Zain MD Saad Al Barrak resigns

Middle East and African regional operator Zain has announced that its talismanic managing director and deputy chairman Saad Al Barrak has resigned. In a brief statement the firm said that the chairman would convene the board to discuss next steps.

Zain’s strategy has been under scrutiny since the economic downturn began to bite. The firm has spent liberally in recent years to build a sizable regional footprint as part of an oft-stated plan to become a top tier international player – becoming heavily leveraged in the process. Al Barrak has been the chief architect of this transformation; when he took the reins in 2002 the firm had just 600,000 customers in its domestic market of Kuwait. Today the firm operates in 22 markets across Africa and the Middle East, and counted 52.8 million proportionate subscribers at Q309, according to Informa Telecoms and Media’s World Cellular Investors Service.

But his ambitious strategy has not been without its detractors. His preparedness to spend eye-watering sums of money when necessary—most famously more than $6bn for the third licence in Saudi Arabia—has, on occasion, called his deal making into question. And critics have suggested that the once bottomless Zain coffers now echo in emptiness.

Plans to turn Zain into a truly global player in three, three-year evolutionary steps hit stumbling blocks in the dismal financial climate and it became clear in early 2009 that the firm was looking to offload its once prized African portfolio. The vast and capital intensive expansion of Zain’s network in key operations such as Nigeria, Zambia, Sudan, and Iraq, resulted in increases in fixed costs from depreciation and amortization, with the company being further burdened by increases in financing costs.

In September 2009 Indian operators BSNL and MTNL were thought to be carrying out due diligence on Zain in a bid to acquire some or all of Zain Africa. But nothing came of the supposed interest and at November’s Africa Com 2009 event in Cape Town, South Africa, Chris Gabriel, CEO of Zain Africa repeated a number of times that “Zain Africa is not for sale. We are focused on our objective to become a top ten player by 2011 and we still have an appetite for expansion,” he said.

If the speculation was true and a deal for Zain Africa had fallen through, it wasn’t the only one. Around the same time, the proposed merger between Zain and Palestinian operator Paltel was called off after months of courting. Zain had planned to take an equity shareholding of 56.53 per cent in Paltel, a publicly listed carrier, in exchange for Paltel acquiring 100 per cent of Zain Jordan.

Interestingly, Al Barrak was due to be the keynote speaker at the Middle East Telco World Summit in December, but he didn’t show.

Spoken about with reverence by Zain employees, perhaps Al Barrak’s greatest achievement has been the creation of a borderless African network, the One Network, where roaming charges are not incurred. This has attracted attention from the likes of Viviane Reding, who sees it as a potential blueprint for Europe. But, again, detractors have asserted that the project has cost the firm financially.

It’s easy to say that Al Barrak may have bitten off more than he could chew, but the real reason behind his decision to step down may be down to differences between what the management wanted to do and what the owners felt was best.

Emeka Obiodu, senior analyst at Ovum, said: “Al Barrak championed this expansion push – buying Celtel, and aiming to make Zain one of the top ten mobile operators by 2011. But his whole ambition was blown to pieces by the owners who wanted to sell off in Africa and are still contemplating selling that stake. So the question is: What becomes of Zain’s original dream?

“He’s taken MTC, this small company from Kuwait and transformed it into Zain, a global mobile powerhouse. He didn’t bite of more than he can chew, but his vision diverged from the vision of the owners. When we did some financial analysis on Zain, the company wasn’t doing particularly badly. It wasn’t like he ran the business into the ground, although you have to concede that some of the small markets in Africa were seriously under-performing.”

Obiodu believes Al Barrak expansionist plans had the backing of the firm’s owners at the time. “But when things didn’t turn out as rosy as they expected the owners’ vision changed,” he said.

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