Interview: Naguib Sawaris, ceo Orascom Telecom

Q. When Fastlink started, was your idea that the Jordanian market was small and that there was room for growth - were you going to take this small company, expand it and then sell it - or did you sell Fastlink because you had so many debts that you had to do it?

A. It's the second answer. When I started, of course, it was not in my dreams at all that I would sell Fastlink one day. There's a basic part of our strategy - it's one of the nicest, most appropriate Arab countries with a lot of stability, a positive investment climate and so on. So, it was not in the program. The reason for selling Fastlink was clearly that we had overexpanded.

Our ambitions were beyond our means, and we had to make a sacrifice to keep the company sound in an environment where there is so much turmoil. Look at all the telecom companies and their suffering and their share decline and the environment as a whole. In this kind of environment, we needed to take some painful steps in order to safeguard the company. We can see from the action on the share price that we have done the right thing. But, frankly speaking, we would have preferred to keep it.

Q. Fastlink was the second-most profitable mobile phone company in the Orascom stable. Wasn't there a risk that by reducing debt in the short term, you would reduce profitability in the long term?

A. No, because, frankly speaking, our business is about value creation. And we think that the value that we sold Fastlink at is a good value in the current circumstances. With this sale, we are given the opportunity to create value in the other large subsidiaries which have not reached their final maturity yet. Having a debt-free holding today and having properties, which are still in their beginning with a lot of growth potential is a good position.

Q. Which subsidiaries have the largest opportunities for growth?

A. We shall start with Pakistan. It's a country with more than 140 million people. We are now adding 1 million subscribers per year. It's a very profitable operation. We are making $45 million in net profits.

The second one is Algeria. We got 350,000 subscribers in 10 months. It's a country with 34 million people with very low penetration, both on fixed and mobile. The third country I still believe will also produce value is Egypt.

There is an economic decline in Egypt, but we are adding 400,000 subscribers per year. In Tunisia, where we have just started, I have to say that we have been completely shocked by the demand. We have never thought - in our nearest calculations - that in the first month of operation, we would have 100,000 subscribers. We are now adding 5,000 subscribers per day.

Q. Who's the competition in Tunisia?

A. The government, Tunisia Telecom. The government-owned company is the only competition.

Q. Why are the subscribers choosing you over the state?

A. They are not. The fact is that we have entered the market at a time when the government company has not yet expanded its network, so there was no availability on the other side, which will soon be over because they've announced that they've expanded their network up to 500,000.

So, the competition will soon start. But what is peculiar in Tunisia is that the wealth is very well distributed somehow. The middle class and lower class are both well defined, and that's why I think we'll continue seeing growth there.

Q. What about the wealthier Arab countries with closed markets?

A. Today, Orascom is the only Arab operator that is recognized as a regional operator and that fulfils all of the pre-qualification requirements in any tender procedure because of our diversity, because of the number of subscribers. This in itself has value.

If, say, Saudi Arabia announces a tender today and one of the requirements is that you must have at least 2 million subscribers in one of your networks, we would be the only Arab operator that would qualify.

So, we also intend to go there. We might not have the money to go and take high stakes, but we have enough money today to go and take minority stakes and management contracts. This can be a good source of cash flow, which will enhance our procurement power with our suppliers and will give us presence in the Middle East.

Q. Do you have a presence in the Gulf right now?

A. No. The first opportunity arising now in the Gulf is in Bahrain, which has just announced a second license. There was never really a chance to be there because it's all the incumbent operators owned by the governments, no private sector.

Q. Particularly with the World Trade Organization, do you see the Gulf telecom sector opening up fairly quickly?

A. No. Fairly quickly is not a word that exists in this area. They will take the maximum time they are allowed to take. There is no real feeling in the Arab world for the importance of privatization and the private sector.

Q. Are the state-run telecoms in the Gulf truly profitable?

A. Of course they make money, they're monopolies. How can you lose money when you're the only provider?

Q. There are plenty of state-run airlines that lose money.
A. Yes, but they have competition.

Q. So what's the interest, say, for the UAE to privatize Etisalat, which is a cash cow?

A. You are forcing the consumer to have one choice; you are not offering him the best of service because of a lack of competition and you are not giving the private sector and the economy a chance to diversify and grow.

Q. What do you think about 3G?

A. I think we are seeing some improvement. I think the mistake with 3G is not 3G itself, it was the horrendous licensing procedure, which resulted in a lot of pressure on the operators and equipment providers.

All the funding should have been directed to the development of handsets, the development of equipment and the development of applications. Instead, the governments took the money and licenses, and left the operators and suppliers with little cash to do the right work.

Q. What about satellites like Thuraya?

A. You can forget about that. That's a lose-lose situation because of the cost of providing the service. It's a service that only appeals to a small market niche and costs millions of dollars. It's a stupid idea to start off with.

Q. Globally, what is the future of the telecom sector?

A. It's the migration between the PC and the handset, getting all your information through your handset, procurement through your handset, MMS [multimedia messaging service], videoconferencing through handsets, video pictures, human-related simple applications.

Q. Does Orascom have a social mission? What effect do telecommunications have on the less-developed world?

A. It's a very practical way towards democratization because when somebody has the tool of communication, it's easier for him to communicate, it's easier for him to express his opinion, it's easier for him to move, to work. So, it's adding to the openness of the society.

Secondly, it's a tool for emergencies. Imagine all the medical applications. Third, it's a tool for small businesses to become an independent business. Through a combined PC-phone, you can have a mobile office.

Q. What are the biggest mistakes you've made so far in your career?

A. To overexpand when I did not have the financial ammunition to do so. Should we have focused on what we had instead of going for more? The second mistake was to partner with local partners who are not from the business community, who are politicians.

Q. But was that a mistake or an inevitability?
A. It was an inevitability.

Q. What are you most proud of?

A. I went into Algeria and fought against Orange, and I won. I went into Tunisia against Telefónica, and I won. Now, that's half of the story. The other half is that I need to deliver the results I owe to my shareholders. I'm proud that I created a regional operator that is qualified to take its part in globalization from other operators, which are more international. It's the first time someone from this region is challenging the multinationals on their own turf.