On a Roll

The recent announcement of three new fixed-line players in the Saudi Arabian telecommunications industry gave Bahraini incumbent Batelco another opportunity to continue its impressive international expansion plan under CEO Peter Kaliaropoulos. He speaks to Ronan Shields about the moves his company is making.

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By  Ronan Shields Published  May 13, 2007

Niche players|~|Peter.Batelco200.jpg|~|The dynamic Peter Kaliaropoulos has led Batelco's shrewd expansion programme since 2005. |~|The recent announcement of three new fixed-line players in the Saudi Arabian telecommunications industry gave Bahraini incumbent Batelco another opportunity to continue its impressive international expansion plan under CEO Peter Kaliaropoulos. He speaks to Ronan Shields about the moves his company is making. Batelco scored a major coup when it was named one of the three successful applicants to operate a fixed-line network in Saudi Arabia last month, as part of a US$133 million partnership with the Atheeb Group. The other two companies to be awarded fixed-line licences were the Optical Communication Company, a consortium backed by Optical International and US-based Verizon, as well as the Al-Mutakamilah consortium, backed by Hong Kong’s PCCW. All three winners are required to offer 25% of their shares through IPO before they begin operations and under the terms of the licence agreement, no company can sell its shares for the initial three years of operations. The Atheeb Group will control 50% of the consortium’s shares with Batelco retaining 15% of the remaining shares. The remaining 10% stake in the consortium will be split equally between the Saudi Arabian Pension Fund and the country’s General Organisation of Social Insurance, as is the case with the other consortia. Batelco’s current expansion programme began in earnest in 2005 with the appointment of Peter Kaliaropoulos as CEO after moving from SingTel Optus. Outlining the company’s recent expansion strategy, Australian-born Kaliaropoulos described his goal as increasing the international profile of Batelco in a bid to increase profitability. Batelco’s quest to become a niche investor within the industry has seen it garner 2.5 million subscribers across five countries, with 27% of its revenues accounted for by its overseas operations. The company forecasts this percentage should reach 30% by the end of this year. “The Saudi move is part of an overall regional strategy that we have been pursuing in the last 18 months,” says Kaliaropolous. The strategy focuses on the mobile and broadband sectors while maintaining an interest in the fixed-line segment in markets that have strong growth potential. “Strictly-speaking we have a fixed-line licence in Saudi Arabia but I prefer to describe the agreement as enabling us to provide all telecoms services with the exception of mobility in the kingdom,” Kaliaropoulos explains. Broadband penetration in Saudi Arabia is estimated to stand at between 1-2% and Batelco hopes that rising demand for broadband services will prove a boon to its fortunes setting itself a target of 20% market share of the converged services segment within the next five years. “We are eager to take advantage of the huge potential for growth in the region and are currently in the process of implementing a three-year business strategy to increase profitability,” adds Kaliaropoulos. “We are not interested in expanding just for the sake of it.” Batelco confirmed to CommsMEA that it had been allocated 56MHz on the 3.5GHz band, subject to the completion of the approval process by the CITC. Kaliaropoulos says Batelco will look to generate significant revenues from converged services, and in particular broadband services, which the operator is looking to turn commercial within 12 months given the logistical challenges posed by the geographically vast country. The first phase of the rollout will focus on the deployment of a wireless network based on WiMAX, Kaliaropoulos reveals. Batelco’s success in Saudi comes shortly after the telco’s recent acquisition of a 20% stake in Yemen’s largest GSM mobile operator Sabafon, which counts a subscriber base of 1.2 million and a network comprising 500 base stations. The US$144 million purchase took place in the latter half of March, with Sabafon’s chairman and largest single shareholder Sheikh Hammed Al Ahmar retaining a majority interest in the company. “Unfortunately Batelco does not have the levels of affordability of some of our competitors to splash out millions on acquisitions so our main challenge is to devise an expansion strategy on limited resources,” explains Kaliaropoulos. As a result of its comparatively modest financial resources Batelco has pursued a “selective” programme of