Wael Ghanayem, CFO and COO of Zain Iraq, tells CommsMEA about the telco’s recent successes, challenges in the market, and plans for 2013.
CommsMEA: How has Zain Iraq performed in the past year and what growth have you seen?
Growth continues and we have not seen yet the signs of market saturation. The demand for telecom services will continue to grow in usage and number of users. Iraq’s economy is expected to grow at 10.5% in 2012 (BMI-Q4-2012) with faster growth in 2013, the high growth is expected to improve the spending capability of the mobile subscribers.
Zain Iraq has 13.5 million subscribers as of September 2012 and our market share is slightly above 50% and our target is to maintain our leadership position in the coming years. Our subscriber base is growing at a rate of 9% per annum, but our best growth rate was in the northern region of Iraq (Mosul, Kirkuk and Salahaldeen) with more than 130% compared to last year. However, our customer growth in Kurdistan exceeded 80%, which is very good considering that this is our second year after launching services in this region.
CommsMEA: What would you say have been Zain Iraq’s main successes in the past year?
Our main success is in the remarkable improvement of the network KPIs that resulted in improving the quality of the service and network performance. In November 2011, Zain signed a strategic management agreement with Ericsson. The agreement was put into effect in 2012. It includes the replacement of all old radio equipment with new up-to-date technology and the best in the market, the agreement is expected to permit more than 10% savings in the operating costs.
We have also been able to revamp the tariff of most of the products and services in June 2012 which contributed to reducing churn and an increase in customer acquisition. We managed also to offer more competitive products to help enhance customer loyalty in other regions. Our best successes were in the northern and Kurdistan regions where we managed to increase the subscriber base significantly. Our EBITDA continues to be one of the best in the region with annual growth of 8% in the net income. Through tariff revamps on all fronts, network improvements and growth in the North we have been able to reverse the market share loss we have been experiencing for the past years.
CommsMEA: What are the main challenges facing the company at the moment?
The main challenge is growth and executing our growth plans effectively in all fronts, which in turn requires talented resources. One of the main challenges faced by all high-tech businesses is attracting the right talent needed to run and maintain the business whether it is on the technical, commercial or financial functions. Zain Iraq is working hard to acquire to best Iraqi talents, train and setup the right policies to retain them as the Iraq market is getting more competitive with the high GDP growth and with more international firms entering the market. Securing our assets and other logistical burdens impose pressure on the bottom line and reduce financial efficiency. However, we are optimistic that with the expected GDP growth, the country will be able to recover fast and the mobile business will benefit from that growth.
CommsMEA: What is the situation with the IPO? Do you think the operators are expected to list too much stock on the market?
Quoting Mr. Mohammed Charchafchi, Zain Iraq Chairman and acting CEO, Zain IQ continues its efforts to expedite the listing in the Iraq stock exchange (ISX). We are now in the final stages of obtaining the companies’ registrar approval for converting our company to a new joint stock company according to the laws in Iraq. We are eager to offer Zain IQ shares through the ISX because we believe that it will have a mutual benefit for Iraq and for our company. We have been studying the market for some time and believe that there is enough liquidity in the market to absorb most of the offered shares. Fortunately, the offer of shares of the three operators will not take place at the same time. We expect to be the second to list after Asiacell. This will be the biggest listing in the ISX history considering the amounts and volume of shares. Our business is well established in the country; therefore, we expect that our shares will
be very attractive for local and foreign investors. Each operator is obliged to offer 25% of the shares for sale in through the ISX.
CommsMEA: Do you expect the regulator to move forward with 3G spectrum in 2013?
Quoting Mr. Mohammed Charchafchi: We are awaiting the allocation of 3G spectrum. We expect this to take place during the first half of 2013. The ITU statistics is showing 40% world growth in mobile broadband, however, Ericsson’s global measurements have shown nearly 100% annual growth in mobile data traffic in June-2012. There is huge demand for internet access and mobile services in Iraq; however current 2.5G technology is not suited for this demand. Citigroup, the global financial services firm, identified Iraq among the 11 countries which have the most promising growth. Our network will be 3G ready in time but the main challenge will be the low penetration of 3G enabled handsets. The current percentage of 3G handsets is around 10%. We need to continue encouraging our customers to acquire 3G handsets.
CommsMEA: How is ARPU at the moment?
ARPU varies in Iraq according to the regions. The Kurdistan, north of Iraq and Baghdad regions maintain an ARPU that is much higher than the southern regions. Our strategy is to enhance the loyalty of high ARPU customers while encouraging customers in general to increase their usage through a variety of products and services; we are working to develop many new offers for both voice and data services that are suited to needs of different customer segments. We also plan to introduce many innovative new services in 2013 that will both increase revenues and loyalty. ARPU has been increasing slightly over the last years; however it is worth mentioning that in the absence of a standard definition of “active customer” the ARPU figures cannot be compared with other operators. The regulatory authority in Iraq is working on such definition now.
CommsMEA: How are you trying to raise ARPU?
We already have a base of very loyal higher ARPU customers and our priority is to serve them in a very special and personalised manner; for example, we have already restructured our customer service accordingly and we plan to introduce special tariffs and packages specific to this segment as well as many side benefits to enhance customer loyalty. These activities will also allow us to grow our high-ARPU customer base; Iraq is unique in that a majority of high-ARPU customers are still on prepaid so it is more challenging to acquire them and keep them loyal.
CommsMEA: Are there plans for tower sharing?
We are working with the other operators to establish a common understanding regarding tower sharing. We believe that 30-40% saving could be made in OPEX. Site co-location will eventually be driven by regulatory guidelines or cost saving.
CommsMEA: Where do the main opportunities lie for operators in Iraq now?
Iraq’s GDP growth rate is one of the highest in the region and the population is very young. The future is very promising. The current mobile service penetration in Iraq is about 80% which is low compared to the penetration rate in neighbouring countries. Our forecast is that demand for even basic mobile services will continue to grow for the coming 3-5 years. With the advent of better access and powerful handsets, including tablets, higher bandwidth availability and lower bandwidth costs, data services are expected to grow at exceptional rates. The offers in the market will become more segmented, and meeting the specific needs to customers in more targeted way will enable mobile operators to capture a higher share-of-wallet from the consumers.
There are also many opportunities in the vertical markets, such as mobile money and mobile health, especially considering the current status of public services and infrastructure, so opportunities are immense. The telecom market has been growing by more than 11% in the last two years in and will surpass 4 billion this year, and we expect similar growth rates in the next years.
CommsMEA: Tell me about Zain Iraq CSR initiatives?
CSR is one of the main strategies pursued by Zain Iraq to get more engagement and wider exposure to the society in which it works. Many projects address the philanthropic, educational, health, cultural, social needs of the local community. A good budget was allocated to make such projects possible. Among the interesting ventures led by Zain is the cooperation between Zain Iraq and Amar Int. Charitable Foundation led by HE Baroness Emma Nicholson to enhance the
educational and health sessions in the Southern and Middle regions of Iraq. The corporate vision is widely framed with many other projects that cover all of Iraq.