Kuwait's Zain telecom giant dials in margin push investment

By MoneyTimes

Sep 15, 2015 09:37 PM EDT

Kuwait telecom major Zain has decided to invest in technology firms that boost the weakening margins following the sluggish subscriber numbers and drop in revenues. As part of its investment strategy to boost margins, Zain will invest in two digital advertising companies. Zain is also focusing on smart city projects, online advertising, and television services. 

The advanced technology applications in the telecom sector are changing business dynamics in the industry. For instance, instant messaging and internet-based calls are replacing higher margin text messages and conventional phone calls.

As a result, margins of telecom operators such as Zain are dwindling by the day. This has pushed Zain to forge an alliance with technology companies that support in strengthening business operations. 

Towards this, recently, it has tied up with Uber Technologies Inc in addition to investing in three venture capital (VC) funds. Zain believes that these initiatives will enable it digital services segment.

Considering the changing industry dynamics, Zain turned to digital advertising. Since it consumes a lot of time in developing technology expertise in-house, the company has decided to team up with those who offer what it needs, according to Scott Gegenheimer, Zain Group Chief Executive.

He said: "Zain's interested in smart city projects, online advertising, and television services. It's not about financial gain. These initiatives give us easier access to see what the new business models look like."

"They're more agile than a lot of the telecom operators. We don't have the time and skill sets to do this in house."

Despite odds in the telecom market, Zain made a profit during the first half the year. Zain posted net profit of 80,354,008 Kuwait dinars (KD) for the first half of 2015. The earnings per share (EPS) stand at 21 fils. 

The data package pricing needs to be changed, feels Gegenheimer. The price for one or two gigabytes in the US and Europe, one can get 500 gigabytes in Saudi Arabia. 

Zain has telecom operations in eight countries. It has a strong presence in Sudan, Iraq and Saudi Arabia. Sudan contributes 25 percent of Zain's customer base and 20 percent of revenues. Zain's Sudan division made $78million net profit for the first half of this year. 

Zain Bahrain suffered a drop in net profit for the first half. The net profit eased to 2.074 million Bahrain dinar (BD) from BD 2.224mn indicating 6.7 percent drop for the first six months. 

Zain is revamping its data packages including price structure to monetize in a better way. Considering the high volatility in the forex market, Zain has hedged its loans to avoid any unforeseen impact of forex fluctuation. 

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