Opportunity time

After years of strong growth, Etisalat is extracting value from its assets
 Ahmad Julfar sees potential for growth even in markets with mobile penetration rates above 100%. He points out that despite having a penetration rate
Ahmad Julfar sees potential for growth even in markets with mobile penetration rates above 100%. He points out that despite having a penetration rate

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Ahmad Julfar, who was appointed to the newly created role of group CEO of Etisalat in August, relishes a challenge. And this is just as well given Etisalat’s scale.

Indeed, the telco has a customer base of about 140 million subscribers spread across 18 countries in the Middle East, Africa and Asia covering a total population of over 2.3 billion people, having transformed itself from a local operator to global operator in just seven years.

“You have to deal with different challenges in different markets differently, and all markets have challenges,” Julfar says. “This is what makes telecoms very interesting and a fun industry to be in.”

Etisalat grew rapidly through the acquisition of new licences and existing operations since around 2004. One of the company’s first forays abroad was its acquisition of a licence to launch mobile services in Saudi Arabia, under the brand Mobily. The company has since gained a presence in 11 countries in Africa, as well as operations in Pakistan, Afghanistan, Sri Lanka, and Indonesia. While some of Etisalat’s international operations have proved challenging, particularly in Sub-Saharan Africa, Julfar is adamant that the company has wrested control of the more difficult operations.

“We have already started to see some turnaround in our African operations and I think next year we will be seeing very good results in Africa,” he says.

“East, West and Central Africa have their own specific challenges and the people on the ground know what is most suitable for each market.”

In its first half results for 2011, Etisalat reported that revenues from its international operations reached AED3.39 billion ($923m), a rise of 17% compared to the same period last year. This meant that international revenues accounted for some 25% of the company’s overall revenues.

One way in which Etisalat hopes to strengthen some of its emerging market operations is by passive infrastructure sharing. “In Nigeria, Tanzania and Ivory Coast we have started tower sharing. This will reduce our costs without sacrificing anything on the expansion or distribution,” Julfar says. “Next year I think will be an excellent year for our African operation.”

He adds that in Sri Lanka, Etisalat is also in discussions with its rivals regarding infrastructure sharing agreements. Etisalat now has “the best 3G roll out” in Sri Lanka. According to Julfar, one of the other operators in Sri Lanka is interested in sharing some parts of the passive infrastructure. “I put the teams together, our CEOs with their CEOs, to talk about what can be shared,” he says.

Julfar also insists that the international operations benefit from being part of a bigger group through lower procurement costs and also through shared expertise. “We are very much engaged with them. Today, I have a team in Tanzania, Nigeria, Ivory Coast, India, Pakistan and Sri Lanka. They go for days or months depending on the purpose of the visit,” Julfar says.

Working its assets

While Etisalat still appears to open to the idea of further expansion, should the right opportunity arise, Julfar says that he intends to focus mainly on generating greater value from the firm’s existing assets.

“Our strategy going forward is really to focus on our existing portfolio that we have while keeping an eye into strong expansion opportunities if they arise. We will continue to create value for the communities and countries we serve and also create value and a return for our share holders at the same time, so we have to do a balance between the two,” Julfar says.

There are plenty of opportunities for growth in most of Etisalat’s international markets, where mobile penetration rates remain relatively low, according to Julfar. “In these 18 market we operate in, penetration is not so high in most of the markets, so there is huge opportunity for us to grow in the normal mobile business and value added services,” he says.

Beyond regular mobile services, Julfar also sees opportunities to grow mobile data, internet, and enterprise services across its footprint. But he sees mobile broadband in particular as the real “killer” service and application over coming five years, particularly in emerging markets that lack decent fixed-line infrastructure.

Referring to mobile broadband in emerging markets, Julfar says: “People have different perspectives. Some people say these people can barely afford to eat or drink, how can they afford to pay for mobile broadband? But look at the economic impact of it. Mobile data can bring prosperity to these communities, to farmers and small traders, so they can have their products online, do marketing, sales, and money transfers. They don’t need anything except the mobile. Once they see those benefits I think it will bring prosperity, especially to Africa.”

Despite a number of Etisalat’s operations, including Saudi Arabia the UAE, facing mobile penetration rates of more than 100%, Julfar still sees potential for growth in these markets.

“When we reached 100% penetration here in the UAE, everyone thought: ‘the UAE is fully saturated, and if anything is 100% saturated then it means there is no room to grow’. But we saw the UAE market has grown from 100% saturation to over 200% saturation, so we don’t see that 100% penetration means there is no room to grow in this market.

