ShareQ&A with Zain Vice Chairman and Group CEO Bader Al-Kharafi
Zain Vice-Chairman and Group CEO Bader Al-KharafiKuwait Times: You were appointed CEO of Zain Group in March 2017. What are your impressions of the business since taking the helm and what are your priorities in 2018 and beyond?
Al-Kharafi: Being a board member since 2011 and Vice-Chairman since 2014, I was already very familiar with Zain and its operations prior to becoming the Group CEO, and I have always been impressed by the dedication of our people and the organization's culture of innovation. These are two areas I am determined to continue fostering as I believe they are the keys to sustainable progress and success for telecom operators around the world.
In our region, the commoditization of voice, intense price competition, and high levels of mobile penetration means that operators need to perform at their optimum to remain competitive and even survive. All Zain operations have been following an "execution-focused digital lifestyle strategy" based on six transformational initiatives: Customer Experience; Operational Effectiveness; Value Management; B2B opportunities; Digital Frontier and Innovation; and Talent Development.
We continue to believe this is the right direction in our bid to serve consumers and enterprises with a rich lifestyle experience. Our goal is not simply customer satisfaction, but building a base of promoters, knowing that positive customer experience and advocacy drives competitive advantage, leading to faster organic growth and lower cost.
Zain operations continue to focus on prudent management of operational costs where now our Group EBITDA margin is a healthy 40 percent. In tandem, there is an emphasis on the improving in quality of service, network reach and performance, and the growth of data services while maximizing smart city developments, IoT and B2B growth opportunities.
In doing so, Zain's overriding mission today is to have a positive impact on the communities we serve, while undertaking initiatives to take part in and exploit the 4th industrial revolution and promote social innovation. We believe this strategy is resulting in value creation for shareholders.
KT: What have been some of the major business highlights of 2017?
Al-Kharafi: The remarkable turnaround in Zain Saudi Arabia's performance stands out as the operator reported its first ever full-year net profit, amounting to SAR 12 million ($3.1 million) for 2017. This is a milestone achievement for the company, which commenced commercial operations in August 2008 and this net profit amount reflects a SAR 1 billion ($264 million) turnaround on the prior year.
This impressive performance is attributed to the disciplined execution of the operator's transformation strategy to increase monetization of data and digital services resulting in strong revenue growth; an ongoing focus to significantly upgrade and improve network coverage resulting in faster download speeds and improving the mobile experience for customers; as well as driving efficiencies and optimization of its cost structure. Increased customer centricity and care also contributed to the operator's best-ever performance.
Zain KSA's overall financial results are even more impressive given the backdrop of a very competitive market in the Kingdom and the general decline in industry revenues, with fewer overall subscribers in 2017 due to exodus of many expats and the implementation of biometric identification measures and a two-sim policy.
We at the Group are fully committed to work close with the management team there to implement a large scale digital transformation exercise in an effort to deliver better customer experiences to the Kingdom's digital savvy community and we remain cautiously confident of continued improvement of all aspects this key operation in 2018 and beyond, and playing our contributory role in the Kingdom's 2030 economic vision.
Furthermore, undoubtedly two major transactions undertaken during the year will have a profound positive effect on the future of the company and our business growth. The acquisition of our treasury shares by Omantel brought immediate tangible benefit that will be further built upon; as well as the ground-breaking agreement to sell and lease back our telecom towers in Kuwait, in a regional first.
The purchase by Omantel of Zain Group's treasury shares amounting to 9.8 percent of the issued shares in August 2017, marked the beginning of a new era for Zain Group as we look to bolster our position as a leading telecom conglomerate in the mobile industry across the region. Omantel later opted to further consolidate its investment in Zain by acquiring an additional share of 12.02 percent of the company's capital.
These transactions mean that Omantel is the second largest shareholder in the Zain Group after the Kuwaiti Government (represented by the Kuwait Investment Authority). We are delighted by Omantel's confidence in our strategic direction and these transactions are set to have a positive impact across operations while creating greater value for our shareholders. We are currently exploring numerous business enhancing and synergistic opportunities with Omantel and we are excited by the value accretive opportunities that lie ahead through this mutually beneficial relationship.
