Ex-Zain CEO urges Gulf telcos to merge

Gulf telecoms companies, most of which are ultimately government-controlled, must further privatise and consolidate to survive in an increasingly tough environment, the former chief executive of Kuwait's Zain said on Tuesday. Saad al-Barrak led Zain's rise over the last decade, turning it from a former monopoly operator with fewer than a million subscribers to a global player with operations in 23 countries. Outspoken and flamboyant in a sector with a dominant culture of secrecy, Barrak's strategy of expansion was imitated by rival operators, but regional telecoms firms must now adapt again, he warned, as falling voice margins weigh heavy on the bottom line. "Countries in the region are small and the industry is becoming global, so consolidation is extremely important, especially the smaller companies - I don't see how they will survive in the short-term," Barrak told reporters on the sidelines of a conference in Dubai. "In this part of the world, major companies - 90 percent of them are government owned and it's politics, not economics that decide (their) next move. The first thing we should do is really privatise regional operators." With 11 of the Gulf's 15 mobile licences ultimately government controlled, Barrak conceded such a scenario was unlikely, but he cited the Arab Spring, which has led to the exit of veteran rulers in Egypt, Yemen, Tunisia and Libya, as evidence the unexpected can happen in the Middle East. When asked whether a failure to liberalise or further privatise telecoms companies could hurt operators' shares prices, Barrak said: "definitely". This trend is already evident. The shares of United Arab Emirates' Etisalat have fallen 48 percent from a 2008 peak, while Zain's value has roughly halved since Etisalat scrapped a $12bn bid for a controlling stake in the Kuwaiti firm in 2011. That deal followed a reversal in Zain's strategy, which also led to Barrak's exit in 2010. He quit after major shareholder and key backer the Kharafi group pushed through a $9bn sale of Zain's African assets. This reduced Zain to a seven-country operator and Barrak became CEO of affiliate Zain Saudi, only to resign in October last year. The Kuwaiti now runs his own company, Ila, which has invested in two US companies and two from Egypt. These include Redlambda. Ila bought a 30 percent stake in the Florida-based cloud computing specialist for $10 million about 18 month ago, and the firm's shareholders are now looking to launch an initial public offering. "We're probably targeting 2013 for that," said Barrak. "Today, we think its value is about $150m to $200 million." Barrak said Redlamda had yet to decide what percentage of the company would be sold in the IPO or where it would list. "The other possibility is a trade sale," he added.