In for the long haul

Its IPO was a disappointment and profits are falling, but Pierre Mattei, Jordan Telecom’s chief executive, insists that the company is healthy and the long term outlook positive.

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By  David Ingham Published  January 9, 2003

Taking the long term view|~||~||~|Pierre Mattei, CEO of Jordan Telecom, clearly feels that the company’s disappointing IPO was more down to circumstances than a reflection on the company. In case you didn’t know, Jordan’s government had hoped to sell around 15% of JTC in an open subscription late last year. In the end, however, only 10.5% of the company was sold, a disappointment that was attributed primarily to regional uncertainty.

Asked whether or not the IPO was a success, Mattei replies, “It is difficult to say if it was a success or not. There are very different parameters to take into consideration.”

“The question is whether it was a success or failure at this particular time, and due to a lot of factors. There is the political situation, you know it; there is the telecommunications situation, you know it; and the fact that Jordanians are not used to the idea of the stock exchange.”

Besides, the IPO was not something initiated by the management of JTC but by Jordan’s government, which is looking to offload various companies in an ambitious privatisation program. Look at the company specifically, he says, and you’ll see an organisation in pretty decent shape. “In recent years, we have developed our company, we have increased subscribers and we have developed the internet strongly,” he argues. “Maybe, by the standards of this current period, the listing is already a success.”

Nevertheless, Jordan Telecom does face plenty of challenges as it moves forward. It has to face up to competition in the fixed line business from 2005 (Jordan already has competition in mobile and internet) and maintain profitability in a maturing market.

Profitability has been falling in recent years as the company has invested in the development of its mobile phone unit, Mobilecom. “It’s easy to make profit if you don’t make any investment. But we have a challenge, which is to prepare for competition in 2005,” says Mattei.

“We have invested a lot to build our data network in order to have the internet and extend the phone network all over the country into the poor and remote areas. The cost of investment has had some weight on the profits but we have to do it to be stronger when competition comes.”

Nevertheless, the company still reported net income of JD45.9 million in 2001 on revenue of JD309.2 million. Future profitability, Mattei says, will depend very much on how competition is applied in Jordan. The key question, according to Mattei, is the interconnection charges that have to be paid when a call moves between different operators’ networks. He is referring primarily to calls moving between JTC’s fixed or mobile networks and Fastlink, the country’s largest mobile operator.

“The future of the company will depend on the level of interconnection that we shall have between fixed and mobile operators,” says Mattei. “It is a very important issue that we are discussing now with the Telecommunications Regulatory Commission.”
||**||France Telecom, the internet and the cost of a PC|~||~||~|
Another key long term question for Jordan Telecom is the attitude of France Telecom towards its investment in the company. France Telecom took a stake in JTC in 2000 when it formed a holding company called JITCO with Arab Bank. To cut a long story short, JITCO took a 40% stake in Jordan Telecom that effectively left France Telecom owning 32% of the company and Arab Bank owning 8%.

Under the terms of JITCO’s investment, France Telecom took management control of Jordan Telecom until 2005. Asked what the attitude of France Telecom, $70 billion in debt, is towards Jordan Telecom, Mattei replies, “It is a very good question. I cannot answer. I am not inside his [Thierry Breton, CEO of France Telecom’s] mind.”

“Firstly, we signed a [management] partnership that runs until January 2005,” he continues. “The second point is that France Telecom has to stay in JITCO with Arab Bank because of the terms of a loan. Maybe that will end in 2007 or 2008.”

Even if it does stay in JTC, there still has to be a question mark over France Telecom’s willingness to support its overseas operations. A clearer picture will emerge over time as the new CEO of France Telecom, formulates a strategic plan to clear the company’s debt. A document released on December 5, entitled ‘FT 2005’, says ominously that: “Assets characterised by weak strategic or financial positions or those for which majority control is not possible will be considered for divestiture.”

Whatever happens at France Telecom, JTC still has to remain focused on its own market and growing revenue. As everywhere in the world, the fixed line business holds limited growth potential and JTC’s mobile phone unit, Mobilecom, has not managed to match the subscriber numbers of Fastlink.

The one market that has really failed to fulfil its potential so far in Jordan is the internet market, where subscriber numbers remain low. The outlook for the internet business appears mixed.

According to Arab Advisors Group, there will be 71,000 internet accounts and 178,000 regular users (the number of accounts multiplied by the estimated number of users of each account) in Jordan by the end of 2002. The analyst group is predicting that there will be close on half a million users by 2006, which by Arab Advisors’ methodology, would mean around 200,000 accounts. The company predicts that e-government initiatives, computers in schools programmes and the growth in electronic services such as e-banking should help drive this growth.

However, a mere handful of those subscribers are using high-speed (and, most importantly), higher margin ADSL connections. “Despite its ability to provide faster and more reliable Internet connectivity, the ADSL service has not taken off as well as could be expected,” says Arab Advisors analyst, Sarah Alalul.

“Jordan Telecom brought down ADSL rates soon after launching the service in order to drive growth. Yet, with the lack of public awareness of the service, not to mention the somewhat lengthy setup procedures, there are currently only 1,772 ADSL subscribers [September 2002] in the country, less than 2.5% of Internet accounts.”

Also, Arab Advisors’ 2006 projection of half a million users represents a penetration rate of only 7.84% of the country’s population. Mattei himself is clear about the reason for that: the cost of a PC.

“The question now is not a question of [internet access] price,” he says. “The question is the price of the computer. That really is the concern.”

In the end, there is really very little he can do about that, but JTC remains committed to initiatives that aim to teach the general public about PCs and the internet. “We are going out and showing people how to use the internet and we are equipping the schools with broadband, in conjunction with the government,” he says.

JTC is clearly a company with its fair share of challenges. It has to maintain growth in a maturing market and keep investing in new services, but at the same time try to preserve profit margins. What will remain constant as it tries to achieve those goals, Mattei asserts, is a focus on the long term.

“We are of course working to give profitability to the shareholders for the short term, but at the same time we manage the company for the long term,” he says. “We are building, year after year, a solid and strong company. It is not a short term company, because this country needs a good telecomms network.”||**||

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