The sale of our towers in Kuwait to IHS Holding Limited, in partnership with Towershare Management Limited, marked the start of a strategy to unlock value from our fixed infrastructure, which can be more efficiently deployed in new technologies and higher yielding investments. IHS is one of the largest tower companies in Africa, Europe and the Middle East managing over 23,300 towers in 5 countries. This also paves the way for further network expansion and infrastructure sharing in Kuwait. The selling of our telecom towers will be replicated in other markets, enabling us to focus on our core business and enhancing customer experience.
Also in Kuwait that was significant during the year, was Zain Kuwait signing a development, management, and operation agreement with the country's Ministry of Electricity and Water (MEW) to develop interconnectivity support for the Smart Meters System Project. The project budget amounts to KD 22 million ($73 million), and will see Zain in collaboration with a number of global strategic partners, including EY, Ericsson and NXN, build and install the meters over a two-year period, and then manage and operate the system for the next five years. The project is set to revolutionize the process of obtaining electricity and water readings, which will be taken automatically and tracked in real-time.
KT: Given the successful completion of the Omantel transaction, do you expect to see consolidation in the telecom market in the Middle East in the near term?
Al-Kharafi: I believe the situation remains the same as it has done for many years now, which is to say telecom entities will continue to look for value creation for their operations, and should an acquisition, merger or sale of assets of any sort help to achieve this goal, it may make sense to progress with it. From a Zain perspective, we are always looking for opportunities to advance our business, but we will only proceed with such a development should it make sense to our stakeholders in a value adding manner.
All regional mobile operators are facing challenging times on multiple fronts and I believe the next major trend in the regional telecom sector is that others will seek to replicate our move in Kuwait and imminent move in Saudi Arabia in selling network towers and unlocking value from fixed infrastructure, thereby paving the way for tower sharing.
Consolidation on a larger scale will occur as operators in small markets will not be able to sustain themselves and it is a matter of time until we witness the first merger or acquisition across the region.
These are exciting times for all stakeholders in the ICT value chain. Going forward Zain remains vigilant and agile to market opportunities that create value. The telco industry is changing rapidly, and we believe it is imperative for us to be forward-looking in our approach to industry changes and grasp opportunities as they arise.
Innovation
KT: What does innovation mean to Zain Group, and how is it developing offerings that reflect this aspect of its business?
Al-Kharafi: We are aiming to become one of the leading trendsetters in the digital revolution in the region and provide our customers an exceptional mobile experience. Innovation is part of our DNA, and if one looks back across the history of the company over decades, one can see we have always strived to bring the latest and best technologies to our markets as soon as practicable.
We have continued that tradition and during the year made several substantial investments and announced significant developments. We also identified new business areas, value-adding strategic partnerships, accretive acquisition opportunities and synergistic corporate venturing investments which, collectively, will create new revenue streams to fully maximize the Group's high-speed broadband networks, customer assets, network intelligence and payment and billing infrastructure.
Digital services
Within the digital services and innovation area, we are focused on identifying opportunities in the smart city space, e-entertainment, m-health, e-education, online gaming, online commerce, m-advertising, m-payments, m-insurance and other financial technology services domains as well as cyber security.
In a monumental step forward for Zain in our journey to become the premier digital lifestyle provider in the MENA region and to diversify our services and future sources of revenues, we established a joint venture with iflix - a world-class Streaming Video on Demand (SVoD) provider across many of our markets.
During the year we also enhanced our vital Zain Cash service in Iraq and Jordan to support the vast unbanked population estimated at 90 percent in Iraq and 75 percent in Jordan. The platform began with a range of mainly current and debit account, peer to peer transfers, salary disbursements, self and third-party recharge, bill payments, purchase of digital goods and online shopping services. In 2017, Zain Cash added new services such as virtual MasterCard, In-app services, QR code store payments, paying at an agent, loyalty programs, and e-commerce platform. There are plans to introduce this platform to other geographies in Zain's footprint.
Technology
From a technology point of view, we successfully tested 5G technology in Kuwait, achieving maximum throughput speeds of over 70 Giga Bit Per Second (Gbps) over 2GHz spectrum. This speed represents one of the highest-ever recorded in the region, placing us at the forefront of 5G innovation for the benefit of our consumer and enterprise customers.
Big Data Analytics is a crucial factor in our digital transformation journey and we are developing some pioneering capabilities in this area, having established an enablement platform that acts as a foundation for an enterprise-wide Big Data ecosystem at the operational level to execute upcoming technical and business use cases. The project started with technical use cases to enhance operational efficiency by reducing capex/opex of IT Infrastructure.
