2010

Symbiosis Institute of Telecom Management Amol Tode PRN - 09020541007 Systems & Finance

ZAIN TELECOM
Zain Group is a mobile telecommunications company founded in 1983 in Kuwait as MTC or Mobile Telecommunications Company, and was later rebranded to Zain in 2007. Zain has commercial presence in 25 countries across Africa and the Middle East, with an estimated work force of 13,000. As of February 2010, about 60% of Zain's customers were in Africa although Africa contributed only 15% to the group's net profit. Zain has a total of 65 million customers.

Table of Contents

Zain Telecom

Introduction .................................................................................................................................................. 3 Worldwide presence ..................................................................................................................................... 3 List of Countries Zain operates: .................................................................................................................... 3 Financial highlights........................................................................................................................................ 5 One Network ................................................................................................................................................. 5 Zap................................................................................................................................................................. 6 Bharti-Zain deal ............................................................................................................................................. 6 Milestones to date ........................................................................................................................................ 7 Conclusion ..................................................................................................................................................... 9 References .................................................................................................................................................. 10

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Introduction

Zain Group is a mobile telecommunications company founded in 1983 in Kuwait as MTC or Mobile Telecommunications Company, and was later rebranded to Zain in 2007. Zain has commercial presence in 25 countries across Africa and the Middle East, with an estimated work force of 13,000. As of February 2010, about 60% of Zain's customers were in Africa although Africa contributed only 15% to the group's net profit. Zain has a total of 65 million customers.

Zain Telecom

Worldwide presence

Zain has a commercial presence in 25 countries with over 13,000 employees. Its area of operations includes: • • 8 countries in the Middle East: Bahrain, Iraq, Jordan, Kuwait, Saudi Arabia, Lebanon (as mtc touch), Palistine, and Sudan. 17 countries in Africa: Burkina Faso, Chad, Democratic Republic of the Congo, Republic of the Congo, Gabon, Ghana, Kenya, Madagascar, Malawi, Niger, Nigeria, Sierra Leone, Tanzania, Uganda, Zambia and Morocco.

Additionally, Zain owns 31 % of Wana Telecom in Morocco through a joint venture.

List of Countries
Country
Bahrain

Zain operates in the following countries:

Site
http://www.bh.zain.com

Remarks
In March 2009 Zain announced the opening of its flagship store in Bahrain. The store will be eventually linked to a network of similar outlets across Zain’s Middle East and Africa operations. At H109 Zain in Burkina Faso was the dominant player with 1,433,000 customers representing 50% market share. A pioneer in the Chadian telecom industry, Zain in Chad is the no. 1 operator with 69% market share. Zain started operations in DRC in December 2000. The rapidly growing mobile sector in Gabon grew by 16.5 percent from 2007 to 2008 according to statistics from the Bank of Central African States. At H109 Zain in Gabon had 829,000 customers and its market share stood at 61%. Zain in Ghana launched its 3.5G network in December 2008 and ended H109 with over 1 million customers. Zain in Iraq achieved 48% EBIDTA margin through a number of successful Drive11 initiatives to reduce network and commercial costs. Page 3