acquisitions in a move that has seen the company label itself as a “niche regional player” targeting high growth markets rather than positioning itself as a mass market operator. “The Sabafon acquisition made sense to us as Yemen has a population of 23-24 million with 12% mobile penetration. While the ARPUs are certainly less than the rest of the region, given the cost-sensitive nature of the country, we are confident that Sabafon will retain if not increase its market share as mobile penetration increases,” he states. He also confirms that Batelco would seek to increase its operations in Yemen in the near future. “We will explore other opportunities in Yemen, such as wireless or fixed broadband services, but this is not something that will happen immediately.” Last June, Batelco acquired a 96% stake in Jordanian mobile operator Umniah, and now claims the US$415 million acquisition will contribute significantly towards Batelco’s growth prospects. “With a 17% mobile market share Umniah poses a great opportunity for us to enhance profitability simply because there are more people coming into the market,” says Kaliaropoulos. He also states that while Batelco is eager to expand its operations in Kuwait it is hamstrung by the country’s telecoms regulatory environment. “Our expansion plans in Kuwait are somewhat limited by regulatory approvals for new services, such as voice and mobile operations, so subject to reform, we cannot do a lot more.” ||**||Saudi Arabia|~|Delta-Partners.200.jpg|~|Kristoff Puelinckx, managing partner with Delta Partners, forecasts increasing amounts of cooperation in the Saudi Arabian telecoms market.|~|Kaliaropoulos is confident that operating in the Saudi Arabian market will prove a positive step for Batelco’s profitability despite formidable competition from market incumbent STC and fellow newcomers PCCW and Verizon Communications. However, he reiterates that as part of its selective strategy, Batelco may choose not to compete in certain market segments and that it certainly would not take part in the MEA telecoms market’s escalating bidding wars. “We are not interested in spending US$7.4 billion on a takeover or US$6.1 billion on a third mobile phone licence in markets where penetration is higher than 70%,” Kaliaropoulos concludes. In Saudi Arabia, the largest Arab economy, the three winning consortia were selected from 10 applicants and the winners are now set to compete against incumbent operator STC, which counts around 4 million fixed-line phone subscribers. Commenting on the recent activity in the Saudi Arabian telecoms market, Kristoff Puelinckx, managing partner of research firm Delta Partners, says that while market conditions are generally considered worse than they were two years ago, there is still adequate room for growth. “The Saudi Arabian market is still very underdeveloped in both the consumer and enterprise segments. Expanding the amount of services on offer is key to sustaining growth,” claims Puelinckx. “The CITC has been looking to develop the telecoms infrastructure of the country and not necessarily to collect huge licence fees. That is why the CITC has awarded licences to companies that have committed themselves to investing in the infrastructure of the country especially in the fixed-line segment,” Puelinckx says. Puelinckx suggests the rollout announced by Verizon indicates that it will focus heavily on the enterprise segment. He believes that although the other two players will attempt to gain market share in this segment as well, he fully expects PCCW and Batelco to concentrate their energies on the residential segments of the market. “What will be interesting to see is how the different companies split the market up between them,” explains Puelinckx. “The entire telecoms industry in Saudi Arabia is definitely in for a shake-up, as the advent of a new mobile player [MTC], will also stir the data market as well as prompt a number of tie-ups between the respective players.” Delta Partners believes that rising competition will prompt a number of alliances between the mobile and fixed-line segments of the industry, earmarking the country’s new mobile phone player as a likely candidate for such a move. “Mobily and MTC will almost certainly aim to establish a relationship with one of the newcomers to the industry both in terms of pure transmission capacity but also in terms of market-facing products and services,” Puelinckx believes. “Given STC’s advantage as an incumbent operator in all segments of the industry, almost all of its competitors will have to form partnerships in order to compete effectively, especially in the enterprise segment,” Puelinckx adds. Commercial services are expected to be launched in 1Q08. ||**||

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