Zain has been nothing if not flamboyant: back in 2003 it modestly proclaimed: "Zain will become a global wireless operator by 2011 through a 3x3x3 profitable expansion plan".
The Group aspired to increase its client base in 'operational stages driven by further expansions'. This strategy was attrributable to Dr Saad Al Barrak, Zain?s CEO at the time, who was described as having: "taken the reins in successfully transforming the Group into a leading mobile communications company".
This vision saw the operator evolve from a single operator in Kuwait at the beginning of 2003 to a company with a commercial presence in 24 countries by the end of September 2009.
Zain saw itself becoming a global player in three stages: regional, international and global, with each stage being completed in three years, with the aim of achieving a customer base of 150 million. It said at the time: "...we aim to achieve in nine years what other companies have taken more than 27 years to achieve".
Zain provided GSM-based services in 15 countries in Africa, which included Burkina Faso, Chad, Democratic Republic of Congo (DRC), Gabon, Kenya, Malawi, Madagascar, Niger, Republic of Congo, Sierra Leone, Sudan, Tanzania, Uganda and Zambia, under the Zain brand name. The group also had a fixed line operation in Tanzania. The group had some 42.1 million mobile subscribers at the end of December 2009, the last set of figures it published prior to the sale of the ex-Celtel operations to Bharti Airtel. It has - todate - retained its operation in the Sudan, and the Middle East.
In February 2011 it was in the process of selling the controlling interest in its Middle East operations to Etisalat, with the exception of its successful Saudi Arabian operation. This cannot be sold to Etisalat due to its interest in Mobily, Saudi Arabia's second largest mobile operator, and therefore Saudi Zain will be hived off from the existing Zain operation and sold separately.
Ironically the Zain brand has been heavily promoted and is recognised as a major brand in the Middle East to the point that the existing management are lobbying the prospective new owners for its retention after the stake sale.
Table 1 provides a regional snapshot of Zain's mobile operations in Africa as they were on 30 September 2005.
Table 1: Zain - Mobile Operations in Africa(2004)
Source: industry sources, Blycroft estimates c. Blycroft 2004
Chart 1: Zain Operations in Africa, including those sold to Bhart Airtel
Until 2004, the group provided broadband and long-distance services as well, but the group subsequently focused solely on offering mobile solutions only.
Zain invested around USD 750 million in building-up its network and employed about 3,500 people in Africa.
Zain is currently a wholly-owned subsidiary of Mobile Telecommunication Co. (MTC) based in Kuwait, since May 2005. The group now operates in 7 countries - 6 Middle Eastern and 1 sub-Saharan African countries, with an estimated 36.7 million mobile subscribers at the end of 2010.
Zain Mobile Subscribers by State 4Q 2010
Source: industry sources, Blycroft estimates c. Blycroft 2011
Mobile penetration was less than 5 percent in 10 out of the total 13 countries of its operations in December 2004. It aimed to increase its subscriber base by offering innovative services and by acquisition of local operators. It also planned to expand the network in other regions in Africa, particularly in sub-Saharan countries. Broadly speaking, the company adopted the following strategies for growth of its African mobile operations:
Expanding subscriber base in current markets of operation
Zain embarked on a strategy to increase its subscriber base in its existing markets by expanding its network coverage, offering innovative solutions and acquiring the local operators, if any. For instance, it was the first operator to introduce services such as pre-paid roaming between the DRC and the Congo Brazzaville and m-commerce in Zambia. It also aimed to improve its customer relationships by offering better customer care services.
Seek investment opportunities in other African countries
In addition to expanding its operations in the existing markets, Zain aimed to deploy its networks in other countries in Africa. As a part of this strategy, the company launched its mobile services in Madagascar in December 2005 through the acquisition of Madacom.
Position 'Zain' as a pan-African brand
Zain set out to - and achieved - the roll-out of its brand name across its pan-African operations. It wanted to position Zain as a brand known for its quality of service, network coverage and customer care. Zain undertook a study to understand consumer attitudes towards different brand attributes in the multi-cultural environment of the sub-Saharan region, and re-launched the Zain brand in January 2004.
Financial and Operational Performance
The consolidated revenue of Zain, for the financial year ending December 2004, was USD 614 million, registering an increase of 62 percent over the previous year. The growth was driven by the increased number of mobile subscribers, which grew by 108 percent during the 2003-2004 and the acquisition of the Kenyan mobile operator KenCell in May 2004.
