Scott Gegenheimer’s calling: To steer Zain through better times
A year into his job as CEO of the Kuwaiti firm, Gegenheimer explains why mobile operators will have to do more to survive
There are few easy wins in the Middle East’s telecoms business – something Scott Gegenheimer knows better than most.
The 47-year-old chief executive of Zain Group, Kuwait’s biggest phone company, readily acknowledges that times are changing in the telecoms industry.
People in the region are turning their backs on SMS – once a lucrative source of revenues – while competition is squeezing profits on voice calls. Zain on Monday reported profits of 216.4 million dinars ($767m) for 2013, down from 252.2 million in 2012, reflecting the increasingly tough nature of the business.
But Gegenheimer, who took the reins at Zain in Dec. 2012, says he has a clear strategy for the future. And that’s something Zain seemed to lack in the past.
Data subscriptions, better customer service and careful acquisitions will all be key to Zain’s future, Gegenheimer says. Because he is under no illusion that, in the future, mobile companies have to do much more in order to survive.
“[In] 10 years, if you’re a mobile operator and you’re only selling mobile services then I think you’re going to be in a lot of trouble,” says Gegenheimer, speaking to Al Arabiya News earlier this month. “Most of the growth in telecoms is from the data side… it’s replacing the voice.”
Zain has already launched superfast ‘4G’ – or long-term evolution (LTE) – mobile-data networks in Saudi Arabia, Kuwait and Bahrain. The company’s aim is to eventually get “all of our markets moving into LTE”, Gegenheimer says, with the next market likely to be Jordan.
Another cornerstone of Zain’s strategy, Gegenheimer says, will be selling bundled services known as ‘triple’ or ‘quadruple’ play, which typically include broadband, TV, telephone and wireless services.
“Now we’re mainly a mobile operator in all of our markets. So eventually we need to move to become an integrated service provider, doing triple-play and quad-plays,” he says.
Yet Gegenheimer has a tough task ahead of him at Zain, which operates in Kuwait as well as overseas markets including Saudi Arabia, Iraq, Bahrain and Jordan.
For not only are Zain’s annual profits in decline, but the company is just emerging from one of the most tumultuous periods in its history.
Zain’s meteoric rise – and fall
Zain has rarely been out of the business headlines – although not always for the reasons it would like.
In the mid-2000s, high-profile acquisitions saw the operator grow rapidly across continents. But infighting among shareholders, failed divestments, the financial crisis and managerial instability left it in disarray.
The company started life as a small-time operator known as MTC, later rebranded as Zain. The group expanded rapidly under former chief executive Saad al-Barrak, driven by some high-profile acquisitions; its customer base of 300,000 in 2002 grew to 72 million subscribers by 2008.
But much of al-Barrak’s expansion work was quickly undone, partly due to pressure from the Kharafi family – a key shareholder group – to sell off the business. Al-Barrak left as CEO of the group in 2010, the same year that Zain sold off most of its African subsidiaries to India's Bharti Airtel. He quit as head of the firm’s Saudi arm in 2011.
The crisis at Zain deepened. It lost several other senior members of staff after al-Barrak’s departure. A proposed sale of a $12 billion controlling stake in the company to the UAE’s Etisalat failed in 2011, as did a $950 million divestment of its stake in Zain Saudi Arabia. The group also faced difficulties in volatile markets such as South Sudan and Iraq.
After all this uncertainty, at least the vital question – that concerning Zain’s ownership – can be answered by Gegenheimer.
“We’re not selling the company,” he says bluntly. Zain also plans to retain its stake in its Saudi business, he added.
“Saudi is one of the biggest markets in the region. It’s a turnaround situation, and there’s no question it’s been a struggle,” he said. “I have no plans in selling Saudi. It’s one of the biggest opportunities, it’s one the biggest markets.”
Analysts agree that, after some rather turbulent times, Zain has found more stability under Gegenheimer.
Matthew Reed, principal analyst at Informa Telecoms & Media in Dubai, says the company is “settling down” after a “hectic” phase in its history. “It does seem more stable now,” he said. But challenges remain, said Reed. “It’s still a somewhat mixed picture… The drivers of growth that have propelled Zain over the past few years are not there.”
For example, some of the markets in which Zain operates are now more mature, meaning more competition and fewer easy pickings for the operator. Instability in other markets such as Iraq also complicates the picture, Reed said.
That said, Gegenheimer brings an “extensive industry background and regional knowledge” to the role, Reed said.
