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Expanding its reach

The recent announcement of three new fixed-line players in the Saudi Arabian telecoms market gave Bahrain's Batelco another chance to drive forward its growth plans under CEO Peter Kaliaropoulos. He speaks to Ronan Shields about the moves the firm 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$133million partnership with the Atheeb Group.

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.

We are eager to take advantage of the huge potential for growth in the region and are in the process of implementing a three-year strategy to increase profitability.

Batelco's current expansion programme began in earnest in 2005 with the appointment of Peter Kaliaropoulos as CEO after moving from SingTel Optus.

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," said Kaliaropoulos.

That 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 said.

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 in the process of implementing a three-year strategy to increase profitability," Kaliaropoulos said.

"We are not interested in expanding just for the sake of it," he added.

Kaliaropoulos said 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.

He 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, Kaliaropoulos reiterated 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%," he said.

In Saudi Arabia, the largest Arab economy, the three winning consortia were selected from ten applicants and the winners are now set to compete against incumbent operator STC, which counts around 4 million fixed-line phone subscribers.

Kristoff Puelinckx, managing partner of research firm Delta Partners, said 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," he claimed.

"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 commented.

"What will be interesting to see is how the different companies split the market up between them," he claimed. "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."

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