By Tawanda Chihota
Marwan Alahmadi is MTC Group's former chief strategy officer, who three months ago was appointed to head the company's foray into the rapidly evolving and fiercely competitive Saudi Arabian telecoms market. He will be required to balance his understanding of the strategic importance of the investment with the challenges present on the ground in Saudi Arabia, and it will be no easy task to make the huge upfront investment a success.
Analysts estimated the third mobile licence in Saudi would sell for around US$5 billion. MTC Group ended up offering more than 20% above that estimate in order to secure the concession. The US$6.11 billion MTC pledged is by far the highest amount ever offered across the entire Middle East Africa region for a greenfield opportunity, and now the operator is going about making good what it claims to be one of the last remaining viable investment opportunities of its size left in the region.
Marwan Alahmadi is the man chosen to steer MTC's launch in Saudi Arabia. He is an inspired choice of launch architect given his previous responsibility as MTC Group's chief strategy officer, a position that permitted him to help implement and indeed mould the grand vision of MTC's global expansion as envisaged by Group managing director and deputy chairman, Saad Al Barrak.
Thus Alahmadi is acutely aware of how significant a role a foothold in Saudi Arabia plays for MTC's overall expansionary aspirations. "We are an international player and we are now aspiring to become a global player," Alahmadi tells CommsMEA. "Being a regional and international player, I think we all agreed that we had to have Saudi Arabia as one of the blocks of the operations that we have in the region, for various reasons. One is the kingdom's economic power, as the largest economy in the GCC with GDP of US$350 billion and GDP growth of around 12% in 2006," he says.
The kingdom's geographical location, bridging Asia and Africa is also of significant importance and value to MTC, and given that the operator has a presence in many of the countries close to Saudi Arabia, such as Sudan, Jordan, Bahrain, Kuwait, Lebanon and Iraq; potential geographic synergies definitely have a space to manifest.
"The proximity, commercial relationship and the potential for building one network for that region exists," explains Alahmadi. "We have already done it in East Africa with Celtel, so it is Saudi Arabia's ability to fit in to a region in which MTC already has operations that makes it lucrative to the operator," he adds.
We are rebranding the whole group into a new brand. Saudi will start with a new fresh brand; it will not be called MTC. Ultimately this single brand will exist everywhere that MTC is and I envisage this process starting to take place as early as September.
In terms of the strategic direction in which MTC Group is headed, and into which presence in Saudi Arabia forms a part, at the beginning of this year the parent company - MTC Group - embarked on its ‘ACE' programme, which represents the adoption of a set of values positioned to propel it onto the global stage. ACE, which stands for accelerate, consolidate and expand, is an implementation strategy that seeks to extract superior value from existing assets through acceleration of growth, consolidation of operations and further expansion of the business. Based on organic growth through ACE, MTC Group aims to serve 70 million subscribers across all the markets it operates by 2011, attain a US$6 billion EBITDA, and emerge as one of the top 10 mobile operators in the world.
So as far as Alahmadi can see, placing a static value on the price paid by MTC for the licence in Saudi Arabia is the wrong way of assessing its commercial value. "Licence prices cannot be taken in absolute terms. One has to take into consideration the penetration levels and the GDP per capita of the country in which one intends to invest," articulates Alahmadi.
MTC stands to benefit from Saudi Arabia's high ARPU levels of around US$35, as well as the 25-year duration of its operating licence, which is substantially longer than standard 15-year concessions.
"If you take that into consideration, what we paid for the third licence in Saudi Arabia is less than what it cost Etisalat to pay for the third licence in Egypt. Just a simple comparison, I'll leave the maths to those who want to do it, but we have done it already, and the conclusion is that our Saudi investment is a much more lucrative opportunity than the one in Egypt."
It is poignant that Alahmadi refers to the battle to win Egypt's third mobile licence last year, which was ultimately won through Etisalat's winning bid of approximately US$3 billion. Etisalat's offer was a clear 20% higher than the highest bid tabled by MTC, which amounted to US$2.5 billion, and which constituted the second highest bid after Etisalat's.
In the rapidly consolidating operator landscape within Middle East and Africa, a trend has developed in which operators that have been frustrated in one bid process or acquisition attempt, refocus their efforts in order to win a subsequent opportunity, in some cases overpaying in order to shake off any lingering disappointment. One only need look at South Africa's MTN, which following its failure to acquire Celtel International, it subsequently acquired Investcom for US$5.5 billion - a figure that at the time was viewed as a significant premium for the assets on offer.
