Now that the uncertainty surrounding its possible sale has been put to rest, Umniah is keen to show that it remains one of the big hitters in Jordan’s competitive telecoms market by releasing a package of new services with 4G at its heart.
By Laith Abou-Ragheb
A question mark hung over the future of Umniah in recent weeks after its owner, Bahrain’s Batelco, announced it was examining bids for the company, which is one of Jordan’s ‘Big Three’ mobile operators alongside Orange and Zain. The speculation finally ended in February when Batelco decided to cancel the sale citing market conditions.
In a sign that Umniah is now determined to get back to business as usual, the operator, which has a subscriber base of 4.3 million, is busy bringing a host of new products and services to the market, including a mobile wallet and, more importantly, LTE 4G mobile and LTE fixed services.
In his first one-on-one interview since taking up his post late last year, Umniah CEO Ziad Shatara explains how he’s confident these new services will help his company adapt to new market realities in a fast-changing industry where telecom operators are being forced to radically alter their business models or risk being left behind.
How important is it for you to finally launch 4G services?
Growth is going to come from data. The importance of 4G is that it’s a more advanced technology than 3G because it offers better speed at better value for our consumers. As far as the timing, we believe this is the best time to launch 4G because any time before, the penetration of the handsets—the addressable market—would have been much lower. Around 70 percent of the population is now using smart phones which are not 4G. So as soon as these people convert to 4G, then the potential for growth is quite substantial.
How quickly do you think this conversion will happen?
There’s a difference in migration from 2G to 3G, and 3G to 4G. From 2G to 3G, we needed to educate the consumer much more because we had to convert them from a ‘normal’ phone to a smartphone. While now if you have a 3G smartphone, then the migration to a 4G smartphone isn’t that major investment. Prices of 4G handsets now roughly match those of 3G handsets, and the education barrier isn’t there anymore because the consumer is already using a 3G handset. Also, the ecosystem is there, which took a long time to create. As far as we’re concerned, we can do three things to encourage consumers to convert to 4G. We can offer the right volumes that would allow them to benefit from the new ecosystem. The second is the coverage, and the third is the price.
Do the prices of your 4G plans undercut those of your competitors?
Rather than responding to the competition, our pricing policy is based on what the Jordanian consumer can afford to pay in terms of price per bit and our cost structure. Each operator has their own cost structure. Umniah is an operator that’s quite optimized in terms of cost structure. As such we can afford to be much more lean in our cost per bit. Whether we’re undercutting the competition or not isn’t the point—we look at our own cost structure and we optimize it and try to create something that creates elasticity in the market. The objective is not to create a price war, but to reach the consumer with the right product at the right price. Mobile broadband in Jordan is quite cheap compared to many countries that I’ve worked in. It’s even cheaper than some of the countries in South East Asia where the GDP per capita is much lower than Jordan’s.
Is this why you signed up to take part in the Mahfazati mobile wallet scheme?
Digital is an ecosystem. You have to be able to pay for it. For you to be able to pay for it you have to have online payment methods. Today, only 25 percent of people in Jordan are banked. That’s why we pushed for the launch of Mahfazati because we believe it’s an enabler for us to go to the next level.
Similar mobile wallet schemes have failed to take off in Jordan in the past. What makes this one any different?
We understand what it takes for such a service to be successful. That’s why we ventured into this as part of a consortium consisting of us, five banks, and a payment company. The right players have come together to provide this service. If you try to do a business that isn’t your core business as a mobile operator, the opportunities for success are not as great as when you partner with other parties that have done it before and were successful. The banks in the consortium are very successful in creating accounts and the control, and they guarantee that they pay out to the people. You need a payment ecosystem that is well penetrated. If you put money in your wallet and you can’t take it out or spend then it’s not a good system and it might fail. That’s why we partnered with the most successful payment solutions provider. Then you need a mobile operator that can reach everyone. Umniah’s connectivity solution can reach villages in the most rural areas of Jordan. There is another element that I believe was absent in previous mobile wallet schemes, which is the legislative platform. Today, we have the Central Bank which has given us as a consortium a set of rules and regulations to work with that can give the consumer the comfort that their money and transactions are taken care of and won’t be lost.
What should we have made of Umniah being put up for sale?
I’ve been working in this industry for more than 20 years, and not one single company that I’ve worked for hasn’t been sold. Some of them were sold twice. You grow an asset, create a value for it and you offload it in order to make investments in opportunities where the market is still in its infancy and you can see further growth and you can repeat the same experience. So selling is not a bad practice. A sale is a financial transaction that is a mean to give a return to shareholders, especially in this industry where the return on investment for shareholders from dividends is not always the greatest benefit—they look at the benefit coming from the valuation. For you to maximize the value of your asset it’s not a function of how good or bad is your asset performing. It also has to do with the surrounding factors, including economic growth, the situation of the country and surrounding countries, even the price of oil. The valuation of a company isn’t always a reflection of its performance. Political and geopolitical elements affect the valuation of what shareholders are able to get for a certain asset. As such, the shareholders assessed that and they thought this wasn’t the optimum time to generate the best benefit for them at this point in time. And it’s absolutely not a reflection of how a company is doing.
In terms of market challenges, operators in Jordan have long complained of the tax burden placed on them by the government. Where do you stand on recent speculation that the government might impose some form of tariff on the use of WhatsApp and other OTT messaging services?
Umniah´s key service to its customers is connectivity. To maintain the consistently high quality of service that we deliver, we make huge investments that contribute to the Jordanian economy. Umniah invests in licenses. We invest in infrastructure. We invest in customer acquisition in terms of sales and marketing. Finally, we invest in maintenance and upgrades that include energy costs and so on. Each of these individual elements costs a substantial amount of money; but that is what it takes for us to deliver a good service. In return, we charge consumers to deliver certain messages from point A to point B. This is our business model. However, for other services such as WhatsApp, for example, their business model is to invest in the nation´s economy as little as possible. They have no expenses to pay to the government, nor the consumer, nor sales and marketing etc. In this regard, Umniah does all the work and makes all the investments within Jordan, but OTT´s come in and deliver a service that competes with Umniah´s service at no cost while they make all their money from the advertising business model. As far as I am concerned, this is unfair competition. If this continues then we will not be able to invest further in our network – which means that companies like WhatsApp will not survive. They are there only because of companies like Umniah. Consequently, the business model has to change to a format whereby we become partners and they become enablers for us in the same way that we are enablers for them.
Your industry is changing at a breakneck speed. What is Umniah doing to adapt to new market realities?
The business model of operators has to change from a high cost, high production cost model to a low cost, low production cost model. That can only happen if we convert ourselves into digital companies. This means we can offer our customers from birth to exit on the network a complete cycle of digital services, be it in terms of buying the service, paying for the service, adjusting the service, or upgrading, changing, or leaving the service. This is the only way that mobile operators can increase their margins and change their business model from the traditional physical interaction to digital interaction. We take digital very seriously and we believe it’s the cornerstone of our next five-year plan.