“There is room to grow in all the markets beyond 100% penetration, mainly because in this region the population is very young and in many of the countries the turnover of the population is also very high. So there is room for growth whenever you have these trends.”

In terms of raising ARPU, Julfar points to services such as mobile data including 3G and LTE, fixed internet, and other value added services. “We have a huge opportunity in this area and the market is still under developed in that area,” he says.

Enterprise growth

Julfar describes the enterprise segment as being “very much underserved” in the MEA region, and adds that it is an area that Etisalat sees significant growth potential in.

“Today we have fixed licences in UAE and Pakistan, and we have a fixed data licence in Saudi Arabia, while in Egypt we have an ISP licence, so in many countries we have started to expand either organically or by buying other companies, ISPs or data service providers, or acquiring licences and growing the business,” Julfar says. “But going forward, the main success factor will be partnerships. Even if you don’t have a fixed licence in a particular market you can partner with a fixed licence operator in the same market to go to the market jointly for example,” he says.

LTE launch

As one of the region’s most highly penetrated markets, Julfar is optimistic that the launch of LTE-FDD services – which were announced last month – will help the telco to further differentiate itself from competition through its network.

“This will be the first country in the Middle East and Africa to launch mobile LTE. In Saudi Arabia we have launched LTE-TDD, which is fixed,” Julfar says.

Julfar adds that dongles are already commercially available in the market but handsets and devices will only be available for the frequency Etisalat uses in the UAE by the end of the year or early next year. As well as allowing new high speed data services such as mobile HDTV and interactive gaming, LTE will also bring greater capacity to the network, and will also offer greater efficiency for Etisalat.

“With LTE, because of the huge capacity, there will be more efficiency for the operator. 3G has limited capacity, so no matter how much you grow, data has been growing exponentially, putting pressure on the networks,” Julfar says.

But Julfar also stresses that LTE is not just an isolated investment. It is linked to the massive investment in its nationwide fibre optic network. Indeed, the company has so far invested $1.63 billion in its fibre and LTE network combined.

“One of the things in which we have invested heavily in the UAE is the infrastructure so that we have fibre everywhere, so LTE is an add-on investment for us. It is different than for other operators in this market or other markets. It would be a huge investment for them. For us it was an add-one element from the huge investment we made in the last three years in the fibre network.”

Opportunity knocks

While Etisalat is keen to focus on its core assets, the telcos remains interested in regional expansion should the right opportunity arise, particularly in the form of an existing, profitable operator that complements Etisalat’s current portfolio.

“We have to create a different strategy going forward because of what is happening in the Middle East and the financial crisis that is hitting the world. We have to be more prudent on our investment; we have to be more careful; we have to look for opportunities and I think this crisis will produce opportunities for us,” Julfar says.

He believes that the current economic climate combined with political unrest in the region makes opportunities more likely to arise. “Opportunities will appear in the region, and will come in different forms. It may not come in the form of a green field licence; it may come as an existing operator in the region, similar for example to the discussion we had to acquire 51% of Zain Group.

“That was a change of strategy for Etisalat. We are very much a prudent on our investment because we want to bring quicker return to our shareholders, so acquiring an existing profitable operator is more aligned to our strategy than acquiring a green field licence,” he says.

Julfar adds that it is difficult to find green field opportunities in the region now because most of the countries have at least three operators, making it difficult for a new player to get established. “With the penetration and competition it is better to go for an existing operator,” he says.

“We see some opportunities will come as a result of the financial or economic crisis or as a result of the unrest that is happening in the Middle East, so I think both of challenges will produce opportunities for acquisitions.”

Etisalat’s bid to acquire a 51% stake in Zain earlier this year attracted much attention. The two parties eventually walked away from the deal, although the repercussions of the negotiations, which reached an advanced stage, are still being felt.

Julfar says that Etisalat may be interested in making another play for Zain Group if the right circumstances arise. “That (Zain) negotiation is over, so from both parties we agreed to call it off because we could not conclude it in the proper time. It may come in the future, in one shape or form,” Julfar says.

As group CEO, Julfar also looks forward to making his first full tour of Etisalat’s international operations to meet with the different teams and present Etisalat’s five-year plan. He says that the trip, which he intends to stage later in the year, will also present him with an opportunity to listen to the international teams and hear about the challenges that they face.

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