Few would argue that Gegenheimer has not earned his place in the top office at Zain’s Kuwait HQ. The American is sitting at his expansive desk with panoramic views over Kuwait City in the distance; he talks while having promotional portraits snapped by a photographer.
Zain’s HQ feels more like a university campus than the home of a big corporation; it’s more Google than Goldman Sachs. But Gegenheimer, with his slick gelled hair and thinly pinstriped shirt and blue tie, has a solid grounding in the financial world as well as the techie side of telecoms.
He was born and raised in Chicago, and landed a job at Motorola after leaving university. The job took him to the Middle East, helping set up cellular companies for Motorola’s joint ventures group. At the time, few imagined how popular mobile phones would become.
“In the mid-1990s, no one ever envisioned a 100 percent penetration rate… The paradigm completely changed,” he says.
In 1997, Gegenheimer left Motorola for Cisco, and he later worked for the New York-based private equity and investment banking firm Tower Hill Capital Group. In 2002 he joined the Kuwait-based telecoms firm Wataniya, which was at the time looking to expand overseas. Gegenheimer worked in Tunisia for affiliate Tunisiana for five years before returning to Wataniya in Kuwait in January 2008.
He resigned from Wataniya in June 2012, ready to head back to the U.S. to work in Silicon Valley – when he got the surprise call from his former rival Zain.
“I was pretty much set that I was going back to the U.S. I had another couple of offers on the table when I was leaving, not in the region,” he said. “It was a surprise for me. But it wasn’t something preconceived.”
While the large headline-grabbing acquisitions of al-Barrak’s era may be a thing of the past, Gegenheimer does not plan to sit still when it comes to M&A.
“I think you’ll see two fronts on the acquisitions side. One is possibly large-type mobile plays, looking at mobile operators. Will you see huge acquisitions? No. But could you see one or two over the next couple years? Sure. We’re looking at opportunities on a regular basis,” he says.
“What you’ll see also [is that] we want to become integrated service providers... So I think you’ll see a lot of smaller acquisitions over the next couple of years as well.”
Regions identified by Gegenheimer include North Africa, although he says the group is not targeting expansion in sub-Saharan Africa, or indeed further afield in Asia or Latin America.
“The MENA region is for me still open for opportunities,” he says. “We want to make sure that we have controlling interests. We’re not looking for a passive equity stake.”
Given the challenges of the smartphone era, it is probably a good thing that Zain’s chief is no luddite.
“I just love technology in general, whether it’s gadgets or new toys,” says Gegenheimer. “It’s very exciting to me. I’m very passionate about new technology, understanding where the direction of society is going.”
“To me it’s an exciting time to be in the telco space,” he adds. “There are a lot of challenges ahead. But for me the challenges are very interesting.”
BIOGRAPHY: Scott Gegenheimer
Family: Married; has 20-month-old baby girl, and another on the way
Social media: Says he’s “a big fan” of Twitter - @sgegenheimer
Education: MBA in 1993 from DePaul University in Chicago and a Bachelors of Science in Finance from Northern Illinois University in 1989
Sport: Plays squash and goes to the gym. Wrestling scholarship at college.
Career: Appointed chief executive of Zain Group in Dec. 2012. Previous roles include chief executive of Wataniya Telecom (appointed in January 2008); co-CEO and CFO of Tunisiana; stints at Tower Hill Capital Group (THCG), Motorola, Cisco Systems and Adaptive Broadband.
Scott Gegenheimer on…
… The biggest challenge for the telecoms business: “The penetration rates are slowing down, growth is slowing down, so you need to push the data growth. The behavior of your customers is shifting.”
… Acquisitions: “If 51 percent or plus of a company becomes available in the MENA region, yes absolutely, we’ll take a look at it to see if it makes sense financially and strategically.”
… Capital expenditure: “If you look at our capex, we’re spending close to $1 billion a year for the last couple of years, and will continue to spend that money to build out our networks”
… Regulation: “Licenses tend to be fairly expensive in some of the markets. And this is where we need to work with the regulators, to be able to reduce the cost. Because telecom adds so much value to the economy”
… Selling mobile transmission towers: “The tower side I don’t believe is actually core to our business per se. So if I bundled them and sold them off and I could raise capital, I think then it’s probably a good business model if you can get the right pricing on it.”
… His management style: “Generally it’s very open and transparent; I like to communicate quite a bit with my employees.”
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