Staying put

Laurent Mialet, Jordan Telecom’s new CEO, insists that profit growth and service improvement are his key priorities, not selling France Telecom’s 32% stake in the company.

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By  David Ingham Published  August 27, 2003

|~||~||~|When it comes to writing down a list of interview questions for the newly installed chief executive of Jordan Telecom, the first thing that springs to mind is to press him on France Telecom’s commitment to the company. Since France Telecom and Arab Bank invested $508 million in early 2000 to buy 32% and 8% of the company respectively, the telecomms market has changed beyond recognition. European telcos that dished out billions to buy 3G licences and overseas assets have seen their share prices tank, revenue growth stall and their debt liabilities overwhelm them.

Few suffered more than France Telecom. By the middle of 2002, it was something like $70 billion in debt and when a new CEO took the helm late last year, he said that assets with a weak financial position or in which the company did not have control would be considered for disposal. So in light of all that, how does the operator view a modest investment in Jordan?

“There is not a strategy of selling off our foreign assets except if the sale conforms to a certain strategy,” explains Laurent Mialet, who was seconded from France Telecom to run the Jordanian operator. “For example, France Telecom has decided to move away from Latin America, but that is not the case in the region. The interest in Jordan Telecom is confirmed.”

He insists that his role now as CEO of Jordan Telecom (JTC) is to continue the job started by his predecessor, Pierre Mattei. “We took over this company at the beginning of 2000 with a mandate to create a new network and improve dramatically the management of the company,” Mialet says. “That has been done and we can say that Jordan, in the region, has the best technical network in place.”

The task ahead now, he continues, is to focus on what might be called the ‘soft’ side of things. “We face [fixed line] competition at the beginning of 2005 and our challenge is to improve our relationship with our customers, in terms of customer care, billing and new services. It has been decided to bring in a new team with new ideas and renewed energy to meet these challenges.”

What should also be added to Mialet’s ‘to do’ list is boost profitability, which has been declining steadily since 1999. Then, JTC posted net profit of JD73.1 million, a figure that slipped to JD30.1 million for 2002 and JD13.9 million for the half year to June 30. At the same time, the company’s share price languishes below the JD2.35 mark set by the government when it floated part of the company last year.

It seems a tall order, but Mialet is confident that revenue and profit growth can be achieved in several ways. Most surprisingly, he says he sees considerable room for improvement in the fixed line business, an area most operators see as having long since reached maturity. “Fixed is in competition with mobile; we have more or less 1,200,000 mobile lines for 660,000 fixed lines,” he explains. “One of our targets is to overcome this situation and recover growth in fixed lines.”

One obvious way to do that is to reduce prices and moves can be expected on this front in coming months. Another way to boost fixed line traffic is to sign up more internet subscribers, but that also requires price cuts. Mialet therefore intends to enter negotiations with international bandwidth suppliers to lower the cost of connectivity to the rest of the world.

An increasing drain on JTC’s fixed line business is the use of internet telephony, particularly to make international calls. In its recent half yearly report, JTC blamed ‘fraudulent international calls utilising voice over internet protocol [IP] technologies’ for ‘taking a toll on international call revenues.’

Internet telephony is technically illegal in Jordan, but in reality there is little any telecomms company can do to stop it. It has been hinted before that JTC may try to utilise IP technology on its fixed network to help it reduce costs and it may revisit that idea now.

Another problem could be the recent ruling by Jordan’s telecomms regulatory commission (TRC) on interconnection charges. The ruling basically outlines how much the country’s two mobile operators and Jordan Telecom have to pay when calls cross from one network to another.

For a fixed to mobile call, the interconnection charge is US $0.10 per minute. However, for a mobile to fixed call, the cost has been set at only US $0.02. “The interconnection rates will inhibit traffic to the fixed network,” says Hala Baqain, a research analyst at Arab Advisors Group.
JTC will clearly have its work cut out to revive the fixed line business, but fortunately it is only one part of the company. MobileCom, its mobile phone subsidiary, appears to be approaching profitability after heavy investment in the construction of its network. The unit now has 320,000 subscribers and will begin to post a net profit next year, according to Mialet.

That will certainly be welcome news, but as Arab Advisors points out, MobileCom still has a much smaller customer base than Fastlink, which is estimated to have 900,000 customers. There is also a strong possibility that a third operator will be allowed to enter the market.

“MobileCom lacks Fastlink’s strong customer care services and the sophisticated marketing techniques that Fastlink enjoys,” says Baqain. “MobileCom should try to win over more subscribers and increase its total market share before further competition sets in.”

At the same time that it tries to grow revenue, Jordan Telecom has also been trying to cut back on operating expenditures. An early retirement and voluntary redundancy programme put in place in mid 2002 has reduced headcount from 5000 to 4400.

“In the short term, we expect an improvement in the profitability of MobileCom, we expect stabilisation of the drop in revenue for JTC and we expect an improvement in operational profitability because we have put in place a lot of savings programmes,” says Mialet. “We also look forward to an increase in fixed business.”

As mentioned earlier, Jordan Telecom also hopes to reduce its international bandwidth costs. Should negotiations with cable and satellite companies such as Intelsat succeed, JTC will be able to lower internet access charges, particularly for broadband services, which should attract new users. “Every drop in price boosts the market, but we cannot go lower than our own cost. The challenge is to lower the cost of connectivity to the rest of the world,” says Mialet. He promises new pricing for broadband internet services by the end of the year.

Mialet believes cost savings can also be achieved by making better use of JTC’s link with France Telecom. “We now buy all our equipment with the buying power of the France Telecom group. We get very good prices,” he says. “Another thing is that we can use France Telecom’s international backbone.”

France Telecom’s commitment to its Jordanian investment apparently stretches as far as being prepared to support future activities in Iraq.

Jordan Telecom was set to bid for Iraq’s mobile licenses, until the Coalition Provisional Authority set a 10% limit on government shareholdings in the bidding companies. As this article went to press, it appeared that the Jordanian government’s 49% holding in JTC and France Telecom’s 32% stake (France Telecom is 55% government owned) would therefore rule it out of the bidding process.

Whether it is able to play a part in Iraq’s mobile telecomms industry or not, Mialet insists Jordan Telecom still has a role in Iraq. “We are talking with the ITPC [Iraq Telecommunications and Posts Company] about linking Iraq by fibre-optics with Jordan,” he says.

Whether things happen for JTC in Iraq or not, Jordan Telecom’s strategy seems clear: revive the fixed line and internet businesses, control costs and wait for MobileCom to start contributing profits. Then, when France Telecom’s management contract with Jordan Telecom comes up for renewal in 2005, the company will seek to renew it on improved terms. “France Telecom paid a high price to come to Jordan. Of course, the value has decreased, but the trends are good, we are willing to continue to try to improve the position of this company and we will do it,” concludes Mialet.||**||

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