Saad Al Barrak interview: Zain

Saad Al Barrak tells Arabian Business how he transformed Zain, Kuwait’s provincial telco, into a global giant in just seven and a half years
By Claire Valdini
Sun 06 May 2012 01:24 PM

“I started my career as an engineer and then I failed so I was promoted to a manager. When I failed as a manager I was promoted to CEO and when I failed as a CEO, I became a consultant. Only when I fail as a consultant will I become a politician,” Dr Saad Al Barrak laughs.

“That’s a good quote,” he quips.

Jokes aside, few people would agree with Al Barrak. In just seven and a half years he managed to transform Zain, Kuwait’s provincial telco, into a global giant. Under his guidance the former-state owned operator grew from a customer base of 500,000 operating in one Gulf state to 72 million customers across 23 countries. Over the same period, revenues at the company jumped from $570m to $8bn.

Today’s pace is rather different from the frenzied days Al Barrak spent growing Zain’s operations. The man known as simply ‘the Doctor’ in many circles is sitting in the plush surroundings of the Ritz-Carlton, Doha, signing new copies of his book, A Passion for Adventure. The evening will mark the official GCC launch of the book he has spent the interim period writing since his surprise departure from Zain two years ago, and from Saudi subsidiary Zain KSA last year.

The book charts Al Barrak’s early days as managing director at the Kuwait IT solutions firm International Turnkey Systems (ITS), ITS’s continued growth during the Kuwait invasion to his transformative years at Zain, and is peppered with anecdotes from those he worked closely with at the former monopoly holder.

“After the 2008 financial crisis the mood changed,” he says. “I knew that [Zain’s] direction would be to consolidate and extract value…I am a challenge and growth person. I love the ecstasy of expansion and I will not stick around just to preserve the post of CEO at Zain,” he says.

He is, of course, referring to the sale of Zain’s African mobile operations to the Indian telecom giant Bharti Airtel in 2010. The deal, which netted Zain $3.7bn in net profit, marked a stark departure from the style of transactions Al Barrak and Zain had become synonymous with.

“We had absorbed huge pressure as managers but once it had transpired that a strategic shareholder – especially one with whom there had long existed a close understanding – wanted to change gear and even direction, it did not make any sense for me to stay,” he writes in his book.

The major shareholder that forced Al Barrak’s final deal at Zain was the very shareholder that first persuaded him to join the company back in 2002: the late Kuwaiti businessman, Nasser Al Kharafi. Back then Zain – or MTC as it was known – was a very different beast to the telecoms giant operating today. A year earlier, the Kuwaiti government had reduced its stake in the company from 49 percent to 25 percent, leaving behind a firm scarred by over a decade and a half of red tape and bureaucracy.

“I discovered a company that had been stymied by government culture for sixteen years, which was an unprofessional, politicised monopoly. It had a big marketing department that knew nothing about marketing and little about PR,” Al Barrak describes in his book.

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“Many internal appointments were based on favouritism, and the government always chose the chairman-cum-managing director who always happened to be the former under-secretary of telecommunications. The government appointees bought red tape and bureaucracy, and they were sometimes allied to some of the shareholders. Worse, the management had never heard of a business plan,” he adds.

Despite some initial hesitation, Al Barrak persuaded global consultants McKinsey to provide the firm with a diagnostics report. The McKinsey report made for shocking reading, prophesying that the company would lose 60 percent of its value in three to four years if it continued along the same performance indicators it had at the end of 2002.

The report was enough to convince MTC’s shareholders that they needed to “not only adapt but revolutionise,” says Al Barrak. With shareholder approval, Al Barrak embarked on a series of acquisitions and deals including a 91.5 percent acquisition of Jordan’s Fastlink. In 2003, the firm was awarded one of three mobile licences in Iraq (which it branded MTC Atheer), a second licence in Bahrain (MTC Vodafone) and in 2004 was awarded a mobile licence for Lebanon (MTC Touch).

Al Barrak’s time at Zain will probably be best remembered for the firm’s 2005, $3.36bn acquisition of Celtel Africa, the African telecommunications firm founded by the Sudanese billionaire, Mo Ibrahim. But as Al Barrak recalls, the deal that helped Zain grow its customer base from four million to ten million overnight, almost never happened.

