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In an exclusive interview with Argaam on Wednesday, chief executive officer Ahmad Farroukh of Etihad Etisalat Co. (Mobily) said his company is completely satisfied with the arbitration award issued after its dispute with Mobile Telecommunications Company Saudi Arabia (Zain Saudi). The CEO also discussed the company’s efforts in Q4 that will help offset the previous quarter’s poor performance.
Q: Can you comment on the arbitration process in your dispute with Zain Saudi?
A: We were the party that sought arbitration and we are “completely satisfied” with the panel’s award. Mobily’s board of directors will announce its final decision on the case in the upcoming meeting. We take pride in the arbitration process, which not only enhances Mobily’s confidence but also investor confidence in the kingdom’s applicable laws and regulations.
Q: Is the compensation satisfactory for Mobily, despite being much less than your SAR 2.2 billion claim?
A: We find it strange that you see the amount representing ten percent of our claim is not satisfactory, as the other party aimed only to pay SAR 13 million; however, the arbitration panel ordered it to pay us SAR 220 million.
Q: What are the lessons Mobily learned from this problem?
A: The most important lesson is the method of communication with other companies. Mobily needs to state clearly the obligations of both parties in future contracts.
Q: After three consecutive quarters of profit, the telco swung to losses in Q3-2016. What is the reason behind this loss?
A: First, we should take into account that had it not been for operating efficiency and cost reduction, we would have suffered bigger losses. Mobily has successfully maintained its profit before EBITDA despite tough market conditions and higher financing charges.
We are not satisfied with the third-quarter results. No one likes losses; however, 2016 has been a difficult year as was the case in 2008.
The fingerprint registration system usually hurts the market when applied in any place worldwide. Results and revenue are usually impacted as a result.
In addition to the negative impact of the fingerprint authentication process, telecommunications saw a decline in the third quarter as the holy month of Ramadan also fell in that period.
Amid lower oil prices and the kingdom’s austerity measures, individuals’ spending on telecommunications decreased, which reflected negatively on Mobily’s Q3 financial results.
Q: Can you tell us about the decline in Mobily’s subscribers after applying the fingerprint system?
A: The decline in the customer base goes in tandem with the market share of each telecom operator in the kingdom. The market saw a decrease of four million subscribers and the decline in Mobily’s subscribers came in line with its market share. Every company has its own method to calculate active subscribers.
Q: What is your expectations for Mobily’s financial results this year?
A: Third-quarter results will undoubtedly affect the full year’s figures. However, the market is seen stabilizing in 2017 after defining its size following the fingerprint system application.
Mobily is eying new projects and different policies to bolster its revenues and increase its market share.
Q: How can you define Mobily’s strategy to rebuild its customer base? Also, how can the company boost its revenues in light of the current market conditions?
A: Mobily’s strategy aims not only to maintain its market share with respect to voice, data customers as well as market value, but also to increase those gradually.
The company will adopt the business simplification principle over the coming period. Some providers including Mobily provide highly complicated services. Accordingly, Mobily should simplify its services. For instance, customers will be allowed to receive calls for six months, whether or not they have credit. Mobily will also consider providing new simplified products tailored for youth, which represent 50 percent of the kingdom’s population.
Q: How do you think Mobily will benefit from the unified license? What is the expected impact on revenue?
A: Before the unified license, the company had limited opportunity for competition. The latest decision, however, allows each company to provide new services after obtaining the required license within six months.
The unified license will not directly impact Mobily’s revenue, as the main benefit from this license is maintaining our customers through providing various products.
Q: How will Mobily deal with free international telecommunication applications?
A: Saudi Arabia is one of the world’s markets where subscribers communicate with other countries worldwide. These services are deemed as major component in telecom operators’ income.
Customers who use such applications do not pay any charges, as they use WiFi services, which might be freely offered in several commercial markets across the kingdom, particularly in Riyadh. Mobily and other players are only requesting to be treated on a reciprocity basis.
Mobily will find a solution for this by January or February to make balance between customer needs and the instructions of the Communications and Information Technology Commission (CITC). Such free applications cannot be suspended in light of technology development. However, they cannot continue to hurt the kingdom’s telecom industry by not complying with regulatory requirements.
Q: Is the rise in Mobily’s cost of debt by SAR 120 million to SAR 353 million in the first nine months of 2016 attributable to higher SAIBOR or to a change in bank terms and higher Murabaha rates following the rescheduling of some debts of Mobily?
A: The Murabaha rates under our contracts depend on SAIBOR plus a little interest. An increase in SAIBOR will always lead to a rise in the cost of debt.
In addition, this cost normally rises upon debt rescheduling. This happens to all companies whose loans are SAIBOR linked.
Q: What are the latest developments regarding the potential sale of the company’s towers?
A: The company is currently looking to achieve the highest rate for its shareholders from the planned tower sales. This move aims to cut the lease value paid by Mobily, which will eventually enhance its performance.
As earlier announced, we are arranging with Saudi Telecom Co. (STC) to develop a suitable mechanism in order to capitalize on the network of both companies. Any other developments will be officially announced later on.
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