Kuwait’s Zain eyes IT acquisitions to boost data services

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Kuwait mobile operator Zain will make acquisitions and partnerships in computer-based industries this year to exploit rising demand for data and help offset falling conventional call and text income, its chief executive told Reuters.

However Scott Gegenheimer, who became CEO in December having previously held the same position at domestic rival Wataniya, said Zain - which operates in eight countries – had no immediate plans to expand into any new nations.

That is in contrast to other Gulf former monopolies, which continue to pursue stakes in foreign operators.

United Arab Emirates’ Etisalat and Ooredoo (Qatar Telecom) both bid for Vivendi’s 53percent stake in Maroc Telecom before Ooredoo withdrew its offer last week. Bahrain Telecommunications acquired most of Cable & Wireless Communications’ Islands division earlier this year.

Yet for Gegenheimer, Zain’s future lies in diversifying its revenue streams, rather than planting flags in new territories. He does not plan to sell any of the company’s foreign units, which include operators in Saudi Arabia, Sudan and Iraq.

“Our approach is to seek in-country, bolt-on acquisitions which will allow us to develop capabilities to offer unified communications, cloud services and ICT services,” he said in a telephone interview. “I don't see us making billion-dollar acquisitions, but we need to get into these sectors.”

These could include buying or partnering with data centres and internet services providers, he said.

Operators’ revenue from conventional calls and texts are in retreat as customers switch to low-cost Internet-based alternatives such as instant messaging and Voice over IP (VoIP).

This trend, while global, is more acute in the Gulf, where high-margin international calls and texts were a major source of revenue for operators due to a large expatriate population.

“Our goal is to work on concluding a number of acquisitions this year,” said Gegenheimer. “If you look 5-10 years ahead,voice transmission will take various forms - increasingly asdata on an IP network or an app on the phone.”

Zain said in May it expects its 2013 revenue and net profit to fall 5 and 8 percent respectively.

Data accounted for 12 percent of revenue last year and this will likely rise to 14 percent in 2013, Gegenheimer said.

That growth will accelerate if its Iraqi unit - provider of 40 percent of Zain’s revenue in the first quarter - receives along-awaited 3G license, although the Iraqi government has yet to say what fee it will charge for this license.

“It's in the interests of the government to charge as low a fee as possible to enable us to roll out services quicker, and as data penetration goes up they're going to get their money back through the revenue share anyway,” Gegenheimer said.

Zain Iraq pays 18 percent of its net revenue to the state.

Zain owns 76 percent of Zain Iraq, which must float a quarter of its shares on the Iraq Stock Exchange (ISX) as part of its general telecom license terms, as do the country’s two other mobile firms.

Zain hopes to conclude the initial public offering by year-end or first quarter of 2014 at the latest.

Asia cell listed on the ISX in February after completing a $1.27 billion public share sale. Parent Ooredoo was a major buyer and doubts remain as to whether there is enough liquidity to support two more telecom listings.

“As per license conditions we need to offer the full 25 percent, but there no rules and regulations to explain what happens if the take-up rate isn't there,” said Gegenheimer, adding Zain Iraq would be a single listing on the ISX.

“We will use the money for capital expenditure, acquisitions and general corporate purposes.”

In South Sudan, Zain and other operators are still awaiting telecom licenses nearly two years since the country became independent. Gegenheimer expects the South Sudanese government to inform the company of the cost and duration for a license this year.

“It’s not hindering the business but it would be nice to conclude a proper license agreement,” he added.

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