Alahmadi is adamant that MTC's bid in Saudi was not an outlet for the company's discontent with failing to land the licence in Egypt. "Yes, we were keen to enter Egypt from a commercial and footprint perspective, bearing in mind that MTC is the fourth largest operator in the world in terms of footprint - we cover almost half a billion of the world's population," states Alahmadi. "So Egypt would have definitely added great potential to us, however [our decision not to bid higher during that award process] also reinforces the idea that we calculate our moves very carefully. It was a multi-round auction and we decided not to go beyond what we found was economically feasible. Whereas in Saudi we went to the limit where we knew that it is viable," he adds.
Entry into the Saudi market will not be an easy play given the presence of two seasoned mobile incumbents, which between them count over 20 million subscribers. Alahmadi is confident that MTC's track record of success and value creation in other parts of the region will serve it well in the kingdom, and refuses to view entry as the third mobile player as too great a disadvantage. "Let me give you an example of Tanzania; where we were awarded the fifth licence and in less than three years, two years plus, we are number two," asserts Alahmadi. "So we have that record of success. Even where we take a licence that is not necessarily the first or the second, we can bring that licence to a higher level than what the licence may allow conventionally."
MTC's entry into Saudi Arabia will also come at a time the operator is looking to re-invent itself through the launch of a global brand, which is set to epitomise the company's aspirations for its current and future activities. While the rebranding process is expected to occur in September with a number of operational MTC brands switching over to the new brand immediately, MTC's Saudi entry will mark the company's first greenfield operation in which the brand is utilised.
"We are rebranding the whole group into a new brand. Saudi will start with a new fresh brand; it will not be called MTC," reveals Alahmadi. "Ultimately this single brand will exist everywhere that MTC is and I envisage this process starting to take place as early as September," he adds.
The selection of infrastructure suppliers in Saudi Arabia, which will be a crucial element in propelling MTC to launch and beyond, is set to occur any time now, with Alahmadi stating that the final decisions are in the process of being made. Over the next 6-12 months there is set to be substantial infrastructure investment in the kingdom not just from MTC, but also from the three fixed line operators that were awarded licences earlier this year. At least two of those licensees are looking to develop nomadic WiMAX networks, and again Alahmadi is not overly concerned by the potential encroachment of these services on the activities of his company.
The need for telecoms [in Saudi Arabia] will outgrow what the two competitors today could deliver the market, and definitely adding a third, strong telecoms provider like MTC will enrich the offering.
He believes indoor voice communications will remain the preserve of the mobile world given that almost 80% of calls made in this environment are made utilising mobile phones and networks. More and more fixed lines are being used to carry very high-speed internet access, and Alahmadi believes any threat from the fixed-line will likely come through the offer of broadband services.
"Voice is the king for the mobile and there is still no serious threat," Alahmadi contends. "The three mobile operators will compete in voice and other services, and there will be other blue ocean areas where the three fixed, plus the three mobile and the existing fixed will compete," he adds. This is where the question of innovation plays a crucial role and Alahmadi believes the ability to execute will be a major competency any operator will need to possess, and which MTC will look to maximise upon given its track record.
"The need for telecoms [in Saudi Arabia] will outgrow what the two competitors today could deliver in the market, and definitely adding a third, strong telecoms provider like MTC will enrich the offering and improve the quality of the services and also improve the value," Alahmadi states. "If you take a dynamic view of how things may develop in the future you'll find that what exists in the market today was not there before Mobily started, and what will be offered later on when MTC is on the ground will be another tier in terms of quality, richness and value to what is being offered today. Competition always brings value," he adds.
Part of MTC's move to bring value to all the markets in which it operates is to develop into an operator with the full capacity to drive such value wherever possible. It is for this reason, amongst others, that Alahmadi confirms that the parent company shall seek a listing on a European stock exchange during the course of 2008 in order to help it truly emerge as a global operator.
This is an international IPO of MTC Group, as distinct from the 40% IPO of MTC 's Saudi business in the kingdom, as required by the terms of its licence agreement, and which is set to be undertaken before the end of this year.
With regards the international IPO, Alahmadi offers four reasons why it is crucial to MTC Group's future plans:
• It will result in more analysis from analysts.
• It will offer greater access to international funding.
• It will offer MTC currency so the operator does not have to rely cash only transactions.
• It will further improve corporate governance to international levels, thereby giving further confidence to all stakeholders.tech news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.