New country, new challenges

Telecom service providers in Sudan have had to overcome more than the usual operational challenges in a market, and earlier this year an additional one was placed in their path by the separation of what had previously been the Republic of Sudan into two countries. Comm. speaks to the CEO leading operator Zain Sudan about the state of play in both countries – the Republic of Sudan and South Sudan – and the impact the separation is set to have on the telecom business

Zain Sudan MD Elfatih Erwa believes the operator already enjoys distinct advantages in the South, having established a strong brand and built out the most extensive network

South Sudan officially came into existence as an independent country in July 2011, and with that the responsibility of building new government institutions from the ground up commenced in earnest. This extends to the establishment of an independent telecom regulator, and the extension of the permission of the Republic of Sudan’s three telecom operators – Zain Sudan, MTN Sudan and Sudatel’s Sudani – to continue offering commercial services in what is now South Sudan.

“Our activities in Sudan and South Sudan are now two separate companies, operating two separate networks,” said Elfatih M. Erwa, managing director of Zain Sudan. “Since the beginning of the year we have been operating off two budgets, and the challenge remains how to keep customers on the network, and reduce the impact of the separation on the main network,” he added.

Apart from the logical issues related to dividing a single network into two, Zain Sudan along with its peers has had to consider the impact of separating the two markets from both an operational as well as a penetration level. As a single country, Sudan had a mobile penetration rate of around 42 per cent, but as two separate countries, now registers a penetration rate of around 60 per cent in Sudan and 20 per cent in South Sudan.

The lower penetration level in South Sudan reflects the socio-economic reality in the country, where the total addressable market is much lower, with an overall population split that now reflects around 31 million in Sudan and nine million in South Sudan.

“If I were a greenfield operator, would I look to invest in South Sudan? Probably not. However, as an incumbent operator that has already invested heavily in the country it is important to keep on investing and grow the business,” Erwa said. He believes the operator already enjoys distinct advantages in the South, having established a strong brand and built out the most extensive network.

Erwa said Zain Sudan has so far spent US$60 million in separating its operations into two, and while the licensing regime in South Sudan currently reflects the situation in the Republic of Sudan, there is an expectation that at some point in the near future South Sudan shall establish its own regime and likely require a licence fee payment from the incumbent operators to continue offering services in the country.

Earlier this year it was reported that representatives from Zain Sudan were engaged in talks with the government in South Sudan regarding the payment of a fee to extend its licence in Sudan to the newly independent country. No agreement was made, and for the meantime the mobile operators in South Sudan continue to operate as usual without any interruption to their services, but also without an explicit position on licensing from the government.

In October 2011 the International Telecommunication Union (ITU) announced that South Sudan had joined the ITU to become the union’s 193rd member state, effective from October 3.

The country had already been allocated the international dialling code +211 by the ITU, following the country’s recognition by the UN General Assembly and the dialling code became active on September 28.

A high-level ITU delegation led by Brahima Sanou, director of the ITU’s Telecommunication Development Bureau has met with government ministers in South Sudan with the aim of acquiring first-hand information on the country’s needs and challenges in the area of ICT development. The first such visit by ITU, the mission paved the way for the delivery of focused assistance to the country as it embarks on its development path.

Zain Sudan launched 3G services in 2010, with Erwa stating that today approximately nine per cent of service revenues are generated from data

“No additional licence fee has been levied against any of the mobile operators, and Zain Sudan is looking to continue with its intention to invest heavily in South Sudan in 2012 and beyond,” Erwa said.

Aside from the succession of South Sudan and the logistical, commercial, regulatory and technological issues it raises, Zain Sudan is facing a dramatic period of time competitively within Sudan itself. The operator currently counts around 12.7 million subscribers, up from 10.7 at the end of March, though Erwa acknowledged that the operator suffered from a reduction in market share earlier this year due to more aggressive competition.

“There is a large amount of churn on competitors’ networks, but they are also aggressive with their subscriber acquisition efforts,” Erwa revealed. “At present we are five per cent above target with respect to customers and revenues are on target.”

Erwa forecasted that 2012 would be a difficult year in Sudan with the country’s economic situation placing pressure on industry revenues. Despite this outlook Zain Sudan is still looking to invest up to US$280 million improving its infrastructure in the Republic of Sudan in 2012, with the operator’s CAPEX in South Sudan set to reach between US$60 and $80 million in the same year.

Zain Sudan launched 3G services in 2010, with Erwa stating that today approximately nine per cent of service revenues are generated from data. The capital Khartoum has fully-fledged 3G HSPA running, with coverage having been successfully extended to the country’s larger cities, while many other areas remain uncovered. Capacity in South Sudan also remains a challenge.

“At this stage we are not concentrating on selling 3G phones,” Erwa said. “Rather we are focussing more on usage patterns and 3G connect cards, with two million unique phone users, and over 60,000 of them on 3G cards,” he added.

As a single country, Sudan had a mobile penetration rate of around 42 per cent, but as two separate countries, now registers a penetration rate of around 60 per cent in Sudan and 20 per cent in South Sudan

Looking ahead Erwa said Zain Sudan will be focusing on a number of strategic efforts aimed at balancing out the mobile penetration levels between the two countries in which it now operates, while also looking to develop new revenue streams. He said the CAPEX guidance the operator has given for the future is a serious estimate and that the company intends to invest further in its transmission network and develop more backhaul.

“We are ready to entertain the idea of network sharing if it can be approached in the right way,” Erwa said. “Through our efforts we would also like to draw attention to the South and make a positive story out of it, which will be positive for the future,” he added.