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Wed 9 May 2007 04:00 AM

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Taking Shape

Late last year Oger Telecom decided to defer its IPO in Dubai and London due to what it described as volatility in the market. While the operator remains headquartered in Dubai, its operational base is out of Istanbul, from where Oger Telecom CEO Paul Doany reveals the company’s strategic direction to CommsMEA.

Strategy|~|Oger-Feat.200.jpg|~|Paul Doany believes Oger Telecom’s US$6.55 billion acquisition of a 55% stake in Turk Telecom represents better value than MTC’s US$6.12 billion licence fee for the third mobile licence in Saudi Arabia.|~|Late last year Oger Telecom decided to defer its IPO in Dubai and London due to what it described as volatility in the market. While the operator remains headquartered in Dubai, its operational base is out of Istanbul, from where Oger Telecom CEO Paul Doany reveals the company’s strategic direction to CommsMEA.

The plan remains to list Oger Telecom within three years of its formation in the middle of 2005, leaving it just over a years in which to stay on track. In the meantime, the operator appears set to continue trawling Central and Eastern Europe, Central Asia, as well as the Middle East for further investments, according to the company’s CEO, Paul Doany.

Even in Africa, Oger Telecom is looking at innovative ways to participate in the communications sector revelry that is taking place on the continent, and Doany reveals the company is looking at opportunities to establish mobile virtual network operations in at least two markets in Africa. Oger Telecom is a 75% indirect shareholder in South Africa’s smallest mobile operator, Cell C, which in June 2006 launched a 50/50 joint venture MVNO, Virgin Mobile, in partnership with the Virgin Group.

“We have begun to build expertise in this MVNO area, which we would like to export to other markets where we think we can utilise it to best-advantage,” Doany comments. “In fact there are two specific markets that we are looking at with this type of model, which is a pure virtual model, and I think that will be interesting from an operator perspective,” he adds.

Far and away, Oger Telecom’s most significant investment is its position as a stakeholder in a 55% share in Turk Telecom, and Oger’s continuing role in the African market is not clearly defined at this time. Last month, speculation in South Africa swelled that Oger Telecom, the majority shareholder in Cell C, was potentially looking to exit the operation, which is yet to turn a profit since launch in November 2001.

“No final decision has been made in relation to how to handle all the shareholder interests in acquiring a stake in Cell C,” Doany states. “Shareholders will need to make a decision about this and continue to support the operator while expressions of interest are considered,” he adds. Cell C shareholders consist of Oger Telecom, with a 75% indirect stake, and the remaining shareholding is divided between local empowerment group Cellsaf and South African securities company Lanun Securities.

Shareholders are expected to reach a decision regarding their longer-term plans for Cell C within the coming year or so, and have already been instrumental in effecting change on an operational level at Cell C in order to improve the company’s financial performance. In May last year, Cell C replaced long-term CEO Talaat Laham with Jeffrey Hedberg, a former CEO and chairman of Deutsche Telekom USA, and at the time Oger Telecom suggested the change in management could also see a change in strategy, with the South African operation becoming a springboard to other investment opportunities in Africa.

So while the longer-term future of Oger Telecom’s presence in Cell C is fluid at this time, Doany says that for the meantime at least, Cell C remains an important asset for Oger Telecom, on a continent that has a lot of expansion opportunities. Thus he believes Cell C operates in one of the most important countries in Africa, if not the most important one, with respect to sourcing of resources. “So in that sense Cell C is a strategic asset and there is lots of opportunity including retaining Cell C within our group and using it as a springboard for alliances with other companies and there are discussions along those lines as well. So all options remain open at this point,” Doany says.
||**||History|~|Oger-Feat.2.200.jpg|~|Oger Telecom counts 35 million subscribers across its fixed, mobile, broadband and internet networks in five countries.|~|
Oger Telecom Limited was established in the middle of 2005 following the company’s successful participation in the privatisation of Turkish telco Turk Telecom, where it led a consortium that bid US$6.55 billion for a 55% stake in the telco. Telecom Italia is a partner in the consortium that was successful in Turkey, and it was decided to form Oger Telecom Limited, a company based in Dubai International Finance Centre. Doing this, Doany explains, would enable both shareholders to introduce new shareholders and the company’s expressed intention remains to seek a public listing within three years of its formation.

Saudi Oger, the Saudi Arabia-based telecoms investor backed by Lebanon’s influential Hariri family is the main shareholder in Oger Telecom, with a 25% direct shareholding in the company and a 70% shareholding in Oger Telecom Saudi Arabia, which in turn has a 43% direct stake in Oger Telecom. Telecom Italia holds a 10% stake in Oger Telecom, with equity investors, including an array of regional and international banks holding a 22% stake.

Oger Telecom thus counts 35 million subscribers over its fixed, mobile, broadband and internet customers across the five countries in which it is operational. Aside from its investment in Turk Telecom, Oger Telecom also controls Turkey’s third largest GSM operator Avea, and operates ISPs in Jordan, Lebanon and Saudi Arabia under its Cyberia brand. Oger also maintains its 75% indirect stake in Cell C in South Africa.

Doany enjoys Oger Telecom’s rather unique position of being within the Middle East’s wider telecoms fraternity, while at the same time being apart from it given that none of its most significant operations are materially in the region. This allows the operator greater perspective of the investment opportunities that exist, and impacts quite directly on the operator’s assessment of value.

Oger Telecom remains acquisitive and going forward, Doany says the company’s preference is to target fixed and mobile opportunities where possible otherwise mobile only, or in cases where no mobile opportunity exists, then at least the ability to offer limited-mobility type services through the use of alternative technologies. Doany confirms that Oger Telecom is currently looking at a number of opportunities to provide alternative services.

“On the mobile side, it is our feeling that mobile assets are actually at the top-end of valuations, they are over-priced, and you can see this exemplified by all the recent acquisitions in the last year that have actually been at very high prices,” Doany points out. “We can see the Vodafone acquisition in Turkey, we can see the third licence in Saudi Arabia, we can even see Orange’s acquisition in Spain,” Doany states.

A comparison Doany likes to draw with respect to what constitutes value in today’s telecoms market is of the US$6.12 billion MTC paid in Saudi Arabia for the kingdom’s third mobile licence. “What is the value of that asset, which you have to amortise over, say, 25 years? Who knows what it is, but surely it will be much less than US$6 billion,” Doany asserts. “Now for (nearly) the same money - US$6.55 billion - Oger Telecom paid for the purchase of 55% of Turk Telecom, which is a strong operator with 19 million customers. It owns an 80% stake in a mobile operator that has about 8 million customers. As well as owning an ADSL network, which at the time of acquisition had approximately 1.5 million customers.”

“What Etisalat paid in Egypt (for the third mobile licence) is roughly equal to the market capitalisation of the largest operator, which has the best customers, and the best ARPU. So the first operator has customers, a network, has management in place, has everything well-established, then a company pays the value of that company just to buy a licence,” Doany comments.

The performance of management will be a huge differentiator for the operators that are expanding rapidly, Doany believes, suggesting that the vision of management and where it is physically based has a significant impact on the underlying operations.

In the case of Oger Telecom, the company has established Istanbul as its operational nerve centre, while the Dubai office provides leadership on the marketing, communications, finance and accounts, basically investor relations, because the company is headquartered out of the city.

“Based on this, and looking at how the market will unfold, the key differentiators will not be just what companies own, but what management they have in place, what ability they have to manage all these large operations and where do they base this management, and is that something that leads to growth or is it just something opportunistic,” Doany concludes.

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