Back to the Future

The opportunity Michael Dagher has been waiting for was confirmed last month when the Umniah CEO agreed the terms of Jordan’s third GSM licence with the Telecoms Regulatory Commission (TRC). His challenge now is to find a foothold in one of the region’s most competitive cellular environments

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By  Richard Agnew Published  August 28, 2004

|~|dagher1.gif|~|Michael Dagher, Umniah CEO|~|Michael Dagher is gearing up to return to Jordan’s GSM market as the chief executive officer of new entrant, Umniah. But the sector has become more competitive and seen subscriber growth slow since his spell at Fastlink, the market leader, which ended in 2003. Jordan’s cellular subscriber base now sees more modest increases when compared to the jumps of 132% and 46% it witnessed in 2001 and 2002. Once Umniah launches in Q105, it will also become the Kingdom’s third GSM player, as well as having to deal with the threat of the recently launched radio trunking provider, Xpress. Fastlink and its competitor, Mobilecom, have also not exactly been overcome with joy at the prospect of a third GSM player coming in. After lobbying against the move, the two operators reportedly offered to pay the Jordanian government JD88million (US$125 million) to shelve it, in return for tax exemptions and extensions to the length of their own licences. Nevertheless, Jordan’s Telecoms Regulatory Commission (TRC) stuck to the plan, which it argues will yield lower prices and better offers for consumers. Indeed, the prediction is that Umniah will focus heavily on lowering tariffs and making GSM services more affordable for currently un-served sections of the population. In particular, the operator plans to target Jordan’s sizeable youth sector. It predicts that Jordan’s penetration rate will grow from 20% to between 45% and 50% within seven years, accompanied by a drop in pricing and monthly average revenues per user (ARPU), which currently stand at US$26. The TRC is slightly less optimistic, predicting that a 40% penetration rate will be reached within ten years. “We will have a very competitive approach to pricing and tariffs,” says Dagher. “We’ve looked at the overall pricing structures and ARPU levels that exist in the marketplace. Jordan has relatively high ARPUs to neighbouring markets and we feel that different pricing structures will dilute these and help stimulate market penetration,” he adds. For its model to be viable, Umniah will therefore have to place significant emphasis on keeping its costs as low as possible — a necessity reflected in the make-up of the group. In addition to its shareholders — Umniah Telecom and Technology and the Kuwaiti Fouad Al Ghanem & Sons Group of Companies — its strategic partners include the Chinese equipment vendor, Huawei Technologies, which is seen to produce infrastructure at cut-throat prices. Its other partners, meanwhile, include Siemens, Hewlett Packard, and Bridge Consulting. “We’re trying to encourage our strategic technology partners to make their best efforts to help us establish the network,” says Dagher. Its competitors also argue that Umniah has been given easy ‘rules of engagement’ by the TRC, to help it gain a foothold early on in the sector. The operator has been allowed national roaming, the option to share infrastructure and — the incumbents argue — generous coverage requirements. But Dagher is reluctant to be relying on the competition when it comes to roll out its infrastructure. “Because of the competitiveness of the market, we believe that we have to make our network as strong or even stronger than the existing operators’,” he says. “That doesn’t mean we won’t be cooperating in terms of co-existence at cell sites. But we will not be depending on national roaming unless the incumbents make it compelling for us, but I don’t think they will,” Dagher adds. Another challenge facing the operator will be to differentiate itself through innovative services, while retaining its focus on low pricing. “My gut feeling is that Umniah will enter the market with a major price reduction,” says Jawad Abbassi, president, Arab Advisors Group. “But based on common wisdom, it’s a bad move for a new entrant to target a market solely on price. It’s the easiest thing to replicate for the existing operators,” he adds. Umniah, nevertheless, says that its technology roadmap is being designed to support new services as well as keeping costs down. The operator plans to start building its network once its 1800MHz frequency spectrum — now in the hands of the military — is opened up. Once that happens, the roadmap includes the deployment of EDGE nationwide from day one and the potential to build a 3G network in the future, but only in areas of potential high demand. According to Dagher, its use of the 1800MHz frequency band will also require a higher number of sites initially but ease its transition to UMTS. “Pricing and technology will be key indicators of Umniah’s success,” he says. “The existing players are well established in 2G so we will be deploying 2.75G with nationwide coverage from day one. We will position ourselves to deploy UMTS in the near future, but on a selective basis, because the population is very much concentrated in three cities,” Dagher adds. Despite the incumbents’ objections, Umniah also argues that the cash it will lay out during the course of its expansion will not be insignificant. “The business plan details specific capacity and market share that we’re trying to build up, which would call for a total investment of around US$350 million,” he says. This would sit on top of the US$634 million Umniah claims it will pay to the government in revenue share and taxes over the ten years after its launch. While the two operators reportedly complained about Umniah being chosen over Lebanon’s Investcom Holdings despite its current lack of a subscriber footprint, and that a new entrant would damage the market, Dagher insists that the third operator will bring benefits down the line. “I’m sure they attached many conditions to [their offer],” he says. “I’ve also got to compliment the authorities — they created a policy and stuck to it. There was a cosy duopoly between the two operators and the market had stagnated in a way. The only way to stimulate it was to allow a third licensee to come in,” Dagher adds. Going forward, other incumbents may also not be sitting as comfortably if the opportunity he has waited one and a half years for works out. “It could be a springboard,” says Dagher. “If we can be successful in Jordan — an extremely competitive market that I helped create — then we can make the transition to other opportunities,” he adds.||**||

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