Teletimes April 2011.pdf

Measured approach
On the surface, STC Group’s
most recent set of financial
results appeared to typify the
fortunes of most incumbent
telecom operators that have seen
their home markets eroded by
tough competition.
In its Q4 2010 results, STC
posted a 23% decline in net
profit to SR2.29 billion ($610.7
million). STC’s operating profit
rose 15% to SAR3.03 billion, but
its full-year net income declined
by 13% to SAR9.4 billion.
However, the results were
generally in line with analyst
expectations, and as STC said in
its results statement, the sudden
fall was also related to a one-off
gain in Q4 2009, which resulted
from the listing of STC’s Malaysian
joint venture, Maxis Group.
STC also said that its 2010 profit
fell due to an increase in costs
related to capital investments in
Saudi Arabia and abroad.
STC’s explanation of the results
appears to hold some weight.
The operator has certainly faced
some significant costs after
launching mobile operations
from scratch in Kuwait at the
end of 2008, and in Bahrain in
March 2010.
“The dip in the home market was
a top-line dip,” says Ghassan
Hasbani, CEO, international, STC.
“If you look at the bottom-line
issue, there is not a dip.”
“The cost efficiency programmes
that have been run at STC have
actually brought a positive
impact on the financials so it
has been a positive story, not a
negative story.
“The question is one of net
income. If you look at the size of
STC and the dividend and payout
ratio and you look at the scale
of infrastructure it has globally,
we are more skewed towards
Ghassan Hasbani
CEO STC International
investments in long-term growth
markets, so this is where the
money is still going.”
Hasbani insists that the positive
impact of international operations
on profitability will take
some time, possibly two to
three years. However, STC’s
international forays in the past
few years, which have seen the
telco gain a presence in India,
Indonesia, Malaysia, Turkey and
South Africa, as well as Kuwait
and Bahrain, are already having
a positive effect on revenues.
“The positive income in terms
of total revenue growth is there
already. It is already pushing
revenues significantly,” he says.
“Most of the investments have
already gone into the ground, so
it now is a time of incremental
capacity and sweating the assets,”
he adds.
Bahrain and Kuwait
And two of the main assets that
STC is busy nurturing are its
mobile operations in Kuwait and
Bahrain. STC acquired Bahrain’s
third mobile licence back in
March 2009, for about $240
million, and launched operations
last March. Hasbani says the
operation has “proven a good
success” in its first year of operations.
Hasbani describes the situation
in the highly penetrated
Bahraini market, where Viva
competes with Batelco and Zain,
as being a “value war”.
Despite a mobile penetration
rate of well-above 100% and a
population of little more than 1
million people, Hasbani insists
that Viva has significant growth
potential.
“If you look at our pricing
structure, it is not extremely low,
but it is at the right level with
the benefits that you get out of
it, because we don’t have any
legacy systems on the network.
We were able to create a lot of
value and we are still creating a
lot of innovative products and
services and packages that offer
a lot of value for the money that
you pay for them,” he says.
At the beginning of February,
Viva Bahrain secured funds for
infrastructure expansion and
general costs after it signed a
$280 million financing agreement
with HSBC Bahrain and
Samba, a Saudi Arabian bank.
Hasbani says the agreement
represented a “very good deal”
and that by arranging most of
the agreement in dollars, Viva
Bahrain was able to secure a low
interest rate.
“We are deploying infrastructure
anyway, and Viva is still in
growth mode so it is effectively
being used to fund the entire
operation. “This is a long term
funding so it will help the company
until the cash situation is
sustainable and self sufficient,
so we don’t envisage any further
major funding rounds beyond
this,” he adds. Meanwhile, Viva
Kuwait also remains in “growth
mode” and is expected to become
profitable in 2010, according
to Hasbani.
“We already have a good traction
on subscriber and revenue
growth. Kuwait and Bahrain
are similar stories, with steady
Roger Field
STC Group started its international expansion later than some of its regional peers,
but the Saudi incumbent is poised to reap the rewards of its recent investments
growth and a good cost management
approach, because they
are both lean, small operations,”
he says. Across its operations,
Hasbani says that “promised new
revenue streams” are also starting
to emerge from “phenomenal”
broadband growth.
“We have been investing in
broadband, DSL and fibre and
now we are starting to reap the
benefits where we are experiencing
actual growth on revenues
in this sector. That is significant
and is starting to compensate for
certain diminishing revenues on
traditional services,” he says.
Market dynamics
In terms of further opportunities
in the Middle East, Hasbani
points to Syria, where STC is one
of five companies bidding for the
country’s third mobile licence,
which is understood to have a
reserve price of EUR90 million
($122.7m).
Speaking generally about opportunities
in the region’s telecom
sector, Hasbani says further
acquisition targets are likely to
present themselves in 2011, as
some larger private investors
seek to cash in on the rising
value of telecom assets.
“As long as they [PIs] are at the
end of the cycle and they see
this [telecoms] as the only sector
they can exit at a good price,
then we will see more of them
exiting to cover other sectors
that they have invested in,” he
says.
“I see that happening in the next
couple of years, with large PI
owners of telecom assets. There
is also more appetite to come
into the sector and invest in telecoms,
and we are seeing large PI
groups eyeing up telecoms again
because it is the only thing they
can sell to others. T
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