The Project

MTC-Vodafone pushed the boat out to ready an advanced mobile network and a raft of data applications in time for its launch in Bahrain at the end of December. But will its high-end services seriously dent the user base of incumbent, Batelco? CommsMEA speaks to Khalid Al Farkh, MTC-Vodafone Bahrain’s COO, about the pre and post-launch challenges it faces

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By  Richard Agnew Published  January 5, 2004

Setting Up|~|mtc1.gif|~|Khalid Al Farkh, MTC-Vodafone Bahrain’s chief operating officer|~|In April, MTC-Vodafone was adjudged the most attractive entrant in the beauty contest to become the second mobile operator in Bahrain. The Kuwait-based group beat off a number of competitors for the licence, lured by what was perceived to be a welcoming regulatory environment and the opportunity to compete with incumbent, Batelco, in a relatively mature but potentially lucrative market. Since then, however, things have been more about pressure than pageantry. The task of setting up a business unit from scratch by the end of December accompanied the operator’s commitment to launch the Middle East and Africa’s first mobile network boasting 2G, 2.5G, 2.75G and, in parts, 3G coverage. MTC-Vodafone also had to ready a pricing and marketing strategy and a range of advanced services that these technologies would support and allow it make an impact on the market from day one. Not surprisingly, at the soft-launch of MTC-Vodafone’s services in December, the man responsible for the project admitted the mobile operator had been forced to throw away the rule book to make sure things got done in time. “This project has been extremely challenging,” says Khalid Al Farkh, MTC-Vodafone Bahrain’s chief operating officer. “This should have been a minimum 15-month project but we managed to overcome the challenges in unconventional ways. With regard to recruitment, we used our resources in Kuwait and Jordan so we had 50 or 60 people on the ground from the first day. We also started testing our systems in Germany, Finland, Belgium, Dubai and Kuwait before the infrastructure was in place in Bahrain,” he adds. Since April, MTC-Vodafone has partnered with over 20 equipment vendors and other third parties to carry out its implementation plan, including International Turnkey Systems (ITS) — Al Farkh’s former company — to manage the implementation of its internal IT architecture, customer care centre and e-business platform. On the network side, Future Communications Company (FCC), a reseller of telecoms equipment, was brought in to deliver a radio network from Nokia including GSM, EDGE and UMTS base stations, base station controllers and other operational support services. Siemens provided the switching equipment while Middle East Telecommunications Company (METCO) supplied microwave links. Other providers included German software supplier, Materna, for an MMS centre, and Finnish vendor, Tecnomen, for unified messaging and other value added services (VAS). “For the infrastructure, we selected a few suppliers who had some experience of Bahrain in the past,” adds Ismael Fikree, MTC-Vodafone Bahrain’s chief technology officer. On the operational side, MTC-Vodafone also sought outside help. It recruited management consultancy, Accenture, to run several months of business process training to prepare its employees for launch and map out its organisation, governance structure and systems architecture. While MTC-Vodafone was physically setting itself up in Bahrain, Accenture managed the project from its offices in Riyadh, Istanbul and Oslo. “The timescale for us at the start of the project in June (2003) was very challenging, but we have been able to design a very strong and agile business platform,” says Ahment Yalcin, managing country director, Accenture Turkey. On the regulatory level, meanwhile, MTC-Vodafone is widely seen to have benefited from terms and conditions in its licence which were primarily geared towards developing the market and fostering price cuts and new services. “The Bahraini government was not trying to extract value from the licence fee. If you impose high fees up front somebody pays, and that somebody is the consumer,” says Keith Gilbert, deputy director general of Bahrain’s Telecoms Regulatory Authority (TRA). “Also, we are an independent regulator, our powers are mandated by law, everything was done in a transparent way and that gave [MTC-Vodafone] a degree of certainty as to the environment it was going to operate in,” he adds. ||**||Testing Ground?|~|mtc3.gif|~|Ismael Fikree, MTC-Vodafone Bahrain’s chief technology officer|~|Once launched, MTC-Vodafone may also benefit if number portability — the subject of a public consultation carried out by the TRA recently — is brought in sooner rather than later. But not everything has gone according to plan. While Al Farkh says MTC-Vodafone has physically installed “the majority” of the necessary links with Batelco’s fixed and mobile network, the two have yet to reach a permanent agreement on interconnection tariffs — typically one of the main issues of contention between incumbents and new entrants. Instead, the two operators will rely on an interim interconnection order issued by the TRA in December, reviewed on a monthly basis until their negotiations over the terms of a permanent reference interconnect offer (RIO) are complete. “There’s certain aspects of the RIO that we’re in discussions over... but we’re arriving at [a deal] which will be considered fair,” Gilbert explains. Another of the challenges MTC-Vodafone faces following its launch will be to disprove the questions which continue to surround 3G rollout worldwide. Although MTC-Vodafone is only rolling out UMTS in limited areas, is relying on EDGE to provide high-speed data connections in most areas and is not faced with the task of providing coverage across a wide geographical area, observers say that technical difficulties could hold it back. “If MTC-Vodafone’s network has serious problems carrying voice traffic, as Hutchison’s 3G