Time to deliver

I recently had the opportunity to spend time with Marwan Al Ahmadi, the mild-mannered CEO of MTC's nascent operation in Saudi Arabia.

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By  Tawanda Chihota Published  July 25, 2007

I recently had the opportunity to spend time with Marwan Al Ahmadi, the mild-mannered CEO of MTC's nascent operation in Saudi Arabia. Al Ahmadi's calm demeanour gives way to a steely determination as we talked about his work putting together the market entry strategy of becoming the third mobile entrant in a colossal Saudi market expecting a further three fixed line operators in the coming 12 months.

"A licence value can not be taken in absolute terms," is one of Al Ahmadi's early responses to justify the mountain of money - US$6.1 billion - MTC Group stumped up as a licensing fee to enter the Saudi market. And he just may have a point. When MTC acquired Celtel International for US$3.4 billion at the beginning of 2005, the market's general reaction was that MTC had probably overpaid for the asset. However in less than two years, and under MTC's guidance, Celtel has quadrupled its subscriber base. Now its 100% seems like a sweet deal.

MTC's operating licence in Saudi Arabia is 25 years long, which is a substantially longer time than standard 10 or 15-year licences and offers the operator a great deal more time to achieve a decent return on its investment. Al Ahmadi also made the point that in terms of synergies and cost savings, MTC's presence in adjacent markets including Sudan, Kuwait, Bahrain, Jordan and Lebanon makes its expansion into an anchor market as large as Saudi Arabia a much stronger proposition than for bidders with less well-developed regional footprints.

It is this logic of blanketing a geographic region and maximising synergies that sees MTC's has made known its interest in the award of Qatar's second mobile licence. The Kuwait operator is one of 12 short listed bidders in a strong field of regional and international interested parties, including Orascom Telecom, Vodafone, Etisalat, AT&T, and India's Reliance.

"Qatar has large gas reserves and it is a small but important market to MTC," Al Ahmadi comments.

So my point is that while I started off as one of multitude of sceptics with respect to how MTC would ever make a profitable investment of its Saudi investment, I must admit that my stance is softening and the motivations being put forward by MTC insiders as to why the deal, even at the costs involved, still makes sense are starting to sound wholly plausible.

I still require some convincing with respect to fixed-wireless investment in the conflict zone that is Iraq at this point in time, however. Earlier this month Kalimat Telecom, an operator that was awarded one of two wireless local loop (WLL) licences by the Iraq government last year, announced it had awarded China's Huawei Technologies a US$275 million contract to start rolling out what the operator hopes will develop into a nationwide WLL network.

The CDMA based WLL network will also incorporate WiMAX technology and Kalimat is looking to target residential, business and governmental users, with a commercial launch date scheduled for late September.

'We have a business market focus, and our service offering will incorporate voice, data and media content,' commented president and CEO Wilson Varghese at an event held in Dubai. 'We plan to extend the WLL network to over 50 major towns in Iraq and will be the first to market with a location-based intelligent network,' he added.

Kalimat forecasts delivering five million CDMA lines by 2011, and will have further time to build up its network given the duration of its operating licence is 10 years, plus a five-year extension clause. 'The upfront licence fee cost US$25 million and there is a revenue share agreement with the Iraq government that runs to 28% per annum,' explained Hassa Abdel Razek, chief marketing officer. The operator forecasts that over the life-time of the licence it is set to invest around US$1 billion, and given the continuing mayhem and destruction reported to be taking place in Iraq practically on a daily basis, it is no doubt going to be a hugely challenging proposition to establish and run any business successfully in the country at this stage.

That said, over 60 bidders did submit applications to be considered for the two WLL licences that were awarded, suggesting a ready appetite for the risks that operating in a market such as Iraq exists.

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