Burkina Faso Chad Democratic Republic of the Congo Gabon

http://www.bf.zain.com

http://www.td.zain.com http://www.cd.zain.com http://www.ga.zain.com

Ghana Iraq

http://www.gh.zain.com http://www.iq.zain.com

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Country
Jordan

Site
http://www.jo.zain.com

At H109 Zain was the dominant mobile player in Jordan with over 2.4 million customers and a market share of 44%. Zain in Jordan covered 98% of the population and 67% of the total country through 1,418 sites as of June 2009. Kenya http://www.ke.zain.com At H109 Zain Kenya customers stood at 2,418,000 million with 17% market share. Kuwait http://www.kw.zain.com Zain in Kuwait is the Group's flagship operation, which was established in 1983 and made history in 1994 by becoming the first telecom operator to launch commercial GSM services in the region. Lebanon http://www.mtctouch.com.lb In January 2009 Zain made a successful tender to continue managing one of Lebanon’s two mobile operations, MIC2 branded as mtc touch, for an additional year commencing February 1, 2009, extendable for one year as per the new management agreement terms set by the Lebanese Ministry of Telecommunications. Madagascar http://www.mg.zain.com Zain holds second place in the mobile telecom market in Madagascar, has a 39% market share and over 1.4 million customers. Malawi http://www.mw.zain.com Zain in Malawi was the second mobile operator to grace the market however, it soon became the market leader, a position it currently holds with a market share of 72%. Zain in Niger is the market leader with a 68% market share. In June 2000, Zain in Nigeria enters into strategic five-year network outsourcing agreement with Ericsson. On May 18, 2009 Zain Group signed a mutual share swap agreement with Paltel following the approval of shareholders at Paltel’s Extraordinary General Assembly on June 11, 2009. Zain in Congo Brazaville is the market leader with a 55% market share as at H109. Zain in the Kingdon of Saudi Arabia launched commercial services in late August 2008 and succeeded in receiving over 3.7 million customers in less than a year. Zain in Sierra Leone launched its services in September 2000 as the first mobile operator in the country. It indirectly played an active part in assisting both the government and the British Military to communicate in a way that had never been possible in a bid to end the war. Zain in Sudan is the leading mobile provider with a commanding 57% market share. Page 4

Zain Telecom
Remarks

Niger Nigeria Palestine

http://www.ne.zain.com http://www.ng.zain.com http://www.ps.zain.com

Republic of the Congo Saudi Arabia

http://www.cg.zain.com http://www.sa.zain.com

Sierra Leone

http://www.sl.zain.com

Sudan

http://www.sd.zain.com

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Country
Tanzania Uganda Zambia

Site
http://www.tz.zain.com http://www.ug.zain.com

Zain Telecom
Remarks

http://www.zm.zain.com

Zain in Tanzania is the market leader with a 38% market share. Zain in Uganda stands as the no. 2 operator with a market share of 38% as at H109. 2008 was an exciting year for Zain in Zambia with two main highlights: the successful IPO of Zain Zambia Plc. and its subsequent rebranding to Zain.

Financial highlights

Zain is listed on the Kuwait Stock Exchange. There are no restrictions on Zain shares as the company’s capital is 100% free float and publicly traded. The largest shareholder is the Kuwait Investment Authority (24.6%). On September 20, 2008, Zain Group announced the completion of its capital increase raising US$4.49 billion (KWD1.2 billion) with 99% of all shareholders subscribing. The number of subscribed shares exceeded 1.4 billion, bringing the total number of Zain shares to 4.28 billion with total shareholders’ equity reaching US$6.42 billion. The amount raised is unprecedented in Kuwait’s history exceeding all expectations. As at September 30, 2009, Zain is serving a growing customer base of over 71.8 million active customers reflecting an increase of 28% when compared to the corresponding nine months period in 2008. Key Performance Indicators as at 30 September, 2009: • • • • • • • Total Managed Active Customers: 71.8 million up 28%; Consolidated Revenues: KWD 1.78 billion (US$6.169b) up 24%; EBITDA: KWD 757.3 million (US$2.624b) up 37%; EBITDA Margin: 43% up 5 pp; EBIT KWD 454.9 million (US$1.576b) up 33%; Net Income: KWD 195.7 million (US$677.1m) down 17%; EPS: KWD 0.051 (US$0.18)

One Network

One Network is the world’s first, borderless mobile service offering over 64 million Zain customers in 21 countries favorable rates, free of high roaming charges for cross-border communications. One Network service revolutionized and replaced the concept of roaming in the following countries: Bahrain, Burkina Faso, Chad, Republic of Congo, Democratic Republic of Congo, Gabon, Ghana, Iraq, Jordan, Kenya, Kuwait (data roaming only), Madagascar, Malawi, Niger, Nigeria, Palestine, Saudi Arabia, Sierra Leone, Sudan, Tanzania and Uganda. Zain announced in May 2009, the launch of crossborder data services across the Middle East and Africa on the One Network platform. Operators not owned by Zain that joined the One Network: Country Brand Egypt Mobinil Palestine Jawwal Zain operating countries currently not in the One Network: Lebanon and Zambia. Zain’s operations in the Middle East and Africa will join One Network, subject to governmental and regulatory approvals Symbiosis Institute of Telecom Management Page 5