Customer experience
To provide the best mobile data experience, Zain placed additional resources on transforming our operations from network-oriented to innovative service and customer-oriented centers. In so doing we introduced Service Operation Centers (SOC) across several of our markets. SOCs enable us to monitor the quality of services in addition to network monitoring, and offers us the ability to improve service and customer experience according to customer needs.
Additionally, our customers enjoyed new and enhanced mobile applications, websites, e-shops and web-chat services that allow them to manage their accounts, control their usage, pay and recharge in a straight-forward manner, as well as locate our stores, acquire new devices, receive tailored offers, and much more.
We are pleased to see increased engagement and adoption of new technologies from our customers as we witness our highest customer satisfaction results, driven by simplicity, transparency and convenience.
Partnerships
Through our fully owned global services subsidiary, Mada Communications, Zain became the first telco group in the region to join the Amazon Web Services (AWS) Direct Connect partner program. This allows Zain to connect enterprises directly to the AWS Cloud and builds on Zain's Cloud Connect offering, which provides an innovative platform that connects customers and different cloud service providers in a simple and cost-effective manner.
Strategic investments
We are seeing more profitable traction from our smart city arm NXN (formerly neXgen). Following the smart metering deal with Kuwait Ministry of Electricity and Water in the first half of 2017; NXN also signed a MoU with the National Digitization Unit (NDU) of the Kingdom of Saudi Arabia, marking the Kingdom's first step towards harnessing open data to help accelerate the digital transformation of the Kingdom. NXN has continued its fast-growing journey as one of the thought leaders within the region's Smart Nation, Smart City and Smart Government advisory and managed services landscape.
Furthermore, our investment in Lebanon mobile solutions provider FOO is proving fruitful on multiple fronts. They have supported us in building our life-enhancing mobile money platform, 'Zain Cash' in Iraq and have developed numerous customer centric mobile apps for several of our operations. In addition, and significant for our business growth and digital lifestyle strategic aspirations, they are building a Group application programming interface (API) in coordination with Apigee (a Google subsidiary) that will be launched in the first quarter of 2018. This API will eventually connect all of our operations across the region into a single enablement platform accelerating innovation and creating market opportunities for global digital players as well as individual developers to launch services to Zain. Foo are fast becoming a FinTech powerhouse in the region and have attained prestigious accreditation with both Visa and MasterCard as an approved Digital Partner, the only FinTech player in the region to have earned such.
ZINC stands out
One initiative that is meaningful from an innovation perspective and makes me very proud is the superlative progress of the Zain Innovation Campus (ZINC) in Jordan. The creative start-up culture and successful commercial launch of many entities out of ZINC is impressive. It was highly gratifying to see ZINC become a recipient of the Mohammed bin Rashid Awards for Young Business Leaders accolade for the Best Social Entrepreneurship Responsibility Initiative in the Arab World.
Our overall goal is to enhance our internal capabilities, support the entrepreneurial ecosystems in our markets, and utilize the best technologies while seeking, building, partnering and investing in new Group-wide digital business opportunities that are viable.
KT: Data services and revenues continued to grow during the year. What is Zain doing to foster this growth area?
Al-Kharafi: By enabling the latest mobile technologies and availing a wide choice of individual and business orientated solutions, Zain is focused on being the data provider of choice across all our operations.
Zain has accordingly adopted a data monetization strategy that is aimed at delivering healthy and sustainable growth in mobile data revenues while enabling our customers to enjoy a truly digital lifestyle.
Group data revenues represent around a quarter of all Zain Group service revenues, and this figure is growing all the time. We see this as a positive trend, though we also believe as more data is consumed, and digital services accessed, there is also a requirement for further investment in network upgrades and resources to aptly serve individual and business customers as well as the responsibility for greater cyber security measures to be put in place.
B2B (Enterprise) is one of the most dynamic and innovative areas at Zain, and a growth engine for our operations. We are addressing the B2B market in a segmented way, serving companies of all sizes, whether they be home offices, small medium enterprises, large corporations or government organizations with dedicated B2B teams.
B2B marketing teams are focused on developing Zain from being a mobile centric operator to a full-service ICT player, developing innovative mobile, fixed-mobile, fixed, IoT and cloud-based solutions for enterprises and governments in each market. One recent focus and success has been Introduction of a new data center in Kuwait, serving the local market with co-location, disaster recovery, Cloud and data center managed services. We aim to replicate this successful venture in Jordan, Saudi Arabia and Iraq. Our primary focus is on enabling the business growth of our customers.