The Zain's EBITDA margin declined from 33.3 percent in 2003 to 32.6 percent in 2004. This decrease was due to an additional expenditure incurred in marketing and re-branding of Zain.
Figure 1 shows the revenue and the EBITDA margin of the operator for 2003-2004 and Figure 2 depicts the number of mobile subscribers till 30th September 2005.
Figure 1: Revenue from the Mobile Sector (2003-2004)
Source: Company Website * Subscribers at Mid-December 2005
Figure 2: Mobile Subscribers (2002-2005)
Source: Company Website
The capital expenditure (CAPEX) of Zain in 2004 was USD 253 million, registering an increase of 140 percent over the previous year. A major share of CAPEX spending involved infrastructure investment as part of the group's core expansion strategy.
The total number of mobile subscribers of Zain had reached 5.2 million at the end of financial year 2004, increasing at a CAGR of 92.7 percent since 2002. This growth continued further and had reached 8.5 million as of mid-December 2005.
The monthly ARPU of the group was USD 21 for 2004. ARPU had decreased by 16 percent over 2003, primarily due to Zain's operations in countries with low average per capita income. The group had to keep tariffs low so as to attract the maximum number of subscribers, putting pressure on ARPU.
Zain's EBITDA margin declined from 33.3 percent in 2003 to 32.6 percent in 2004 due to marketing and re-branding expenditure incurred by the group. The monthly churn rate was reported as three percent in the same year.
The group started its operations in 1998, with MSI Cellular Investments as the holding company. In January 2004, the name of the holding company was changed to Zain International. After its acquisition in May 2005, the group became a wholly-owned subsidiary of MTC. MTC acquired an 85 percent stake in Zain for USD 2.84 billion and agreed to acquire the remaining 15 percent stake within two years for USD 520 million.
Mergers & Acquisitions
Zain ventured into a number of mergers and acquisition deals emphasizing its renewed focus on its core business of offering cellular telephony services. For instance: - In December 2005, Zain acquired a majority stake in Madacom, a mobile network operator in Madagascar. This flagged the entry of Zain in its 14th African market. Madacom serves about 200,000 customers. - In August 2005, Zain International entered into an agreement with the government of Tanzania to separate the telecom network deployment and broadband services from the mobile business of Zain Tanzania. Following the agreement, the business of telecom networks deployment and broadband services was allocated to Tanzania Telecommunication Company Limited (TTCL), whereas the cellular telephony business was retained by Zain Tanzania. - In April 2005, Zain sold its satellite voice and data traffic subsidiary, Link Africa, to Gateway Communications for USD 50 million. - In March 2005, Zain divested its subsidiary, Celpay, a mobile payment processing company with operations in Congo DRC and Zambia.
In March 2005, Zain announced a deal worth USD 3.4 billion for its acquisition by MTC. As part of the deal, MTC immediately acquired 85 percent of the issued capital of Zain, while the rest will be completed in the next two years. According to the group, the acquisition by MTC will enable it to acquire more licences as per its strategy of expansion and invest more in building its infrastructure.
In May 2004, Zain acquired KenCell, the mobile operator in Kenya owned by Vivendi Telecom International, and renamed it as Zain Kenya. The acquisition resulted in an increase of the group's subscriber base of 1.2 million.
Network & Service Expansion
Zain signed a contract with Ericsson, in November 2005, to upgrade its GSM network in Kenya.
With Africa surging forward as one of the fastest growing mobile markets in the world, Zain, with its presence in 15 countries across the continent, should have been well placed to cease the moment. However, the groups operations were primarily located in the less developed countries of Africa, where the average per capita income is low. This would have given Zain the advantage of being "in from the start" in many markets. However, the needs of its shareholders meant that it was not to be given the chance to prove itself: certainly the operator's ARPU and profit margins did feel the pressure. Much of the development of its mobile operations depended upon the political and economic conditions in the countries where stability and growth are rather fragile. When Airtel took over the Zain in early 2010, its senior management undertook a whistle stop tour meeting and greeting all the Heads of States involved; underlining the perceived importance of the political dimension by the new owners.
Zain planned an extensive network roll-out in Kenya. Ericsson was signed for the upgrade of its GSM network, with the prospect of advanced services, which in turn would be expected to stimulate growth in its subscriber base in the country. In the event, Safaricom purchased a number of ISPs; and Airtel mounted a tariff war.
Ericsson was also signed for network upgrades in Tanzania and Uganda. The base stations being deployed by Ericsson support GPRS/EDGE technologies and thus enabled Zain to upgrade its network further, to higher speeds, in the future. ,