Zap

Zap is a service from Zain that allows you to send or receive airtime, make purchases, carry bank transactions and so much more without the need to carry cash or wads of paper money. This service is provided by Zain in partnership with CitiBank, Standard Chartered Bank and Western Union. Additionally, in June 2009, Zain and Western Union, announced a new collaboration whereby through the new cross border Zap money transfer service Western Union customers from around the world will be able to send remittances to Zain customers in five countries (Kenya, Tanzania, Uganda, Niger and Nigeria).

Zain Telecom

Zain’s board accepted a $10.7bn offer for its African assets from India’s leading carrier Bharti, including $1.7bn in debt. The deal is expected to close soon, the time for Bharti to close out the financing of the transaction; at first blush, this appears to be that rare transaction that works for all parties, though perhaps not as well for Bharti’s shareholders. The Price: The price point is at the higher end of the $7-$9bn equity valuation we had estimated for Zain’s African assets. It values the equity of Zain’s African operations at about 7.5x projected 2009 EBITDA, a relatively rich valuation in the current African context, but hardly excessive within the historical context of similar transactions. For Zain, it’s a good sale price for a set of operations in which the Kuwaiti company had sunk around $6-$7bn over the past five years, with a nearly non-existent dividend stream. It’s a price that allows Zain to realize a profit through capital gains that would have been hard to come through dividend upstreaming alone, on a business that was dragging down its earnings. Zain will be able to pay down debt and focus capital expenditure on more profitable Middle Eastern markets. Removing Sudan from the equation was the icing on the cake, making the deal the ultimate no-brainer. By our estimates, Zain realized a non-weighted return of at least 30%-40% on its African investments, potentially more depending on the structure of individual capital transactions and depending on assumptions for management fees and equity contributions to CapEx. What is Bharti getting for its money? “The fact that Zain would even consider selling its Africa business points to heightened concerns about the deterioration of fundamentals in African mobile markets. Competition has intensified, taxation levels have risen as tax holidays have expired, the markets are as capital-intensive as ever (at a time Zain is seeking to cut CapEx levels by half) and African currencies have plunged against the dollar. Excluding Sudan, Zain’s African operations accounted for about 65% of the group’s subscriber base, 56% of its revenue and 50% of its EBITDA in 2008. Perhaps more significantly, they take up more than 75% of capital expenditures, yet only account for 15% of the group’s net income. Zain’s net income rose 6% in 2008; excluding Africa, net income rose 34%. For all the lofty subscriber numbers, African operations are arguably a drag on the entire group, at least for now. “

Bharti-Zain deal

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Milestones to date
Date 1983 1994 2001 September 2002 January 2003 April 2003 December 2003 April 2004

Zain Telecom

Event MTC established as the first mobile telecom company in the region. Introduced GSM in Kuwait. One of the 1st to do so in the region. Government of Kuwait reduces stake from 49% to 25%. Branding agreement with Vodafone in Kuwait- operation branded as MTC Vodafone.

May 2005 November 16, 2005 December 13, 2005 February 6, 2006 February 15, 2006 May 21, 2006 May 31, 2006 Sept 27, 2006

