Like many of its counterparts in the rest of the Gulf, Etisalat Group faced some tough times in the aftermath of the global financial crisis of 2009. Not only was competition increasing in its home market, but some of its international operations also proved to be more difficult than expected, a situation that was exacerbated by the onset of the Arab Spring late in 2010.
But Etisalat’s Q2 results indicated that the telco’s fortunes had changed significantly, with group revenues and profits up. Indeed, the telco posted a net profit after federal royalty of AED1.9 billion ($517m) in Q1, a rise of 17% over the same period in 2011, while revenues increased by 4% to reach AED8.252 billion. Significantly, revenue from international operations grew by 14% to AED2.3 billion.
The return to growth came as a result of combined efforts under the leadership of Ahmad Julfar, who was appointed group CEO of Etisalat last year. “We continue to grow our business. Last year we have seen very good growth relative to the situation in market performance. In the first six months of this year we have seen also good growth of about 17%,” he says.
For Julfar, much of this growth was achieved by a group-wide focus on the services available to customers across its 16-country footprint. It is also a trend that he expects to continue in 2013 as the telco starts to reap the benefits of investments made in the past year.
Indeed, Julfar says that throughout 2012, Etisalat has staged an “aggressive roll out” of technology including 3G and HSPA+ in various markets including Ivory Coast and Afghanistan, LTE in Saudi Arabia, and FTTH and LTE in the UAE.
“Overall there is more focus over the last 12 months on the customer experience at Etisalat in different markets. Our customers and consumers will see the outcome of this through 2013 and going forward they will see a completely different experience with Etisalat companies,” he adds.
Etisalat is present in some of Africa’s most promising markets, including Egypt and Nigeria, which have a population of about 82 million and 162 million people respectively. Julfar highlights both countries as markets where Etisalat has significantly increased its performance in the past year. Indeed, in its Q2 results, Etisalat posted revenue growth of 15% year-on-year from its Egyptian operation, Etisalat Misr. It stated that this growth was fueled by subscriber growth and promotions designed to stimulate voice usage and data penetration.
The telco’s Q2 results from Nigeria were even more impressive, with revenues up 63% compared to the same period in 2011, while subscriber number increased by 65%.
In the Middle East, Etisalat’s operation in Saudi Arabia, Mobily, continues to perform strongly in one of the region’s more competitive markets. It attributed revenue growth to data, the business sector and smartphone sales. Indeed, data revenue represented about 25% of Mobily’s Q2 revenue and the trend looks set to continue with the telco planning to focus on expanding fibre optic and LTE networks in the coming year. These advancements also were evident in the unit’s results and it paid a dividend of AED 179 million to Etisalat in May 2012.
“Egypt and Nigeria and Mobily – those three are sizeable operations and they have shown very good improvements. The improvement was achieved through focus by the management in these companies in the local market and how to bring additional value and differentiate themselves from the rest of the operators in those markets,” Julfar says. “The focus was mainly on two things, quality of service and customer experience.”
The Nigerian operation is also working to beef up its data offering. For example, in September, the operation launched a 3.75G service in Akure. Etisalat Nigeria originally launched its HSPA+ network in October 2011 across 14 cities including Lagos, Abuja and Port Harcourt.
Julfar adds that Etisalat Nigeria also launched mobile commerce services in Nigeria in September, which he expects to experience a strong take-up. “We expect mobile commerce to have a very big pick-up in those countries because of the value creation it gives to the end user and the uniqueness of the service we have provided,” he says.
He adds that the operation is also benefiting by having the country’s most modern mobile broadband network. “We have a brand new network compared to our rivals, so our infrastructure is state-of-the-art. Second thing, we have 3G coverage in most of the populated areas of Nigeria. Definitely we don’t have a footprint as big as the number-one player because they have been in the market for many years before us.
“We are playing catch-up in terms of coverage but I think we are focusing more on quality and that is why we see a great success, because whenever we cover an area we see very good customers who opt to choose Etisalat’s services, again because of the state-of-the-art technology as well as the quality of service we provide.”
Julfar adds that he sees significant potential for growth given the size of the country. “It’s a huge country with a huge population. GDP is relatively good and I think it has been a very much under-served market,” he says.
Furthermore, the lack of infrastructure in Nigeria compared with more developed countries means that there is a greater pent-up demand for internet services and additional value-added services.
“This is what we have seen, and maybe one of the reasons for our success in Nigeria is the mobile broadband and also now the value added services we are providing. HSPA+ will give you more speed but mobile commerce will give a different direction and differentiation, and this is where the growth is going to come from.”