While the Kuwaiti network offered a close bid cash price of $2.7bn for the African operations, its South African rivals MTN offered a price close to $2.9bn. “I began to feel something was wrong and that our bid – calculated as much on beating the IPO as on Celtel’s potential worth – had not been enough,” he says.

Convinced that MTN had put in a higher offer but keen to complete the sale, Al Barrak phoned Ibrahim to find out if he would be legally permitted to submit a second offer. Legal advisors approved the move and Al Barrak used the long Easter break MTN had taken off before announcing their acquisition to his advantage. “I convened the board on the Saturday during the Easter holiday and told them we needed to increase our offer by $600m,” he tells Arabian Business.

Celtel signed the counter offer at 11pm on Easter Monday. Johannesburg-based MTN later tried to sue Celtel for ditching what it alleged was an agreed $2.7bn takeover but failed.

“The deal created a new mammoth creature,” says Al Barrak. “Everybody was really shocked. At the time people were withdrawing from Africa; Orascom, Vodafone went in and receded and Orange did the same thing. The collective experience in Africa was negative but we felt that being a company from the region we would understand the market better,” he adds.

In addition to growing its operations across the African continent, Zain continued to expand its One Network, billed by the company as the world’s first borderless mobile service. The move to reduce extortionate roaming charges in the GCC is a subject close to Al Barrak. The Gulf Cooperation Council in January gave regional operators a February 1 deadline to reduce roaming rates for voice calls across all GCC countries but Al Barrak remains convinced that until regional telecoms markets are liberalised, roaming charges will remain a contentious subject between operators and their customers.

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“It [roaming charges] has come down a lot but it has come down in one area, which is a commodity area, voice, but data is still commanding huge margins. As long as the GCC is run by the various ministries of telecommunications nothing will change,” he explains.

“The problem is not having an independent regulator and the ministry of telecommunication is not well equipped to monitor and regulate the telecoms market. Saudi Arabia is a great example of three companies and where a lot of development is taking place and where the government plays a great role in not intervening in the business of telecoms companies,” he adds.

While Zain’s competitors didn’t follow its lead in reducing roaming charges, they did follow to Africa in hot pursuit. In 2006, Vodafone acquired a 15 percent stake in investment firm Venfin, increasing its stake in Vodacom from 35 to 50 percent and two years later paid $2.2bn to take its share to 65 percent. UAE-based operator Etisalat and France Telecom also made similar moves into the market.

“In terms of growth, Africa was the most convincing [market], it was growing dramatically every year. People were scared of the environment in general but we wanted to transform the image and put Africa on the map and that’s what we did,” says Al Barrak.

The rebranding of MTC/Celtel in 2007-8 set the firm back $150m. Two years later, Brand Finance valued the Zain brand at $2.9bn.

The onset of the global financial crisis and Zain’s success proved to be Al Barrak’s downfall. Zain’s shareholders, keen to raise cash to support their longstanding family-owned businesses, started to intervene in the running of the company, at first persuading Zain to sell its Africa operations before later pushing for a sale of its entire operations. “It was clear I would not be a part of the stripping of company assets or shares,” says Al Barrak.

“If selling was the shareholders’ only option, where did this leave me? I could hardly preside over a complete change of course. Without Africa, Zain would be retreating from being a global to barely a regional company,” he adds. He quit the firm on February 2010.

While Etisalat’s $12bn failed bid to acquire a stake in Zain in 2011 has left the company’s long-term strategy unclear, Al Barrak has moved on and plans to take the lessons he learned growing Zain and apply them to small to medium-sized companies. In addition to lecturing at universities around the world, he is also the chairman of the consultancy firm ILA Group, which has offices in Bahrain, Egypt and Kuwait.

“The idea is to manage companies and grow their values and service by offering strategic advisory. It is about investing in small start ups, [mainly] telecom related that will generate ten times their value within five years before we exit and move onto something else,” he explains.

If anyone can help companies see their potential, it is Al Barrak.

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