Acquired 91.5% of Fastlink- Jordan’s leading mobile operator for US$424 million taking total holding to 96.5%. Awarded 2nd GSM license in Bahrain- operation branded as MTC Vodafone. Awarded one of three GSM licenses in Iraq –operation branded as mtc Atheer. Bahrain operation 1st to launch 3G nationwide in the region. Awarded management agreement for one of Lebanon’s mobile operations operation branded as mtc touch. Acquisition of 85% of Celtel shares for US$2.84 billion completed. MTC completes 100% capital increase through rights issue raising $2.3 billion to fund future expansion. MTC subsidiary Celtel acquires Madacom, an operator based in Madagascar with over 200,000 customers. MTC subsidiary Celtel acquires the remaining 61% of Mobitel in Sudan from Sudatel in deal valued $1.332 billion, thus taking ownership to 100%. MTC launches a first of its kind research report “Socio-Economic Impact of Mobile Phones in the Arab World”. MTC first in the region to launch 3.5G (HSDPA) commercially in Bahrain. MTC subsidiary Celtel acquires a controlling stake of 65% in Vmobile, one of Nigeria’s leading mobile telecom operators with over 5 million customers for US$1.005 billion. MTC subsidiary Celtel International, the leading pan-African mobile telecommunications operator launched One Network, the first ever borderless mobile network in the world allowing customers to move freely across geographic borders without roaming call surcharges and without having to pay to receive incoming calls. MTC Group of companies full-year consolidated revenues reach KD 1.21 billion (USD 4.167 billion) for the 12 months ended December 31, 2006, an increase of 109% over the same period in 2005 and consolidated net income of KD 305.3.06 million (USD 1.051 Billion), an increase of 65% compared to the same period last year. The MTC-led consortium announces that it has been successful in making the highest bid for the third mobile telecommunications licence in the Kingdom of Saudi Arabia (“KSA”) having bid SAR·22.91 billion (US$6.109 billion). The award of the licence is subject to approval from the KSA’s Council of Ministers. This licence will give MTC a presence in the largest market in the Gulf Cooperation Council (“GCC”) in terms of population and the largest economy in the Middle East and Africa, reinforcing MTC’s position as a leading emerging markets operator. MTC Atheer secures 15-year nationwide Iraq mobile licence for US$1.25 billion. MTC Group's master-brand and four operations in Kuwait, Jordan, Bahrain and Sudan rebrand to Zain. Celtel International, a subsidiary of Zain announced it has signed an agreement to acquire 75% of Western Telesystems Ltd (Westel) from the Government of Ghana for USD 120 million. The Government of Ghana remains a shareholder in Westel with a 25% holding through the Ghana National Petroleum Corporation. Page 7

December 31, 2006 March 24, 2007

August 17, 2007 September 8, 2007 October 22, 2007

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Date November 22, 2007

Event Zain subsidiary Celtel International announces the extension of ‘One Network’, the world’s first borderless mobile network in Africa to an additional six countries to include Burkina Faso, Chad, Malawi, Niger, Nigeria and Sudan. These countries now join the Republic of Congo, the Democratic Republic of Congo, Gabon, Kenya, Tanzania and Uganda in the network which was initially launched in September 2006 and has been expanded due to increased demand. The extension of this technological break-through now offers the possibility for nearly half of Africa’s population to make calls at local rates across 12 countries throughout the continent. MTC-Atheer in Iraq Acquired Iraqna (leading mobile operator in Iraq) for US$1.2 billion from Orascom telecoms holding. Zain's market share in Iraq is figured up to 72% (7 million subscribers). The new combined mobile network is renamed Zain Iraq (zain IQ on mobiles), and the two older networks (Iraqna and Atheer) disappear. Beginning today, two Iraqi mobile telecommunications networks - MTC Atheer and Iraqna - change their names to Zain (www.iq.zain.com) as both operators adopt the new corporate master brand of the Zain Group. Zain announces that in the fiscal year 2007 it recorded the highest ever net profits in the history of Kuwait's private sector history. Zain recorded consolidated revenues of USD 5.91 billion (KD1.677 billion) for 2007, an increase of 32% compared to 2006. The consolidated EBITDA increased by 25% compared to last year and reached USD 2.56 billion (KD 725.34 million). Zain also announced a milestone consolidated net income of US$1.130 billion (KD320.45 million) an increase of 11% on 2006. Active Customers grew impressively and reached 42.4 million (inclusive of 3 million Iraqna customers, acquired on December 31, 2007), an increase of 57% on 2006. Zain has achieved another first by bringing its groundbreaking borderless “One Network” mobile service to four countries in the Middle East. This service, which made telecom history when it was launched in Africa, today allows Zain’s 14 million customers in Bahrain, Iraq, Jordan and Sudan to be part of a pan Middle East mobile community, providing travelling Zain customers the opportunity to communicate between these countries and be treated as local customers in terms of pricing, while using their home network service. Zain announces the successful completion of its capital increase raising US$4.49 billion (KWD1.2 billion) with 99% of all shareholders subscribing. This was the largest ever capital raising in Kuwait’s history. The proceeds of this capital increase will be used to finance future strategic expansion plans and meet financial commitments. Zain announces the commencement of commercial services in Ghana with the launch of the first 3.5G network on the continent outside South Africa with US$ 420 million invested in network infrastructure. Zain announces its consolidated financial results for the year ending December 31, 2008 with consolidated revenues of US$ 7.44 billion, an increase of 26% compared to 2007. The company’s consolidated EBITDA increased by 15% for the same period to reach US$ 2.78 billion. Consolidated net profits reached US$ 1.2 billion, an increase of 6% on 2007. The earnings per share was US$0.33 and the shareholders equity was up 36% to US $8.69 billion. Year on year customer growth across the two continents in which Zain operates was 50% with the Zain Group serving 63.54 million managed active customers at 31 December, 2008. Zain in a 50/50 partnership with Al Ajial Investment Fund Holding (“Al Ajial”) has agreed to invest through a newly established joint venture “Zain Al Ajial” an amount of MAD 2.850 billion (USD 324 million) in return for 31% of Wana Corporate SA (“Wana”), the third mobile telecom operator in Morocco. Page 8

