Zain has lessons to learn and teach

By Paul Lambert

Kuwait’s Zain has realized a major achievement in redefining what it means to be a truly regional mobile operator. The recent rebranding of all its subsidiaries in Africa to Zain and, more significantly, the eradication of roaming charges between all Zain operators have done nothing less than redefine what it means to be a truly regional player.

Without question, other, more established, regional operators, such as Vodafone, France Telecom and T-Mobile International, have a lot to learn from Zain’s abolition of roaming charges. But Zain also has a lot to learn from these operators’ experiences in coping with declining ARPU levels amid intensifying competition in once-sheltered operating conditions.

Roaming and rebranding

Let’s look first at the lessons other operators can learn from Zain’s considerable recent achievements, both financial and operational.

Zain has linked its One Network service in the Middle East and Africa, meaning that its low-cost international voice and SMS roaming offering is now available on 15 country networks.

One Network is now available between Africa and the Middle East, abolishing international roaming rates for Zain subscribers in countries where Zain is present. Zain prepaid and postpaid customers can now make calls and send messages at local rates when communicating with a Zain subscriber traveling abroad in either Africa or the Middle East.

The One Network service is automatically activated when a Zain customer crosses the geographical border into one of the countries in which Zain operates, with no registration or sign-up fee required. Prepaid subscribers can also top up accounts and recharge cards bought from either their home country or an outlet in one of the 15 One Network countries.

Zain initially launched One Network under its Celtel brand in Kenya, Tanzania and Uganda, in September 2006, before extending the network to countries in Central Africa in June 2007 and to Burkina Faso, Chad, Malawi, Niger, Nigeria and Sudan in November 2007. The network was extended to Bahrain, Iraq and Jordan in April.

Compared with European operators’ efforts on voice and SMS roaming, this is nothing short of revolutionary. Zain’s European counterparts resisted calls to lower voice roaming rates and are in the process of repeating history with SMS and data roaming, with intervention by the European Commission in September looking increasingly likely.

Zain’s move has already forced other operators to react. Saudi Telecom, for instance, has said it will launch low-price roaming across a network of 30 foreign operators this month. Saudi Telecom’s Unified International Roaming service will cover most of the Middle East, Europe, Indonesia, Turkey and South Africa.

Discounts on calls in these countries will be up to 69 per cent on normal rates – still not quite the achievement of Zain, but it does price roaming services closer to cost than has traditionally been the case among European operators.

In addition to One Network, Zain rebranded all 14 Celtel operations in Africa as Zain in one clean sweep at the beginning of the month, supported by a major advertising campaign. Zain also plans to rebrand about 1 million point-of-sale outlets across the continent.

The rebranding to Zain is aimed at creating “a single, strong identity,” according to Zain Group CEO Saad Al Barrak.

Zain’s challenges

Now let’s turn to what Zain might learn from its European counterparts. Zain’s recent results are impressive reading. The operator reported strong figures for 1H08, boosted by a massive 58 per cent increase in its subscription count, which totaled 50.7 million across all its operations at end-June.

The operator had consolidated revenues of US$3.49 billion for 1H08, up 26 per cent year-on-year, while net income increased 7 per cent, to US$551 million, and EBITDA jumped 20 per cent, to US$1.3 billion.

“We have started to reap the rewards of our recent large investments, particularly in Iraq, Nigeria and Sudan, with these three countries now serving more than half of Zain’s 50 million customers, and we expect similar rewards when our operations in Saudi Arabia and Ghana commence commercial operations,” Al Barrak said.

But a closer look gives an insight into the more challenging conditions that might be awaiting the operator, ones that mirror those already experienced by operators in Europe.

Only four (Kuwait, Iraq, Jordan and Malawi) of the 19 operations Zain provided ARPU information for in its recent results saw a year-on-year increase in ARPU in 1Q08. These figures indicate that Zain has already moved from a rapid-growth phase of development to a more-stable-growth phase, just like its counterparts in Europe and other parts of the world.

What specific lessons can Zain learn from operators in mobile markets that underwent a similar development? Lessons from Europe and elsewhere show that brand is extremely important. In this area, Zain is already doing a good job, sparing no expanse in its recent rebranding exercise.

Another lesson Zain can learn from European operators is to outsource as much network maintenance as possible, enabling it to become a nimble outfit whose primary areas of focus are what really matter to end-users: the development, selection and marketing of services. This will help Zain focus on being a high-quality mobile services provider that can charge a premium for its services, compared with competitors that undercut it. To that end, its One Network offering is a great idea: It provides meaningful differentiation from rivals.

Zain should also learn from European operators and launch mobile broadband services, such as dongles and embedded modules in laptops, as soon as possible to secure the high-value segment of the market before it becomes commoditized, as has already happened in Europe. Finally, Zain’s economies of scale will also enable it to strike good deals with equipment manufacturers.

Zain is perfectly placed to be a truly modern telecoms operator – light on infrastructure and heavy on the launch of innovative and compelling services. Rivals should take note.

Take a look at our recent company profile on Zain