian license through a letter sent to the Syrian Ministry of Communications and Technology (MOCT). S.T.C. is facing a strong and increasing competition in its own domestic market, which  is split among three mobile operators: S.T.C., Mobily (U.A.E.’s Etisalat) and Zain Saudi Arabia (Kuwait’s Zain). According to Ghassan Hasbani, S.T.C.’s chief executive officer (C.E.O.) of international operations, there are important and potential synergies between Saudi Arabia’s telecoms sector and the Syrian one. S.T.C. is an integrated telecom operator and is providing fixed line, mobile and internet services. Aside from Saudi Arabia, S.T.C. has already operations in Bahrain, India, Indonesia, Kuwait, Malaysia, South Africa and Turkey.

Recently this month, S.T.C. declared that its third-quarter net profits had soared 38 percent to a value of almost $900 million, from $640 million in the second quarter of 2010. This result was mainly due to the one-time gain linked to S.T.C.’s boosted earnings in India. In fact, S.T.C. affirmed that this positive boost in its profits was related to a 5 percent increase in its operating income and to a $200 million one-time gain, connected to S.T.C.’s share in the proceeds from Aircel India (S.T.C.’s unit in India), which sold some assets.

With no doubt, Syria’s mobile market is quite appealing and for this reason some interest for this third mobile license has come also from U.A.E.’s Etisalat, Kuwait’s Zain, Qatar’s Qtel, Russia’s M.T.S. and Turkey’s Turkcell. In addition to these companies, also Vodafone and France Telecom could be interested, although they do not possess any competitive edge over the other companies.