Zain Telecom

December 1, 2007

January 5, 2008 January 30, 2008

April 14, 2008

September 20, 2008 December 15, 2008 March 1, 2009

March 14, 2009

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Date May 18, 2009

July 21, 2009

Event Jordan, Mobile Telecommunications Company KSC (“Zain”) and Palestinian Telecommunications Company Plc (“Paltel”) have entered into an agreement for a share-for-share exchange, which will see Zain take a majority interest in Paltel with an equity shareholding of 56.53% in exchange for Paltel owning 100% of Zain Jordan. Paltel is a publicly-listed entity on the Palestinian Stock Exchange and Abu Dhabi Securities Exchange. The merger will set the current Paltel shareholders equity position in both Paltel and its newly acquired subsidiary, Zain Jordan at 41.43%. Zain announces its consolidated financial results for the half-year ending 30 June 2009. The results showed significant growth in many key indicators recording impressive consolidated revenues of KWD 1.16 billion (US$4.014 billion), an increase of 24.1% compared to H1-2008. The company’s consolidated EBITDA increased by 46.3% for the same period to reach KWD 512.2 million (US$1.77 billion). Consolidated net income reached KWD 154.5 million (US$533.5 million), an increase of 4.4% on H1-2008. The earnings per share for the six month period were US$0.14. Year-on-year customer growth on the two continents across which Zain operates was 37%, while serving 69.5 million active customers.

Zain Telecom

Conclusion

A quick look at the Zain September 2009 data – nine months of the year only – gives us a view of what Bharti is buying. As you might notice, Nigeria is the bull in the room. It’s still not profitable with a loss of $88m on revenues of $986m, and accounts for 1/3rd of Zain Africa’s revenues. (Zain does not classify Sudan or Morocco as “Africa”, and is not selling those to Bharti) Yet, Nigeria has hope; Zain has only 25% market share, and the market penetration is just 45% – scope to grow. Average Revenue per User (ARPU) in Africa ranges from $3 to $10, with Nigeria at $7. This compares favourably with India where Airtel’s ARPU is $5 (Rs. 230).

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References
   

Zain Telecom

www.zain.com http://www.ametw.com/free_news_AfricanOperators.html#Zain5 http://news.bbc.co.uk/2/hi/business/8515904.stm http://economictimes.indiatimes.com/news/news-by-industry/telecom/Bharti-Zain-dealattractive-and-mutually-beneficial-India/articleshow/5584594.cms  http://www.investmentheat.com/2010/02/24/bharti-zain-deal-analysis/10306/

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