With the ever-growing threat of cyber-attacks, we introduced a new Distributed Denial of Service (DDoS) mitigation technology, through our fully owned global services subsidiary, Mada Communications and application security experts F5 Networks. This will see Zain benefit from next-generation, cloud-ready DDoS mitigation technology and we will be able to monetize this powerful service, which we believe will significantly benefit and safeguard our subsidiary operations and international transit customers.
Youth Empowerment
KT: What was your inspiration for introducing Women and Youth Empowerment initiatives?
Al-Kharafi: We believe we need to revolutionize ourselves -not just in a pure business sense- to survive and move ahead.
We are very proud of the introduction of our all-female empowerment initiative, aimed at achieving gender equality and empowering women in the organization to act, lead, develop, and succeed. The program is already running internally, and was given its unveiling at an event in November, with the view to this meeting becoming an annual event, geared towards producing an annual, actionable implementation plan for the subsequent year.
This program is of enormous personal interest to me given that today women account for less than 25 percent of Zain's workforce; a situation that led me to conclude that decisive action needed to be taken in this area. Championing gender diversity at Zain will create competitive differentiation and ultimately improve the company's bottom line.
Youth development and education are central themes to our corporate sustainability and capacity building activities, and we are firm believers that preparing youth for the future is not just our responsibility, it is our duty.
It is widely accepted that youth development and career guidance are factors that catalyze national and organizational development, and on our part, we remain committed to identifying the most talented young people and offering them a platform to reach their full potential.
It is important for us to support the education system by defining a series of plans aimed at bridging the gap between today's curricular and the future's unpredictable corporate environment.
With this in mind we established a new innovative first-of-its kind in the region educational program in collaboration with Nuqat, a not-for-profit organization established in Kuwait in 2009. Together, we introduced a development initiative dubbed IN•DIG•GO, which is an alternative thematic-based educational program for children between the ages of 6 and 11 years. The program is aimed at strengthening the understanding of the participants, expanding their knowledge, test their creativity and developing their soft and learning skills. The collaboration is a result of the belief that an educational program capable of equipping future generations with skills and methodologies necessary to face the challenges that lie ahead, is pivotal. We plan to expand this initiative across other markets.
Another example is our 'Generation Z' graduate initiative of bright, young Kuwaitis that will focus on developing their soft skills to foster collaboration and team effectiveness, develop creativity and enable innovative thinking, thereby preparing graduates to enter the workforce and contribute successfully. Now in its 3rd year, we have seen eight graduates join the ranks of Zain Group as full-time employees and their track record to date has been impressive, with one notable achievement in launching Zainiac, an internal innovation program where we provided a platform for all 6,000 plus Zain personnel to offer their ideas, with the aim of fostering creative spirit among our people. The outcome of ideas presented was impressive to say the least. We firmly believe that the youth in our organization will be instrumental in supporting the future development of our digital lifestyle strategy.
Brand positioning
KT: In the latter part of 2017, Zain undertook its first revamp of the corporate brand and its positioning since its debut in 2007. Why change something so successful?
Al-Kharafi: After a decade of successful use, the Zain logo was refreshed, and this evolution reflects the dynamism of the world around us, and mirrors the journey of mobile technology and Zain's own digital lifestyle strategy aspirations. The refreshed logo ensures the brand's relevance, and elevates Zain's brand equity, which is currently valued at over $2.3 billion.
The logo now appears in a fetching silver metallic shade, while retaining the radiant swirl, replacing the multi-color swirl and black background. Traditional and new outlooks are captured in the enhanced logo with the metallic silver symbolizing innovation, technology and high-tech, as Zain aspires to shine in the digital age.
The new brand positioning strategy - 'Opportunity' - celebrates Zain's positive momentum in transforming society, with the company focused on empowering customers and connecting them to the new opportunities the world offers, as we grow, share and enjoy life.
Zain's brand valuation is a result of the tangible developments occurring within the company, where talent development and customer-centric programs, heavy investment in network upgrades, and technology innovation is impacting customer experience positively. Additionally, Zain's Corporate Sustainability programs and eye-catching marketing and widespread social media campaigns have captured the imagination of the whole region.
