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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.
Zain Telecom

Table of Contents

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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Zain Telecom

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.

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
Zain operates in the following countries:
Country Site Remarks
Bahrain http://www.bh.zain.com 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.

Burkina http://www.bf.zain.com At H109 Zain in Burkina Faso was the dominant
Faso player with 1,433,000 customers representing 50%
market share.

Chad http://www.td.zain.com A pioneer in the Chadian telecom industry, Zain in
Chad is the no. 1 operator with 69% market share.

Democratic http://www.cd.zain.com Zain started operations in DRC in December 2000.
Republic of
the Congo
Gabon http://www.ga.zain.com 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%.
Ghana http://www.gh.zain.com Zain in Ghana launched its 3.5G network in
December 2008 and ended H109 with over 1 million
customers.
Iraq http://www.iq.zain.com Zain in Iraq achieved 48% EBIDTA margin through a
number of successful Drive11 initiatives to reduce
network and commercial costs.

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Zain Telecom

Country Site Remarks
Jordan 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%.
Niger http://www.ne.zain.com Zain in Niger is the market leader with a 68% market
share.
Nigeria http://www.ng.zain.com In June 2000, Zain in Nigeria enters into strategic
five-year network outsourcing agreement with
Ericsson.
Palestine http://www.ps.zain.com 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.
Republic of http://www.cg.zain.com Zain in Congo Brazaville is the market leader with a
the Congo 55% market share as at H109.
Saudi Arabia http://www.sa.zain.com 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.
Sierra Leone http://www.sl.zain.com 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.
Sudan http://www.sd.zain.com Zain in Sudan is the leading mobile provider with a
commanding 57% market share.

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Zain Telecom

Country Site Remarks
Tanzania http://www.tz.zain.com Zain in Tanzania is the market leader with a 38%
market share.
Uganda http://www.ug.zain.com Zain in Uganda stands as the no. 2 operator with a
market share of 38% as at H109.
Zambia http://www.zm.zain.com 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 cross-
border 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

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Zain Telecom

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).

Bharti-Zain deal
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. “

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Zain Telecom

Milestones to date
Date Event
1983 MTC established as the first mobile telecom company in the region.
1994 Introduced GSM in Kuwait. One of the 1st to do so in the region.
2001 Government of Kuwait reduces stake from 49% to 25%.
September Branding agreement with Vodafone in Kuwait- operation branded as MTC Vodafone.
2002
January Acquired 91.5% of Fastlink- Jordan’s leading mobile operator for US$424 million
2003 taking total holding to 96.5%.
April 2003 Awarded 2nd GSM license in Bahrain- operation branded as MTC Vodafone.
December Awarded one of three GSM licenses in Iraq –operation branded as mtc Atheer.
2003 Bahrain operation 1st to launch 3G nationwide in the region.
April 2004 Awarded management agreement for one of Lebanon’s mobile operations -
operation branded as mtc touch.
May 2005 Acquisition of 85% of Celtel shares for US$2.84 billion completed.
November MTC completes 100% capital increase through rights issue raising $2.3 billion to fund
16, 2005 future expansion.
December MTC subsidiary Celtel acquires Madacom, an operator based in Madagascar with
13, 2005 over 200,000 customers.
February 6, MTC subsidiary Celtel acquires the remaining 61% of Mobitel in Sudan from Sudatel
2006 in deal valued $1.332 billion, thus taking ownership to 100%.
February 15, MTC launches a first of its kind research report “Socio-Economic Impact of Mobile
2006 Phones in the Arab World”.
May 21, MTC first in the region to launch 3.5G (HSDPA) commercially in Bahrain.
2006
May 31, MTC subsidiary Celtel acquires a controlling stake of 65% in Vmobile, one of Nigeria’s
2006 leading mobile telecom operators with over 5 million customers for US$1.005 billion.
Sept 27, MTC subsidiary Celtel International, the leading pan-African mobile
2006 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.
December MTC Group of companies full-year consolidated revenues reach KD 1.21 billion (USD
31, 2006 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.
March 24, The MTC-led consortium announces that it has been successful in making the highest
2007 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.
August 17, MTC Atheer secures 15-year nationwide Iraq mobile licence for US$1.25 billion.
2007
September MTC Group's master-brand and four operations in Kuwait, Jordan, Bahrain and Sudan
8, 2007 rebrand to Zain.
October 22, Celtel International, a subsidiary of Zain announced it has signed an agreement to
2007 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.

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Zain Telecom

Date Event
November Zain subsidiary Celtel International announces the extension of ‘One Network’, the
22, 2007 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.
December 1, MTC-Atheer in Iraq Acquired Iraqna (leading mobile operator in Iraq) for US$1.2
2007 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.
January 5, Beginning today, two Iraqi mobile telecommunications networks - MTC Atheer and
2008 Iraqna - change their names to Zain (www.iq.zain.com) as both operators adopt the
new corporate master brand of the Zain Group.
January 30, Zain announces that in the fiscal year 2007 it recorded the highest ever net profits in
2008 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.
April 14, Zain has achieved another first by bringing its groundbreaking borderless “One
2008 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.
September Zain announces the successful completion of its capital increase raising US$4.49
20, 2008 billion (KWD1.2 billion) with 99% of all shareholders subscribing. This was the largest
ever capital raising in Kuwait’s history. The proceeds of this capital increase will be
used to finance future strategic expansion plans and meet financial commitments.
December Zain announces the commencement of commercial services in Ghana with the launch
15, 2008 of the first 3.5G network on the continent outside South Africa with US$ 420 million
invested in network infrastructure.
March 1, Zain announces its consolidated financial results for the year ending December 31,
2009 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.
March 14, Zain in a 50/50 partnership with Al Ajial Investment Fund Holding (“Al Ajial”) has
2009 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.

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Zain Telecom

Date Event
May 18, Jordan, Mobile Telecommunications Company KSC (“Zain”) and Palestinian
2009 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%.
July 21, 2009 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.

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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Zain Telecom

References

 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-deal-
attractive-and-mutually-beneficial-India/articleshow/5584594.cms
 http://www.investmentheat.com/2010/02/24/bharti-zain-deal-analysis/10306/

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