Batelco's Battle Plan

Batelco has been quietly growing its ISP businesses across the Gulf. Now, faced with competition on its home turf, ACN interviews Batelco CEO Andrew Hearn, on the Bahraini telco's partnering plans and readiness for competition if it loses its monopoly.

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By  Zoe Moleshead Published  February 26, 2001

Introduction|~||~||~|Batelco isn’t like its peers — whereas other Gulf country monopolies have failed to look outside their own geographical borders for revenue, the last two years has seen the Bahraini monopoly service provider breaking into emerging Internet service provider (ISP) markets. Batelco has made its intention clear — it wants to grow its business and it’s partnering with local players around the region to do so. Initially Batelco went into Saudi, then into to Kuwait, and more recently Bahrain’s sole telecomms service provider has broken into Jordan and Egypt.

The injection of cash and expertise, which came from Cable & Wireless’ 20% investment has certainly helped the total service provider to drop its old school PTT veneer in favour of an aggressive expansion strategy. “A population of more than [690,000] is not a very large customer base, [but] every company wants to grow and expand — it’s natural,” Andrew Hearn, chief executive of Batelco, tells ACN.

If we want to grow and expand there is an opportunity to go outside Bahrain. We’re a successful company whichever way you measure us and it’s only right that we would want to leverage those successes overseas,” explains Hearn.

To each of Batelco’s overseas investments the service provider has brought a crucial element — expertise. Since the telco company began its own ISP operations in 1995 it has been at the forefront of the regional learning curve, acquiring the necessary skills to master the fickle ISP game. “We’re targeting the ISP market at the moment, this is the growth area where everybody wants to catch up and get ahead,” says Hearn. “We obviously have expertise and a track record of running this in Bahrain — it’s only natural that we should expand,” he adds.

Batelco’s partnership model mirrors the company’s own relationship with Cable & Wireless. Batelco delivers the local market knowledge and Cable & Wireless acts almost as a ‘tame consultant,’ advising on technological developments.

At the local level, Batelco has jointly funded ISPs, and delivered expertise to fledgling ISPs, and in return they provide the micro market knowledge. It’s a partnership model that Hearn describes as a “synergy for success,” and judging by the early impact of the joint ventures in their respective markets, Hearn could well be right.

Philippe Rixhon, partner with Accenture and co-author of a recent report on the regional telecommunications market, says the partnership with Cable & Wireless has worked well for Batelco and makes sense when expanding across the region. “There are lots of reasons for partnering, the primary of which is sharing the risk.”

The partnership model also generates further skills resources, offsetting the skill shortage facing many large telcos. “[Skills] is one of the top issues for the big telcos in the region,” says Rixhon. “The only long term perspective is well educated national skills. Expatriates may be very bright, but they won’t stay for long,” he adds.

Since taking on board Cable & Wireless as a minority shareholder, Batelco has made it a priority to transfer skills to its national personnel. The company is already 95% Bahraini, and it’s exporting those skills out to its local partners. According to Hearn, Batelco is working a timeline: it invests in terms of technical, business and management skills and in return for its investment they gain valuable market knowledge and a stream of fresh, localised Internet experts. “We know where they are successful, what works in the market, in which direction those swift moving markets are going,” says Hearn.

“It’s only a matter of time until we’re learning the other way around and those businesses import back to us the successes that they have had. Then we can interact with those [overseas business ventures] and we feed on each other’s success,” he adds.

Regardless of Batelco’s ambitions in foreign ISP markets, the full service provider is about to face its most serious challenge yet — competition on its home turf. Although plans are only in their earliest stages, Bahrain’s government is intending to open up the telecomms market to all comers. According to Crown Prince His Highness Sheikh Salman bin Hamad bin Isa Al Khalifa, all international companies are welcome to enter the island’s market. “The main beneficiary will be the consumers,” says Sheikh Al Khalifa.

“It is everyone’s belief that the time has come to end this monopoly and open up the market to suit the need of the time. [Batelco] is a monopoly, and we are against all monopolies, as the island is opening up its market to pave the way for an overall growth,” explains Sheikh Al Khalifa.

||**||Page 2|~||~||~|At the time of going to press, the exact implications of competition remain unknown, both to Batelco and the general public. It could be full or partial competition across services or even the backbone itself could be opened for competition. Either way, Hearn is welcoming competition with open arms. “Competition will be good,” says Hearn.

“[Competition] will allow a better focus within the market. There will be competition that will focus on certain aspects of the market with value added services and media content information sources rolled in. It’s going to get bigger and better; but tougher,” predicts Hearn.

Pending deregulation is likely to free up Batelco from some of its public duties. Currently, the company is bound to provide services to the “granny at the end of the desert and the big multinational at the centre of town,” says Hearn. But in an open market, Batelco could be in a position to free up areas of investment [and] focus on other, more profitable market segments. “If [the Government of Bahrain] lets competition in and relieves us of our monopoly it’s possible that we would drop certain areas and focus on others,” explains Hearn.

As telecommunications technology rapidly evolves in multiple directions the question of where a total service provider makes its capital investment is even harder. With the bewildering rate of technological development, it will become inevitable that no one company will be able to provide all the services demanded by the public, believes Hearn. “[There are] great changes ahead. It will be tougher, but if you look at the future everybody agrees that telecomms is going to get bigger and more expansive and no one person can do it all,” he adds.

But the migration to an open market must be carefully managed. It is not merely a question of deregulating a market, but re-regulating a market to provide a ‘win, win,’ situation for all parties involved, including businesses, consumers, the telco players and the government. “The regulator of any market has to manage the supply and demand. [They] have to please the citizens, the businesses in Bahrain, the government and the telecommunication players. That is in any country something very complex, which requires a lot of dialogue by all those parties,” says Rixhon. That dialogue must also be dynamic, taking into consideration the constantly changing market forces, adds Rixhon.

With its monopoly position now drawing to an end, just where Batelco decides to focus its efforts is an area of great speculation. Rixhon believes it’s likely that Batelco — loosened from certain obligations in Bahrain — will intensify its regional expansion campaign.
Currently, the strictly regulated nature of many Gulf countries is limiting the possibilities. But some market pundits are pointing to Lebanon as a possible market opportunity. Hearn, for his part is keeping his cards close to his chest, saying, “We have four joint ventures. Watch this space to see where we go next.”

The introduction of competition in Bahrain could have a knock-on affect in the other regulated GCC countries. According to Rixhon, there is a high probability that one of the neighbouring countries could investigate the possibility of entering Bahrain’s telecomms market. “Let’s imagine that Etisalat comes to Bahrain and asks for a license for something,” says Rixhon. “Then I’m pretty sure that at the highest level of the government someone in Bahrain will call somebody in Abu Dhabi and say, ‘we have no problem with Etisalat coming into Bahrain, but grant us something reciprocal; like an ISP or a wireless license.’ That is a kind of chain reaction you want,” he adds.

However, being precise about such details is almost impossible, adds Rixhon. “Bahrain is following a trend that has been set up by countries like Lebanon, Jordan and Egypt. I’m assuming that one by one, the rest of the countries will go this way, but by different paths,” comments Rixhon.

The different paths adopted by each particular country are likely to reflect the economic power base, adds the Accenture consulting partner. “The deregulation or re-regulation is going to reflect the different economic powers in those particular countries,” says Rixhon.
Until such time as re-regulated open markets become the norm, Batelco’s expansion plans would appear limited. Whether the introduction of competition in Bahrain generates a wave of open market thinking throughout the GCC, will depend on the final shape of competition in the island’s telco market.
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