Zain expands One network; Africa weighs on profits

Middle East and African operator Zain said Wednesday that it is expanding its pioneering One Network to Egypt via a strategic partnership with Mobinil.

The deal means over 27 million Zain customers in Bahrain, Iraq, Jordan, Kuwait, Saudi Arabia and Sudan can benefit from One Network services – effectively being treated as local customers –  when visiting Egypt, while Mobinil’s 24 million customers will benefit from similar treatment when visiting any of these Zain countries.

The One platform allows subscribers to make calls, send SMS and access the data services at local rates of the visited country and to receive incoming calls from their home country at free or minimal charge.

Middle East and African carriers are known for their innovation in the face of falling ARPUs, rising competition and the recession  – something which has attracted many investors but also dissuaded them from moving into Africa markets. In Zain’s case, the company’s soaring ambition and presentational verve has not yet been matched by the performance of its operations in sub-Saharan Africa, where many of its units are loss-making.

This week Zain reported that net profit for the nine months to the end of September fell 17 per cent year on year to KWD195.7m ($677m), although revenues for the period were up 24 per cent year on year to KWD1.78bn. But Africa is causing much of the company’s financial pressure. The vast and capital intensive expansion of Zain’s network in key operations such as Nigeria, Zambia, Sudan, and Iraq, has resulted in increases in fixed costs from depreciation and amortization, with the company being further burdened by increases in financing costs.

In late September, confusion reigned as a consortium of buyers that included 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 the recent 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.