This focus on delivering a strong customer experience is a key part of Etisalat Group’s strategy, not least because it will help to attract and retain the higher value customers that are critical to raising ARPUs and in turn, revenues, according to Julfar. “Our focus going forward will be mainly on the quality of service and customer experience,” he says. “Once you are successful in these two areas then you will get the customers who will not mind paying a little bit of a premium for a quality service, and these customers are available in all markets irrespective of how good or how rich those countries are. We have seen it in the UAE, Saudi, Egypt, Africa and Asia.
“There is a good customer segment which will always go for a high quality of service, the best quality of service and a good experience with that telecom operator. Once we are successful there, we’ll be able to have a very good margin,” he says.
Another advantage of the group’s scale is that it allows it to achieve greater economies of scale when investing in its networks. “The scale we have gives us an edge over local operators in the region. For example we can get better deals with our partners, whether it is equipment vendors, content, or devices,” Julfar says. He adds that there are also advantages in terms of wholesale and roaming, where Etisalat Group companies can provide better packages to their end users, which will increase traffic.
Speaking at a conference in Dubai in the first half of 2012, Julfar spoke candidly about Etisalat’s plan to re-evaluate its international strategy and indicated that the company would consider lowering its share in some markets and entering others depending on what opportunities arose. And this is precisely the direction that the telco has taken.
Indeed, in September Etisalat confirmed that it had sold 775 million shares in Indonesian operator, PT XL Axiata, for about $510 million. The shares represented about 9.1% of XL’s issued share capital. Etisalat raised AED1.87 billion ($510m) before commission and expenses from the sale, and was left with a 4.2% ownership stake in XL.
“In Indonesia, it was part of our strategy and it was the right move for us. We have partially exited when the share price was performing the best in the company’s history and I think we got the best return for our shareholders,” Julfar says.
“We still own a percentage in that company and for us being there as minority shareholders with a majority telecom operator, it has its own synergies and value creation, which through our good relationship with them will continue to create that value for us and for them.”
He adds that Etisalat continues to assess its international portfolio. “We are assessing our situation in all our markets like Africa and Asia to see what would be the best position for Etisalat in these markets. Is it to stay as we are or to grow or to reap back from these markets,” he says. “Today there is no decision about any other markets that we want to sell as we have done in Indonesia.”
While the region’s telcos grew at a frenetic pace through acquisitions in the run-up to the global economic financial crisis, the operators have taken a step back to consolidate and appraise their acquisition in the past two or three years. This is a trend that Julfar acknowledges. “The region has been very quiet over the last three years in M&A activity and the main reason I think is the global financial and economic situation,” he says.
While this trend could be viewed as a general malaise in the sector, Julfar says that it is likely to produce some good opportunities for telecom operators and investors in the region.
“So far we are keeping our eye open for these opportunities when they come. We believe some good opportunities will come over the next 12-18 months. We are focused on the whole MENA region, and parts of Africa and Asia,” he says.
He adds that opportunities could arise in various forms, whether full acquisitions, joint ventures or minority stakes. However, he sees growing potential for partnerships and alliances with other players.
“The business model for telecoms has started to take a different shape. You see more partnerships and alliances than what you have seen in the past and I think this is sometimes a good strategy for entry into certain markets. Maybe you don’t go with a major acquisition, maybe you go with a partnership or you go with a small investment,” he says.
A further benefit of the international operations is the opportunity it gives Etisalat’s management team to gain valuable experience of managing and directing operations in very different markets. “That has been one of the untold success stories for us, taking Emirati nationals and going outside the UAE,” Julfar says.
This knowledge can then be brought back to the UAE to benefit the company’s most lucrative operation. He adds that this was the experience from when Etisalat first entered countries including Saudi Arabia, Egypt, Nigeria, Ivory Coast, Tanzania, and Pakistan.
“We sent big teams to these markets and the wealth of knowledge they brought back has been fantastic,” he says. “A classic example is the CEO of Etisalat UAE, Saleh Al Abdooli. He went to Egypt and had great success there. He gained a lot of international experience competing with Vodafone and Orange in Egypt and brought this experience here. This is what you will see in 2013 and beyond – the application of that knowledge and experience in the local market.”
It is not just UAE nationals that Etisalat is keen to develop. Etisalat also has a scheme called the High Potential Programme, which selects people from all of the group operations to work in a different opco. The aim is to foster and develop talented staff and to equip them with the skills and experience necessary to help drive their local operations.
Etisalat said in September that it had selected 100 high-potential employees to take part in the training programme, which is run by Etisalat Academy in conjunction with US-based Duke University.