In 1997 Naguib Sawiris incorporated Orascom Telecom Holding (OTH) to consolidate the telecommunications and technology interests of the Sawiris family. By 1998, OTH was the only company in Egypt with licences in all three privatised sectors: wireless, fixed line payphones and VSAT technologies.
In early 1998, OTH partnered with France Telecom and Motorola to bid for the second GSM licence in Egypt. It first lost the bid to Vodafone but then managed to convince the Egyptian government to sell 51 percent of the incumbent operator, Egyptian Company for Mobile Services, which it rebranded ‘MobiNil.’ MobiNil launched its services to the Egyptian public in May 1998 and now covers approximately 100 percent of the population.
OTH grew mostly through acquisitions: a 39 percent stake in Mobilink in Pakistan, and an 80 percent stake in Telecel Globe, which included 11 licences in Africa (2000), Motorola’s stake in Fastlink in Jordan, and a greenfield licence in Algeria (2001) and Tunisia (2002).
In 2000 the company floated its shares on the Cairo and Alexandria Stock Exchanges, (today simply the Egyptian Stock Exchange), in addition to a Global Depository Receipts programme on the London Stock Exchange. When the telecom/internet bubble burst in early 2000, OTH was a new mobile operator still with limited access to capital and significant financial commitments due to its acquisition spree: it was hit severely by the crisis.
As creditors and suppliers were all putting pressure on Naguib Sawiris, respected investment bankers were advising the Sawiris family: “Sell to a global operator and take your profit now before it is too late.” Naguib Sawiris decided otherwise; he strengthened his financial team, sold some assets (in Jordan and Africa) to restructure OTH’s balance sheet and focus on its core operations: Algeria, Egypt, Pakistan and Tunisia.
With the proceeds of the divestitures, OTH was able to successfully strengthen its balance sheet and renegotiate all prices with its equipment suppliers – and more importantly, invest heavily in its core operations. This strategy proved to be a total success and subsequently the company experienced phenomenal profitable growth across all its core operations.
Regional success
In Algeria, Orascom Telecom Algérie commenced its operations under the brand name ‘Djezzy’ in February 2002. In two months it had achieved positive EBITDA, after 11 months it had taken over as market leader, and over the course of its operation it increased Algerian mobile penetration from 0.6 percent to 77 percent today.
OTH acquired a greenfield licence in Tunisia in March 2002. By October of the same year, the company entered a joint venture with Wataniya Telecom to operate its GSM licence in Tunisia as Orascom Telecom Tunisie, under the brand name ‘Tunisiana.’ The brand was the second mobile operator in the country when it launched in 2002, but swiftly took over market leadership and expanded quickly to reach a coverage of 99 percent of the population. After eight years of operation, OTH sold its stake in Tunisiana to Qatar Telecom for a cash consideration of almost $1bn: corresponding to an enterprise value 6.7 times Tunisiana’s 2009 EBITDA and generating over 40 percent annual return on OTH’s investment in the business since 2003.
In October 2003, OTH undertook one of its more controversial expansions by being awarded a two-year greenfield licence in the central region of Iraq after a highly competitive bidding process. Operations under the brand name ‘IraQna’ were launched in December that year and grew to cover 100 percent of the population in Iraq’s central region by 2006.
The operation presented many challenges, ranging from high security risks affecting its employees and assets, to inconsistent supply of electricity, as well as shortages in gasoline affecting generator performance. Insurance coverage proved difficult, and maintaining sound storage and delivery of equipment led to supply delays. Nevertheless OTH became the market leader, with its market share reaching approximately 40 percent.
In 2007 the Iraqi government auctioned a long-term licence. OTH’s success had attracted a lot of ‘me too’ players in the region, and with every operator in the region expressing an interest, the auction reached an uneconomical level and was ultimately sold for $1.2bn. OTH decided to drop out of the race and was left with a network of 992 sites and approximately 3.5 million customers with a licence expiring two months later. Nevertheless it successfully sold its assets for $1.2bn – after an initial investment of less than $10m four years earlier.
Further expansion
OTH entered the market in Bangladesh in 2004 through purchasing 100 percent of a GSM operator and rebranding it to ‘banglalink,’ commencing operations as the fourth operator in the country in February 2005. In a highly competitive market environment with six mobile operators, banglalink grew to the become the second largest operator by market share (behind Telenor’s Grameenphone) after just three years of operation.
OTH’s Bangladeshi operation managed to evoke an overwhelming response from its customers and to portray a strong brand image, supplemented by an extensive distribution network accessible to 97 percent of the country’s population. As of June 30 2011, the network had more than 20 million subscribers.
In December 2008 OTH opened a new frontier when it was granted a greenfield licence in North Korea with 75 percent ownership of ‘koryolink.’ The opportunity to become the country’s first and only 3G mobile operator drew upon OTH’s longstanding expertise as market pioneer and innovator. Contrary to popular belief, koryolink did not exclusively serve government officials and the elite, but rather recognised the many ways in which mobile telecommunications are used among various segments of society. By June 2011 its network had reached 667,000 customers.
Finally, in July 2008 OTH announced its participation in a consortium, which in turn won a spectrum licence to create a Canadian -owned and -controlled wireless operator together with Globalive Communications Corporation. Once again this was not without a fight, as the incumbents exerted every effort to prevent OTH from entering the Canadian market through highly publicised and protracted legal battles surrounding the ownership of the newly formed ‘WIND Mobile.’
Operations were launched in December 2009, two weeks after getting the formal go-ahead from the regulator. WIND Mobile proved to be the catalyst in introducing new technology and plans to the majority of Canadian urban centres, which had long been characterised by a three-player oligopoly.
An international group
The series of acquisitions OTH has made over the past decade have been as much a contributor to the company’s success as an emerging market specialist in the framework of its mother company, Wind Telecom. Formerly known as Weather Investments, Wind Telecom’s turnaround story of Wind Telecommunicazioni in Italy is a testament to management’s keen eye for opportunities across the markets of the world.
Prior to its acquisition by Wind Telecom, Wind Italy faced fierce competitive pressures, negative cash flow and was plagued with a weak operational strategy. Upon acquisition in 2005, Wind Telecom appointed a new management team, which was able to focus on the key aspects of the business, consolidating Wind Italy into one of the few European operators offering integrated fixed, mobile and internet services. The company also achieved economies of scale, placing it in a more favourable pricing position with its supplier groups. It has now grown into one of the most profitable mobile phone companies in Europe and is regarded as a truly integrated service provider. Despite persistent competition, Italian customers have praised Wind Italy with the highest satisfaction index in consumer mobile and consumer fixed-line business.
The culmination of OTH and Wind Italy’s successful business strategies materialised in October 2010, when Wind Telecom and VimpelCom signed an agreement to combine both entities, forming the world’s sixth-largest telecommunications carrier. This landmark transaction is a true reflection of the high quality of OTH and Wind Italy assets and of the significant value that has been created over the years: from the few tens of millions of dollars invested in 1998, the company was valued at approximately $7.3bn at the completion of the merger.
The combination substantially increased the scale of operations and created a new global telecom player with 193 million mobile subscribers as of June 30 2011. The newly formed group has gained a balanced business risk profile enhancing its ability to pursue profitable growth, including mobile data services.
There is significant potential for value creation from synergies between VimpelCom and WIND Telecom’s operations, with an estimated net present value of $2.5bn.
