The telco created new business units to launch services
Kuwait-based telecom operator Zain ended June with 46.3 million customers in its global operation, which includes networks in Kuwait, Saudi Arabia, Iraq, Sudan, South Sudan, Jordan and Bahrain. By the end of the second quarter, Zain had 2.9 million subscribers in Kuwait, which accounted for approximately 28.6% of the operator’s global business in the first half of the year. To find out more about the company’s operations and outlooks, RCR Wireless News talked to the group’s CEO, Scott Gegenheimer.
RCR Wireless News: What is the expected capital expense for 2015, and in which specific areas are you planning to invest this year?
Scott Gegenheimer: In 2015, we will continue giving our full concentration on upgrading our networks to enhance capacity for providing the best customer experience against tremendously increasing data usage as well as further developing our capability to offer new products and services in digital space beyond classical telecom business. To achieve this, our target for 2015 is to invest approximately 17% of our revenue this year.
RCRWN: What can you tell us about Zain’s investments last year?
Gegenheimer: During 2014, Zain Group’s capital expenditure was $730 million or 17% of our revenue. Adding $211 million capital expenditures spent in Saudi Arabia for the year led to a total amount of $941 million in capex for 2014. We were committed to invest $307 million in Iraq as a license fee for 3G spectrum, of which we have already paid an installment of $76.75 million, with Zain Iraq launching 3G services on Jan. 1, 2015. Also, in mid-2014 in Jordan, Zain paid $270 million for 4G spectrum and additional 3G frequencies for our operation in Jordan, launching 4G services by February 2015 as a result of a $100 million network upgrade to 4G.
In Bahrain, Zain invested over $100 million to revamp the network to offer nationwide 4G LTE, while in Kuwait, over $100 million is spent annually in upgrading the operator’s 4G LTE network to offer LTE-Advanced in parts of the country that has resulted in 30% of its total revenue coming from data revenue.
Also, in mid-2014, Zain Saudi Arabia announced the signing of network expansion and upgrade agreements worth approximately $1.2 billion. The agreements were signed with five major international technology companies aiming to provide 4G LTE coverage to over 90% of the population as well as providing existing and new customers with real high-speed mobile Internet connectivity.
RCRWN: When are you planning to launch 4G LTE in the markets where you currently operate 2G and 3G services?
Gegenheimer: Zain currently offers 4G LTE in its Kuwait, Saudi Arabia, Bahrain and Jordan operations as well as in Lebanon through the operation it manages on behalf of the Lebanese government.
In Iraq, Zain launched 3G services in January 2015, immediately after 3G licenses issued by the government. For both Iraq and Sudan, it will be the governments’ decision to issue the license and spectrum for launching 4G LTE services. We will make sure [to deliver] the latest technology for our customers in these countries within the given timeline provided by the significant experience we gain from other operations.
RCRWN: What is the current coverage of LTE-Advanced technology in the countries where you offer the service and are you expecting further deployments of LTE-A?
Gegenheimer: LTE-A is currently available in Zain Saudi Arabia with Zain Kuwait in the final testing stages before its impending launch. Zain is working closely with our technology suppliers to provide the same technology across other Zain operations.
RCRWN: What are the main challenges Zain is facing in the most mature markets where you have operations and what are the main challenges in the less-developed markets in terms of mobile penetration?
Gegenheimer: In mature markets, key challenges can be grouped under three topics: current market context for core telecom services; [over-the-top] threat; and rise in data capacity demand and government and regulatory constraints.
In the first topic we are seeing an intense competition among rival operators that are slimming profit margins. It is also key to remark the high penetration levels in all markets (Kuwait 226%, Saudi Arabia 185%, Bahrain 191% and Jordan 126%). Also, OTT players are threatening core telecom services revenue and the ever-increasing demand for broadband services is causing occasional congestion in peak times. Technology is going through dramatic changes requiring significant capex needs and revenue is not catching up with such investment. Regarding the government and regulatory constraints, governments still see telecom revenue as a key source of revenue and thus are instilling additional taxes on telecom operators and consumers.
In less-developed markets, some of the challenges include civil unrest and social instability in markets such as Iraq and South Sudan. Another challenge is the huge capital expenditure needed to cover vast areas in Sudan and Iraq as well as unstable tax regimes.
In both developed and developing markets, another challenge is the regulatory frameworks to attain the spectrum for 4G services.
RCRWN: What is Zain’s strategy for a future implementation of 5G?
Gegenheimer: Zain has always offered the latest technology to its customers and will endeavor to do so when 5G becomes technologically available, and that the devices are compatible and commercially available. Market forces will drive us and many of our competitors toward 5G when it commercially makes sense! Today our global technology solution providers are indicating a 2020 timeframe for 5G and our long-term roadmap is aligned accordingly.
RCRWN: Are you planning to launch new services?
Gegenheimer: On a group level, during the course of 2014 and 2015 to date … Zain proactively formed new business units and entered into several strategic partner agreements at the group level that supported the rollout of new services across all operations.
Across all operations Zain has rolled out many new services as Zain is transforming itself to become a digital lifestyle services provider.
Supporting such ambition, the company established the Zain Digital Frontier and Innovation business unit in mid-2014 to launch Zain into the digital space with the view to growing the business through new innovative business streams adding to Zain’s financial viability and market capitalization. The unit focuses on the areas of innovation, digital services, corporate venturing and smart cities, with the ultimate aim of transforming Zain into a regional innovation trendsetter. It is estimated that potential revenue streams from such activities are huge, with Zain having already identified substantial potential revenue in the smart city space alone.
Additionally, in early 2015, Zain expanded its existing partner market agreement with Vodafone to deliver machine-to-machine services to enterprise and government sectors across the region. The roll-out of M2M services to our enterprise and individual customers is an important part of our strategic direction in creating a smarter world. Through this partnership with Vodafone, Zain will deliver M2M services to end users in a cost-effective and scalable manner.
Also, the company has entered into several service agreements to enhance customer offerings such agreements include with EServGlobal for the provision of an end-to-end mobile money solution that is in the process of being deployed across group operations.
