Leading the Hunt

Kuwait’s Mobile Telecommunications Company (MTC) has ramped up the search for growth outside its borders with a successful bid for Bahrain’s second mobile licence. The move brings Batelco’s 23-year monopoly over the Kingdom’s telecoms market to an end. CommsMEA looks at how the battle will shape up.

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By  Richard Agnew Published  May 4, 2003

Introduction|~||~||~|Last month saw another sizeable hand being played in MTC’s billion-dollar gamble to become a regional player.

Following up on its US$424 million purchase of Jordan’s Fastlink in January this year, the Kuwait-based operator came out top in a ten-strong beauty contest to become the second mobile operator in Bahrain.

Having gained the backing of a range of local investors and global partner Vodafone, the company plans to lay out another US$120 million over the next three years in a bid to add another 150,000 subscribers to those it has already signed up in Kuwait and Jordan. MTC also intends to prepare a range of new data services, including 3G pilots, to make sure its December launch goes off with a bang.

The move will not be without its drawbacks, however. While MTC is entering new territory, it is doing so when Bahrain’s incumbent operator, Batelco, is already well entrenched. The market has reached a penetration rate of 56%, with around 385,000 people out of 700,000 owning mobile phones. And although it is thought that there is another 25% of the population that could be signed up before saturation is reached, many of those that are still ‘available’ will be lower-spending, less lucrative customers.

Mohsen Malaki, IDC CEMA senior telecommunications analyst, expects the challenges facing MTC to be “pretty substantial. Those initial subscribers are going to be low end or lower ARPU (average revenue per user),” he says. “[MTC] needs to actually start getting on board or at least turning some of the incumbent’s current subscriber base onto their network, because they’re going to be the high yielding subscribers,” he adds.

Although Batelco admits that it will lose customers through competition, the signs show that the incumbent operator is not about to lie down and let MTC plunder those it values most. The company says it is now abandoning the old technology-led traditions of the local monopolies and focusing instead on what its users want. It also claims to have gained a competitive edge after receiving a 20% investment from Cable & Wireless and expanding into other markets such as Iran and Oman.

Batelco’s preparations have fallen under the banner of its ‘Get Ready!’ project, launched six months ago. Through the scheme, the company has begun implementing a data warehousing solution to collect and study call records, running focus groups and, most recently, buying in a range of automated customer care modules from Oracle to streamline its customer service operations.

With many users complaining about its pricing, the company has also restructured its tariffs into four bundles based around actual usage figures and traffic profiles, which it claims will cut bills by between 25% to 33%.
||**||Challenges|~||~||~|
Simple things have also been changed, such as the decision to send out bills at the same time as most monthly salaries are paid, to reduce the number of disconnections, and changing working hours so more of its customer service employees are working during peak times.

Malaki thinks MTC will therefore have to get its own pricing, services and marketing strategy spot on. “It needs to be aggressive on all fronts,” he says. “This incumbent [Batelco] is not like any other government-owned incumbent in the region. [MTC] is entering a market where the incumbent is well entrenched, [it’s] fairly savvy in terms of pricing and [knows] how to market [its services]. Of course [Batelco] has its shortcomings in certain ways but it’s learning very fast,” he says.

“If [MTC] is to gain some of the telco’s subscribers, it needs to really start segmenting the market into user types. It needs to be specifically looking at large enterprises, corporate users, the youth market, the contract consumer market and the contract business market, and targeting them with packages and mobile data services that meet their specific needs,” he adds.

Considering Bahrain’s high level of penetration, the battle to attract subscribers to value added services is likely to be fierce. Batelco has accordingly spent the last few months filling gaps that MTC could try to exploit.

The company launched a web portal at the end of last year to provide access to mobile content such as ringtones and logos. It has also rolled out high-speed wireless hotspots in Manama International airport and is planning further deployments in shopping malls, hotel lobbies and coffee shops over the coming months.

Not all factors are steeped against MTC, however. It will hope to gain an edge over Batelco in the area of GPRS services, such as multimedia messaging (MMS) and faster mobile internet access, which the incumbent is expected to launch as part of its new tariff structure.

