Calling the shots

Mobily CEO Khalid Al Kaf tells Arabian Business why moving first and moving fast is the key to the firm’s success

Tags: Etihad Etisalat CompanySaudi Arabia
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By  Soren Billing Published  June 12, 2009
Millions of Saudis come to the UAE every year, lured by the luxury brands on offer in its burgeoning shopping malls, the wide array of restaurants and the glamorous hotels.

Less of a draw, presumably, is the iPhone 3G. On a prepaid contract, the 16GB make of the Apple handset sells for $747 at Saudi’s Mobily, compared with $832 at Etisalat. The UAE telco’s iPhone packages are also significantly more expensive than comparable offers at Mobily, despite a 22 percent price cut announced in May.

Similarly, mobile broadband remains cheaper in the Kingdom, even after Etisalat, Mobily’s Dubai-based parent company, slashed its rates last month.

For $93, Saudi broadband users get one month of unlimited downloads. In the UAE, “unlimited” means a maximum of 10GB and costs $125, with a whopping $8,170 fine slapped on each gigabyte that exceeds the monthly download limit.

Yet Mobily seems to be doing just fine. More than fine in fact: net income in the first quarter surged 47 percent on the year to SR480m ($128m), beating analyst expectations. Morgan Stanley gave the company’s stock an overweight rating when it initiated coverage last month, citing the prospects for “earnings surprises”.

Mobily CEO Khalid Al Kaf attributes part of the success to the company’s growing product offering in rural areas, after concentrating on Saudi Arabia’s twenty largest cities immediately after its launch. Mobily now has a presence in 250 to 260 cities and towns in the kingdom.

“That is one arm of the growth,” he says. “Second, what I think has contributed to the growth is the multitude of services and products that we are tweaking in order to serve the customer’s needs. We offer a special product for Asian people, another one for Filipinos and another one for the Saudi nationals.”

To target Saudi’s Filipino population, the largest outside the Philippines, Mobily last month launched Mabuhay, a package offering special rates on calls to near and dear ones back home, alongside Filipino ringtones and hosted by Filipino operators.

The Najma bundle, meanwhile, is geared at housewives, with a discounted rate between 7am and 7pm, free text message subscriptions about fashion and family care, and special female-only activities around Saudi Arabia and abroad.

Al Kaf, a computer engineering graduate from George Washington University in Washington DC, joined Etisalat in 1987. In 2004 he took the helm of Mobily, which launched commercial operations in 2005.

Etisalat initially held a 35 percent stake in the company but had to sell 20 percent of its shares last year in order to comply with its licence, taking its holding to 26.25 percent.

Although an engineer by trade, Al Kaf appears to be just as much a businessman at heart. Mobily had 11 million subscribers after its first two and half years of operations, representing a 40 percent market share; despite fierce competition from incumbent Saudi Telecom (STC), which has the region’s biggest infrastructure and market capitalisation.

The company turned a profit after less than two years.

After three years of managing Mobily, Al Kaf announced the $400m acquisition of data service provider Bayanat Al Oula and internet service provider Zajil for $22m as he moved to transform Mobily from a mobile operator to an integrated telecom company. The acquisition is expected to strengthen the firm’s position in the wireless broadband segment.

And it was in the internet arena, particularly mobile broadband, that Mobily surprised analysts on the upside in the first quarter.

“We believe that Mobily will maintain its position as a leader in the broadband segment in Saudi Arabia through the introduction of new and innovative products,” Global Investment House said in a research note.

During this year’s Gitex expo in Riyadh, Mobily made the surprise announcement that it will be the first operator in Saudi Arabia to introduce fourth generation services, or 4G, by early next year.

Of course, not all the growth has been down to product innovation and clever marketing strategies; Saudi Arabia’s young population, relatively low internet penetration rates and culture makes it a good fit for any internet service provider.

More than half the population is less than 25-years-old, and approximately one third is less than 15-years-old.

“The country has five million students, and has relatively limited entertainment venues,” Shuaa Capital noted in an April research note.

Al Kaf believes mobile broadband will do for broadband what GSM phones did for telephony in the nineties. Mobily currently has an 85 percent market share in the sector.

“It’s a trend happening just like when GSM started out. There was exponential growth in GSM in the early nineties. Today we feel that mobile broadband is making that noise. It is very natural, it is bringing mobility to you, accessibility everywhere,” he says.

This seems to put him at odds with parent company Etisalat, which has stated that its mobile broadband service should only be seen as a compliment to its fixed line packages, a position reflected by its steep fines for anyone exceeding their download limit.

“Maybe at Mobily we have a different view on mobile broadband from many other operators in the region, but we strongly believe that mobile broadband will thrive and will be so successful [that it will] supercede fixed line, narrowband services like dial-up and ADSL,” he says.

“I think this will show much more penetration, because this does not go to the household, it goes to the individual, and the penetration will be just like GSM and fixed line. A simple comparison: while you are at home you have one fixed line but you have ten GSM lines. I do not see any difference.”

Looking ahead, Al Kaf believes most of the growth and innovation will come from smartphones, with mobile phones such as the BlackBerry and iPhone offering advanced, often internet-based capabilities.

Still, it’s worth noting that mobile phone services have been hailed as the next big thing for almost a decade now but without much commercial success.

“Nobody was connected and we started talking about content aggregation, co-hosting and these things, good ideas, but there was no usage pattern,” he says.

“We introduced voice services; after that we introduced the SMS, and after the SMS we started introducing news alerts through SMS because of the number of SMS users.

“So from peer-to-peer it went to multipoint: news broadcasts, content broadcasts and everything comes through SMS. I think the same story can be repeated.

“We learn from our history. The usage pattern is reaching that tipping point where we can create value out of it.”

It won’t be about one “killer application” hitting the market but about a flurry of services that will come and go, he adds.

“I think there will be killer applications for a span of time, they will die, and then other killer applications will come and then they will die. That rapid birth-death cycle will be there and will depend on the user behaviour,” he says.

“The challenge for traditional telcos will be how to culturally and mentally change our way of doing business.

“It is a completely different business model. If you want to continue that exponential growth over time, you need to do that.”

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