Managing the revolution

Industry leaders across the telecom sector say the future will be dominated by mobile broadband. Samer Salameh, the CEO of Lebanon's Alfa says it could help restore the telco to its former glory, but he has some words of advice for operators in the region.
Managing the revolution
By George Bevir
Tue 29 Dec 2009 04:00 AM

Industry leaders across the telecom sector say the future will be dominated by mobile broadband. Samer Salameh, the CEO of Lebanon's Alfa says it could help restore the telco to its former glory, but he has some words of advice for operators in the region.

Lebanon's Alfa has some catching up to do. When the operator launched in 1994, it was one of the first mobile networks in the region. By 2002 it counted some 600,000 subscribers and was on course to be one of the region's leading operators. But in 2002 the government took over the company and it was then, CEO Samer Salameh says, that the period of growth ground to a halt.

"Basically the company sat there dying for the next four years," Salameh says.

Despite their headstart, the Lebanese telcos suffered during a period of under- investment and neglect, partly due to political instability in the country, while operators in neighbouring countries and the wider Middle East caught up with and then overtook their Lebanese counterparts.

Egypt's Orascom was awarded the management contract for Alfa in February last year and Salameh is immensely proud of what his team has achieved in the last nine months, and he is hopeful that the government will acknowledge the progress that has been made when the contract expires at the end of January.

"We grew the company in nine months almost as much as it grew in 15 years," he says. "We took over a company that had 580,000 subscribers. Within nine months we reached a million subscribers. We effectively doubled the size."

The growth has been in keeping with Lebanon's Council of Ministers early 2009 set of reforms designed to lift penetration rates and lower tariffs, with Alfa and rival network Zain-managed MTC Touch achieving their targets of increasing their subscriber bases by 400,000 each ahead of schedule. The targets had the desired effect, with mobile penetration rising to just over 50%, from a lowly early 2009 figure of 35%.

With government funds, Alfa has embarked on a network upgrade process, changing "the entire infrastructure" of the operator. Salameh says the technology had not been upgraded since 1994, and in nine months Alfa has changed the core, the intelligent network, the processing, the billing, the charging systems and the transmission network, with an additional 164 bases stations installed in the process.

Salameh admits that Alfa still has some catching up to do, and he is presiding over another set of upgrades that he hopes can see it kick off the new decade with a robust network capable of serving the country's data requirements, which could capitalise on the absence of a comprehensive fixed broadband infrastructure.

"Alfa was one of the leading service providers in the Middle East - if not the world - back in 1994," he says. "We lost that position for a while and now with the advent of broadband and through the leadership of Orascom Telecom, we are set to recapture our rightful position as a leader in that wireless space.

The road to privatisation

Alfa CEO Samer Salameh says that Orascom chairman Naguib Sawiris has made it clear that he considers Lebanon a strategic country, and that when privatisation of Lebanon's operators takes place, he wants to be involved.

Privatisation of the telecom sector was one of the reforms Lebanon agreed to in a 2007 deal to secure international financial assistance. It was meant to be happen in the third quarter of 2007 but has been continually sidelined.

Relinquishing government ownership was considered to be a way of reducing public debt (one month after the 2007 conference Lebanese economy minister Sami Haddad told Lebanon newspaper The Daily Star that privatisation would raise US$5 billion for the cash-strapped state) and increasing competition and the performance of the operators.

Etisalat is one of at least ten telcos to state its desire to take on one of the operators when they are privatised, but according to Salameh, they will have to wait for the chance.

"I think the consensus is that it will not be in 2010. We will have to wait for 2011 and the financial industry to come back. The markets are not ready for privatisation," says Salameh.

As part of that process, Salameh says that Alfa is conducting tests with Ericsson and NSN in Beirut on HSPA+. "We have our preference as to what happens beyond the test in the second half of next year, but it is something I can't share right now," he says.

"We are in negotiations with the government to see if we go HSPA+ at 21Mbps or 42Mbps, if we have two channels, or we may jump right on to LTE. We await a decision from the council of ministers as to what they want to do."

Salameh used to be the CEO of a US-based internet service provider, so he is well versed in the historical usage of data, and he gives the example of an iPhone using 30 times more data than a regular phone and USB dongles 450 times more data than a regular smartphone as evidence of the rising tide of data usage.

With 2.5G capability, Salameh freely admits that Alfa's backhaul network is not yet ready for the growth of data usage, but it is something that it is preparing for.

"If you look at the growth in mobile data versus fixed, clearly mobile data is where it's going to be. Already this year, mobile data has beaten fixed data and it is set to grow significantly over the next few years," Salameh says. Despite the historical evidence planning for the future is an imprecise science, he warns.

"When operators try to plan how to manage their networks, they are trying to plan for things that don't exist today. By the time LTE is in place five years from now, we don't know what services will be out there. Operators are trying to build against the unknown, and that is key."

Salameh describes LTE (Long Term Evolution) as "the worst acronym that exists". He suggests an alternative: "It should be called LTR. While it is a technological evolution, if you don't acknowledge the business model revolution that it is going to inflict upon your business, then you will have a very serious problem," he warns.

Salameh's advice to the operators gathered at the recent Telco World Summit in Dubai was threefold. He suggests operators focus on cost control; the sharing of resources and the managing of customers' experiences, based on their user profile. He says operators would be wise to lose the 7% of subscribers that typically consume 80% of the data.

The reason for the drastic action is that the revenue per Mb is not going to increase, he says, because customers do not appear willing to pay more for their data. "If you look at what is happening in Europe, in 2008, prices dropped by 4%, and the traffic doubled." He suggests that profit per megabit is "the only way" to appraise an operator's business, which means no flat pricing for data.

"You have to go to LTE, unless you are in a $2 or $3 country where the demand is not there. In a country like Lebanon, with a $50 ARPU, you have to go to LTE because the demand is there and people want broadband. Total cost of ownership goes down dramatically with LTE."

Salameh uses the example of what happened to his former company after it was sold as a warning to his fellow operators. "I have seen this movie before," he says. "In 1997 I was the CEO of a company in New York called Prodigy, which was the second largest ISP in the world, traded on Nasdaq, and we had a $2.5bn market cap. A year later I sold the company for $2bn, just in time, and a year later the company was worth $100m.

"Somebody went in and had the smart idea of introducing all-you-can-eat access for $19.95 and you simply couldn't make money that way. If operators go to flat pricing, god help them."

Tweaking the tariffs

In March Alfa and MTC Touch cut their tariffs by 40% and calls by 15%, and introduced monthly tariffs of US$15, reduced from $25. The cost per minute for calls has been cut from 13 cents to 11 cents. It was a much needed move; Lebanon's high tariffs were highlighted by an Arab Advisors survey that ranked Lebanon's prepaid calls the most expensive in the Arab world.

The cuts have contributed towards reduced ARPU, with Alfa's falling from one of the region's highest at $74 to $50. Salameh says that Alfa has approximately 250,000 postpaid customers who spend over $120 a month, along with 800,000 prepaid customers who spend about $25.

He says ARPU will fall further in 2010 as the base expands, with mobile penetration expected to reach 80-90% inside two years, according to the Alfa CEO.

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