Grand design

Hits Telecom aims to box clever in order to compete with cash-rich rivals to become one of the region's leading integrated telecom operators.

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By  Roger Field Published  May 6, 2008

Hits Telecom aims to box clever in order to compete with cash-rich rivals to become one of the region's leading integrated telecom operators.

As a practicing physician with a specialist knowledge of genetics, Dr. Sultan Bahabri, chairman of Hits Telecom, sees a certain similarity between living organisms and businesses.

For Bahabri, a company needs more than mere healthy financials to survive. It must also be perfectly adapted to its environment, particularly when pitted against tough competitors, many of which have plenty of cash at their disposal.

A lot of people preach about convergence but the truth is we have to do it and we have to do it even in the most remote parts of the world where nobody thinks we would do it. We believe Hits has to take advantage of the shift from the basic offering of voice applications. These are part of the DNA that we carry.

It is a philosophy that permeates Hits Telecom, the Saudi Arabian-based telecom operator Bahabri founded back in 2002.

Indeed, while many of the company's competitors are cash-rich regional incumbents that have few problems acquiring expensive licences, Hits is taking a different approach.

Instead of buying expensive licences in established markets, the company is focusing more on key developing markets with far lower entry costs but significant growth potential.

While Hits started its operations back in 2002 with a presence in KSA's wireless data sector, with a stake in ITC, and is also a distributor for mobile operator Mobily, more recently the company turned its attention to the African market. It launched its African subsidiary, Hits Africa, last year.

"We decided to go into a new market which was telecom operations, so we acquired four licences and we are going to launch similar subsidiaries in different continents in the near future," Bahabri says.

He adds that Hits Africa now has a presence in Liberia, the Democratic Republic of Congo and Equatorial Guinea.

Hits Africa aims to increase its presence in Africa to eight countries from the current four countries it operates in by 2012, according to Bahabri.

"We cannot compete with incumbents because of the environment, but what we are doing in Africa, for example, is developing a reverse incumbent model through technology platforms that enable us to provide all the services in one platform...without the expense of setting up of the infrastructure," Bahabri explains.

Furthermore, Bahabri even sees advantages in lacking the kind of deep pockets that some of the region's incumbent operators have, in that it means Hits must place more emphasis on strategy, rather than just buying ever more expensive licenses.

"We believe the licence prices in the region have gone overboard and by analysing the last few bids I don't think that that it will be financially feasible to break even in a reasonable time," he says. "We think there is another way to enter those markets when licences are extremely expensive."

However, despite not intending to compete directly with incumbents in bidding wars for expensive licences, Hits Telecom has big ambitions, including gaining between 4 million and 6 million subscribers in 10 countries by 2012.

The operator listed on the Kuwait Stock Exchange (KSE), in partnership with co-investor Al-Madina Company, in April - a move that is expected to raise up to US$300 million.

"By participating in the Kuwait stock exchange, we believe we can gain the benefit of trading our shares in a well regulated, sophisticated and respected Middle East market," says Bahabri.

The idea is that Hits will establish a converged presence in the countries it enters, offering fixed and mobile voice and data services, using whichever technology platforms are suited best for each market.

In the African countries it has entered, Hits is rolling out its network using WiMAX, with fixed-line voice services being developed around VoIP.

"It is purely going to be a WiMAX solution in Africa. If you look at the African markets, they haven't gone through the fixed phase - they have gone from nothing to mobile. Now WiMAX will provide them with fixed line," Bahabri says.

These developments are just the start of an ambitious expansion plan for Hits. The company expects to have a presence in between 20 to 30 countries within the next five years, spread across three continents.

Indeed, Hits already has a presence in Brazil and intends to enter more countries in South America in the coming few years.

In this type of market, Bahabri stresses the need to offer services beyond mere voice, and to tailor services to each individual market. This aim is being partly aided by developments in technology that allow Hits to offer converged services.

"We are building Hits as the first knowledge-based telecoms company. We are building it as the first real global telecoms company in terms of markets and offering. We are building it through a converged offering," he adds.

"A lot of people preach about convergence, but the truth is that we have to do it. We have to do it even in the most remote parts of the world where nobody thinks we would do it," Bahabri says.

"We believe Hits has to take advantage of the shift from the basic offering of voice applications. This is part of the DNA we carry."

He added that this is becoming possible because of a blurring of services. "We don't have to offer you fixed or wireless. Three platforms are coming together: an IP core, mobile technology and data.

In terms of offering services tailored to Hits' African markets, Bahabri points to mobile banking as just one important service that it is able to offer its customers.

"Mobile banking is a concept that has been developed in mature markets but hasn't had a lot of success in this market because there are physical banks that are successful. But in Africa today mobile making is successful because there are few banks."

"For all of these new technologies we have to come up with the right solution, the right offering and the right value for the customer."

"As everybody knows, voice is the source of 90% of income for African players and emerging markets. We will focus on providing quality, affordable, value-proposition to the customer in terms of voice service, but at the same time, we are investing in other applications."

But it is not only emerging markets that are on Hits' radar. The company also intends to enter established markets, although it will approach them in a different way - possibly by setting up MVNO operations once regulatory hurdles have been removed.

This is the alternative to buying pricey licences, where it is becoming increasingly difficult to turn a profit, given the initial costs and level of competition.

To this end, Hits is looking at acquiring an established MVNO operation in Europe.

It is a strategy that will not only give the operator an immediate presence in Europe, but will also give it valuable experience in how to run an MVNO in a fiercely competitive market ahead of regulatory change in the Middle East region.

"We are targeting the European markets and next to that will be the MENA region," Bahabri says. "The regulatory environment in the Middle East is not ready yet for MVNOs - but it will be ready in the coming two to three years."

"For that reason we want to acquire an MVNO operation in Europe to have the knowledge and the capability so when we are a MENA player we will come with some practice and experience in that area."

"We have short listed the targets and we are in the final stages of reaching an agreement with one of them by the end of the year," he says, adding that he sees the MVNO model as a good business opportunity, even in high penetration markets such as Europe.

The MVNO concept holds numerous advantages for the Middle East, according to Bahabri, including the ability to establish mobile networks without the heavy infrastructure costs associated with it.

It is also a business type that is likely to become more common in the region, with many Middle East regulators considering MVNOs.

But while Hits has big ambitions in terms of the number of countries it intends to enter, Bahabri remains sceptical about the merits of the one-network concept, whereby users of a single network can roam seamlessly across borders.

"This one-network concept is intriguing but it has to be really good to be successful, both financially and from a customer point of view."

He adds that while Hits is gaining a presence many countries, this does not automatically translate into the best way of offering a single network between those countries.

"There are other ways of doing it, with alliances and consortia...we will see a similar concept to airline alliances in the telecom sector in the very near future," he adds.

HITS TELECOM: In profile

Hits Telecom has investments, operations and interests in the Middle East, African and Latin American markets. The company currently has operations in Saudi Arabia, Liberia, the Democratic Republic of Congo, Equatorial Guinea and Brazil.

In Saudi Arabia, the group is a key stakeholder in the national broadband wireless data network, ITC, as well as being a major player in the telecommunications distribution and services market through subsidiary Qanawat. Qanawat is the leading Saudi Arabian national distributor for Saudi Arabian mobile company Mobily.

In Latin America, Hits has acquired a 49% stake in Brazilian operator Unicel, which is to launch a GSM network covering the affluent and populous São Paulo Metro in June this year.

Brazil, one of the fastest growing global mobile communications markets, still has modest penetration rates compared to the overall addressable market of some 180 million subscribers.

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