MTC has already launched MMS in Kuwait and is well placed to capitalise on its partnership with Vodafone, which has already signed up over 1 million users to its range of multimedia services, Live!
MTC’s decision to delay its launch until December appears to signal the ‘all-guns blazing’ assault that Malaki thinks is necessary. By turning down the opportunity to launch immediately as a virtual network operator, and piggybacking on Batelco’s network, the telco will have readied its own GPRS network for the launch, says director general Dr. Saad Al Barrak.
||**||Advantages|~||~||~|
He also says the company will be prepared to launch four 3G pilot networks in commercial and non-commercial sites in Bahrain by the end of the year, as well as wireless hotspots to rival Batelco’s own offering.

The company is also considering buying a licence to provide internet services to its customers when the market is liberalised in the coming months. “We hope to be much quicker in terms of setting up new services and products and at leveraging our portfolio already [available] in Kuwait and Jordan,” Dr. Al Barrak says.

“You are going to see a fully fledged network with pre-paid and post-paid telephony services, a lot of data services — SMS, multimedia messaging, GPRS, 3G pilots and an extremely advanced network, vis-a-vis all the other networks in the region. We will be doing our best to launch Vodafone Live! by that time,” he adds.

Hala Baqain, Arab Advisors Group senior research analyst, also believes that the level of competition that emerged for the licence suggest that the terms are attractive to the new entrant. “The regulator knows that Bahrain is a small market,” she says.
“The population is only 700,000, and with that 56% penetration rate [it will] be a very hard market to penetrate. But because it’s like that, the TRA (Telecommunications Regulatory Authority) is trying to make the licence very favourable to the new entrant and, as such it attracted a good demand,” she says.

By law, MTC will be forced to “substantially locate” its assets and operations in Bahrain, use GSM for the development of its 2G network, meet conditions of service standards and mainly employ Bahraini nationals.

“The new company will provide ample employment opportunities to skilled Bahraini nationals and will also work towards improving and developing their skills by conducting continuous training courses of international standards,” Dr. Al Barrak says. “By the year 2007, we also look forward to having 75% of our workforce comprising of Bahraini nationals,” he adds.

Although MTC says it will use limited 3G services as a launch-pad in December, the TRA has stated that neither operator will be forced to build and launch a costly 3G network, despite being licensed to do so freely under the current agreement. If they do not within two years, however, or engage in anti-competitive practices such as price-fixing, the possibility remains open that another competitor will be brought in.

By placing a charge of 1% revenues for the licence, the authority also hopes to foster price reductions, jobs, foreign investment and growth in other sectors such as the technology industry and financial services. “The award of this license marks a significant development not only in terms of the Telecommunications Sector, but also within the wider context of the liberalisation, and thus stimulus of the whole economy of the Kingdom, from which all citizens will benefit,” says Dr Mohammed Alghatam, chairman of the TRA.
||**||Regional strategy|~||~||~|
“[We have] applied parameters and processes in the mobile licensing process that are consistent with free market principles and thus will encourage vigorous competition and ensure that both Batelco and the new licensee are in a position to pass maximum benefits to their users, whilst growing their businesses and creating employment,” he claims.

The move is also part of a wider game for MTC, something Dr. Al Barrak seeks to accentuate. With the company bidding to dominate the region as a whole, it must balance the search for demand outside its borders with the demands of its balance sheet.

The US$120 million it will invest in the venture over the next three years will come half from borrowing and half from equity, he says. It will also add a ‘string to MTC’s bow’ as it embarks on a planned US$1.2 billion spending spree geared towards raising the company’s subscriber base to five million by the end of 2005.

In Bahrain, Dr. Al Barrak says he does not expect to catch up with Batelco in terms of market share for “probably five years,” but claims the company has the resources to fund its long-term expansion.
“It’s not [about] a small, fledgling operation that will be competing with an incumbent giant,” Dr. Al Barrak says.

“We are a regional company so for us Bahrain is another location. We are not going to be competing from scratch because we are already there. We have 2 million subscribers on other networks, with very advanced services. We have our MTC-Vodafone brand name, which is probably one of the best in the Arab world today,” he claims.

“I’m not saying it’s going to be an easy battle but it’s not going to be as difficult as a loner starting from the beginning against a well entrenched incumbent,” he adds.

Furthermore, the level of ambition is clear. “We will start big, we are already thinking big and we expect big things to happen here,” Dr Al Barrak adds.
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