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The Kuwaiti-based Middle Eastern and sub-Saharan operator Zain has set itself the target of becoming one of the top ten telecoms companies in the world by 2011. It already claims to be the fourth-largest operator in terms of geographic spread following its US$3.36 billion acquisition of Celtel three years ago, which saw it expand from its Middle Eastern base into 14 African markets. This month, the operator brought all the Celtel operators under the Zain brand as part of its strategy to unite all its subsidiaries under its ‘One Network’ initiative – a bid to create a single cross-border network that allows subscribers to move freely across geographical borders without incurring roaming fees.
 
In addition to its existing markets, the operator has also acquired GSM licenses in Saudi Arabia and Ghana and will launch services in these territories in 2008, bringing its global footprint to 22 markets covering a total population of around 546 million. It claims to be market-leader in 13 of these markets. By the end of first-quarter 2008, the operator had 45.7 million customers in total and claims to have passed the 50 million mark by the end of the first-half of 2008. It is aiming to grow its customer base, on an organic basis, to 110 million by 2011.
 
Such bullish growth targets reflect Zain’s presence in several low-penetration, high-growth markets. Some of its markets – Uganda, Malawi and Madagascar, for example – are among the least penetrated mobile markets in the world, and markets where Zain is registering triple-digit year-on-year growth. According to our calculations, 15 of its African markets are below 50% penetration, though even these markets are becoming increasingly competitive with usually three or four operators competing for market share. While Zain’s African markets accounted for 63% of its customer base in 2007, they only accounted for 23% of net income, suggesting that mature Middle Eastern markets such as Bahrain and Kuwait (where in both cases mobile penetration is over 100%) remain Zain’s most profitable. The generally higher ARPU data at the Middle Eastern subsidiaries reflects this trend. 
 
Despite the contrasts between its Middle Eastern and African businesses, Zain ultimately plans to combine all its operations under the One Network initiative, which it claims is the first “borderless” mobile network of its kind. As well as the elimination of roaming fees for both inbound and outbound calling, the initiative will also allow prepaid airtime to be purchased in any participating market. The initiative has been running in some of the former-Celtel markets since September 2006 and Zain claims it has been a key factor in building market-share in Africa.
 
Zain’s largest single market in terms of connections by some distance is Nigeria, Africa’s most populous nation and one that is poised to soon surpass South Africa to become the continent’s largest mobile market. Zain’s 12.6 million Nigerian subscribers in the first-quarter accounted for some 28% of its total customer base and 22% of revenues. However, despite recording the highest number of net additions in recent quarters, Zain Nigeria had only a 24% market-share in the quarter, behind market-leader MTN Nigeria (34%) and Globacom (31%).
 
The fast-emerging market of Iraq became Zain’s second-largest market in 2007 when it acquired Orascom’s Iraqi operations for US$1.25 billion and merged it with its own Iraqi unit, MTC-Atheer. Rebranded as ‘Zain’ at the beginning of the year, the operator has targeted 10 million Iraqi subscribers by year-end.

Matt Ablott, Analyst, Wireless Intelligence

Zain’s arrival onto the world stage is typified by its plans to launch an IPO on the London Stock Exchange, which is reportedly scheduled for early next year. Its growth targets are on an organic basis, but the company has not ruled out entering further markets – with South Africa a possibility. While strong connections growth in its low-penetrated African markets is assured for the foreseeable future, Zain will need to look at ways of increasing profitability and ARPU. In markets where the vast majority of subscribers are prepaid and high-speed networks and services are rare or non-existent, this will be a challenge. Profitability is also under pressure in these markets due to the capex commitments involved in building-out the networks into rural areas and increasing the number of distribution channels (Points-of-Sale). On the plus side, the One Network initiative already seems to be appealing to economic migrants and others involved in cross-border trade activities, and should continue to be a key advantage over its various local rivals.