has done in the UK, it will struggle to keep customers after the initial honeymoon [period] is over. However, if it can smooth out these issues quickly, Batelco will be vulnerable in the long term,” says Lucy Norton, senior telecoms analyst, Middle East, at the World Markets Research Centre. Perhaps more difficult in the medium term will be the task of proving the business case for 3G. Consumer appetite for services based on GPRS is as yet unproven, while MTC-Vodafone could find the going tough while consumers become accustomed to unfamiliar pricing and billing structures for services based on mobile data. “Such ‘customer education’ is one benefit of a slower, more staggered path to 3G, the strategy Vodafone is using in Europe and Egypt, where customers are first migrated to 2.5G services well ahead of a 3G launch,” Norton adds. To aid this effort, MTC-Vodafone has set up a 6,000 sq ft marquee in Manama where potential customers can test out 3G-based services, such as videoconferencing. It has also employed software provider, First Hop, to provide a platform to manage its content providers and assess which services are receiving the most demand. “How do you know which are the killer services? The only way is to see which ones are getting the money,” says Thomas Dahlblom, First Hop’s sales and marketing VP. But Bahrain’s low but tech-savvy population — mobile penetration is estimated at 53% of 750,000 — also suggests that there is strong demand for the services MTC-Vodafone plans to deliver. Al Farkh also says the roll out of a trial network will put it in a good position when applications that will drive demand for 3G subscriptions are developed. “Is today the right time for 3G? Maybe not. But 3G is the future, it simplifies telecoms networks, provides high bandwidth and enables new applications. We see that there is a lot of investment going into applications that require high bandwidth, and we would like to be ready when those applications come to market,” he adds. The small size of the market has also led observers to view Bahrain as the perfect arena to allow MTC-Vodafone to test the water with 3G services before launching them into more potentially lucrative markets such as Jordan and Kuwait, once regulations allow. “MTC-Vodafone will no doubt be viewing its presence in the small Bahraini market as a strategic asset as opposed to a major revenue and earnings driver,” says Norton. Nevertheless, Al Farkh claims the decision to launch 3G is primarily about gaining a competitive edge in the market itself. “Bahrain is an excellent place to test new technologies. It’s an island, a confined space and Bahrainis are very into data services. But MTC-Vodafone is a public company and our decisions go beyond merely testing technologies. If there wasn’t a solid justification to come to Bahrain, the shareholders wouldn’t have decided to invest US$150million in it,” he adds. ||**||Taking on Batelco|~|mtc2.gif|~|MTC-Vodafone has built a 6,000 sq ft marquee to show off its 3G services|~|At the same time, MTC-Vodafone admits it will not have an easy task competing with the incumbent, Batelco. Al Farkh says that there isn’t a specific segment in the market in which he feels that Batelco is vulnerable. The incumbent is also largely regarded as one of the more savvy former monopolies in the region. It announced price cuts and a new logo in December to coincide with MTC-Vodafone’s launch and tied up with Ericsson in October to give it access to the Swedish supplier’s mobile and fixed technologies at more favourable terms and conditions and fast stream the transfer of its products. The deal also provides Batelco with access to 3G technology if and when it decides to launch its own network. “In the last year or so we have probably made more changes and announcements than at any other time in our history,” says Tony Hart, Batelco’s CEO. “It is no secret that the coming of competition has caused Batelco to undergo a wholesale change,” he adds. While Al Farkh is silent on MTC-Vodafone’s subscriber targets, the operator has conceded in the past that it will probably take up to five years for it to catch up with Batelco. But in MTC-Vodafone’s favour is the lure of its partner’s internationally recognised brand, which could provide an advantage in attracting the Kingdom’s sizeable ex-pat community. Vodafone’s growing expertise in promoting data services in markets including Egypt could be exploited, as well as offers to the corporate market of cheap roaming deals to countries covered by MTC-Vodafone’s expanding number of regional subsidiaries. “The offer of free roaming to Iraq, which is attracting a lot of interest from the Arab business community, will prove a powerful business proposition,” predicts Norton. In the meantime, MTC-Vodafone has already shown its willingness to take advantage of further moves to liberalise Bahrain’s telecoms market in 2004. From this month, licences will be made available for VSAT operators and in paging, public access mobile radio and provision of international facilities, to allow bandwidth to brought into the Kingdom. In Q304, national fixed and international service licences will complete the liberalisation of Bahrain’s telecoms sector. “We are very interested in the international gateway licence and we are evaluating whether there is a business case for the fixed operator licence,” says Al Farkh. On a wider scope, MTC-Vodafone, Batelco and other candidates aiming to build a regional presence will also be hoping that successes that come out of the process will be noted in other Gulf states yet to bring competition into their own markets. “One thing about this region is that competition is not just confined within one country, it is also between countries. You can tell there is real competition between Bahrain and Dubai [with] each of them positioning themselves as financial hubs, or between Emirates and Gulf Air. We believe our launch will make other countries more focused on competition,” Al Farkh adds. ||**||

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