Seizing Sudan's potential

Sudan's telecoms market offers much growth potential
Elfatih Erwa, CEO of Zain Sudan, is optimistic of improvement in the Sudan market.
Elfatih Erwa, CEO of Zain Sudan, is optimistic of improvement in the Sudan market.

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Sudan’s mobile operators have experienced their share of challenges in the past few years. From the separation of their home country into two independent nations, Sudan and South Sudan, to a war and a temporary block in the flow of oil between the two, the past couple of years have been anything but easy.

But through it all, Elfatih Erwa, CEO of Zain Sudan, the country’s biggest mobile operator, has kept his operation on an even keel, and he remains optimistic that the external factors that have hit the company will start to improve.

“It [political instability] affected us mainly on the OPEX side, but we had to face lots of challenges in how to maintain our revenue and at the same time to control our costs,” Elfatih says.

“We believe in Zain Sudan and 2012 was a really tough year, 2013 was better but still tough. We believe that in 2014 we have sustained the bad time and things will improve.”

While Zain Sudan lost about 12% of its customer base when South Sudan became an independent nation – a move that forced the telco to hive off its operations in the new country as a separate operation – it has proved remarkably resilient in the face of adversity. Indeed, Elfatih explains that despite seeing a decline in its customer base to just under 12 million in 2012, the company has since managed to increase its revenues in real terms by 18% in local SDG terms, excluding currency fluctuations.

Elfatih explains how this apparent sleight of hand was achieved: “We have made one of the most important steps during this gloomy economy. We made a revamp of prices, instead of raising the prices, we lowered the prices, and still we gained more revenue.

“Our market share is about 43%, but our revenue share is in the vicinity of 60%. We have dominated the revenue share because we have focused on customer value,” he says.

While the telco’s results suffered during the worst of the turmoil, the company demonstrated remarkable resilience in its last set of financial results, for the twelve months ending December 31, 2013.

For the full-year 2013, in local currency (SDG) terms, Zain Sudan’s revenue and EBITDA both increased by 18%. Unfortunately, with the currency having depreciated 35% against the USD Y-o-Y, the foreign exchange translation effect on most key financial indicators was described the telco as “adverse and considerable”.

Revenues in USD terms for the first twelve months decreased 28% to reach $623 million. However, without the negative impact of foreign exchange, revenue growth would have been 18%. EBITDA decreased by 29% year on year, excluding the foreign exchange translation, growth would have been 20%. Net income reached $103 million for the full year 2013.

Zain Sudan benefitted from a recent change in the way the government taxes the telecoms sector in Sudan. Indeed, in 2013 the government exempted the telecoms sector from a 30% tax on profits and instead opted to tax the telecom sector via a 2.5% tax on revenues. From the government’s perspective, this makes more sense as it encourages the country’s telecoms operators to become more efficient and more profitable, whereas the old tax regime offered no incentive for operators to increase their profits.

“Zain has benefitted from it because it is the only efficient profitable operator,” Elfatih says. “I don’t want to mention a company name. Zain has invested lots of money in cash. Zain in the last six years invested $1.5 billion in capex, while other companies are taking leverages from loans. This is why we are debt free.

But aside from political instability, Sudan remains a tough operating environment for telecom operators in other ways, including tough competition and high rates of churn.

“The country is more than 99% prepaid and most of them are multi-sim and dual sim, so when people cannot afford it they start getting rid of their excess sims, whether from the same operation or different operations,” Elfatih says.

“We believe the customers we lost were mainly in the areas where the penetration is very high. Where the penetration is low we could say that we still have some organic growth.”

In terms of market trends, Sudan remains a voice dominated market, although Zain Sudan managed to grow its data revenues by more than 100% between 2012 and 2013. In line with demand, the company has been busy deploying mobile broadband infrastructure and now covers most of the country with mobile broadband, with only very remote areas still using GPRS. “In the main areas we have 3G up to 42Mbps. We have added about 100 sites in 2013. We modernised the network in different areas and we increased the 3G sites, so that almost one third of our sites are now 3G,” he says.

Despite these investments, Zain Sudan has no intention of letting up the pace. Indeed, the company has ambitious plans for its network infrastructure in 2014. The company is working with the regulator to secure trials for LTE. Elfatih confirmed that the telco already has spectrum in the 1800 band but needs approval to re-farm it for LTE. Aside from this, much of the operator’s mobile broadband network is already LTE ready.

Given the low fixed line broadband penetration, Elfatih sees significant potential for LTE in the country. “Actually I think LTE has a future because I think people are relying mainly on wireless technology,” he says.

The operator will also continue to modernise its backhaul and transmission network this year, and will also upgrade its business intelligence systems, Elfatih says.

With demand for mobile broadband soaring, albeit from a low base, Zain Sudan views fibre backhaul capacity as particularly important. Currently, Zain Sudan owns fibre backbone covering some parts of the country and also leases capacity from its competitors, Sudatel and Canar. It is also working on more deals to further expand its backhaul capacity, and expects to make more announcements in 2014.

Zain Sudan competes with rival mobile operators MTN and Sudatel. Zain claims to have the biggest network and dominated in terms of market share of customers and revenue. “Our customer share is 43%. We could say that we are controlling the market because we have the largest and best network. The capacity also is good. Also one of the main important things we are a debt free company,” Elfatih says.

Zain Sudan is also implementing a converged charging and billing platform with Ericsson, which will allow it to offer more tailored packages to its customers.

The telco is also looking to various types of value added services to grow its business, and Elfatih expects one of the most important drivers to be mobile money. The CEO says that Zain Sudan has been ready to offer mobile money services for a few years, but has been waiting for regulatory changes to allow it to do so. He is optimistic that the rules could change soon, allowing the telco to enter this important growth market.

“Mobile money will be big – just look at how much of the population is unbanked,” Elfatih says. He adds that people often use vouchers to transfer mobile airtime as a type of currency, indicating a pent-up demand for real mobile money transfers.

Elfatih is clearly optimistic. “Mobile money is going to impact the economy a lot. Transferring of money through voucher system contributes about 40% of the VAS revenue. So you can see what is going to happen when we start offering mobile money services,” he says.

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