High spending, tech savvy Saudis have a voracious appetite for mobile data and are currently the highest data consumers in the world. CEO of mobile operator Mobily Ahmad Farroukh provides an overview of the kingdom’s ICT sector, the company’s dedication to the betterment of the country, and the challenges both Mobily and Saudi have faced regarding their images.
How would you evaluate Saudi’s ICT sector and how important is its development for the kingdom’s transformation?
I think the ICT sector is at a certain level, which we can capitalize on more and more in the future. Looking forward, in order to enhance the growth of the industry, a clearer partnership between the providers, the government, and the regulators is needed.
Saudi is definitely on high spending per capita levels. Its telecom spending is higher than any other comparable market in the region or in the world. Saudis depend a lot on the different aspects of ICT. Nowadays the entire country is almost cross-country fiber, having at least five or six marine fibers that land on different sides of the kingdom to connect it to the other parts of the world.
In my opinion, moving towards an increased dependency on ICT systems is a normal and natural process, and Mobily is and will be part of it.
If we look at the public sector, we can see it’s becoming more dependent on ICT, implementing several e-government initiatives. As a foreign resident of Saudi Arabia or as a Saudi national there is no difference these days, both are defined by two things: a national ID or residency ID number and a fingerprint. Everything is digitalized; there is no need for a different social security number for instance, and nationwide I can do any administrative procedure just with that single number and my fingerprint. And I think each and every public entity is also moving towards automation and digitalization. Now procedures are much more simple. As a resident, just visiting a website I can apply for the entrance of my family members into the kingdom or renew my driver license, without moving from my office. There has been a great improvement in this regard as in the past these procedures could take long time and cause many headaches; now it is very simple, and a clear example of how ICT brings solutions to real life issues.
Infrastructure development is still one of the largest allocations in the 2016 budget. What impact will these massive investments in the sector have, and how can Mobily capitalize on this opportunity?
Definitely these developments have a direct impact on our sector. We are involved in several megaprojects in the petrochemical sector, for instance, with national companies, providing connectivity, disaster recoveries and all sorts of ICT services. We are ready to capitalize on these opportunities and are proud to be involved in these kinds of projects. Our staff base, which is 78% Saudi, is knowledgeable and I consider they are the future of our company; they are ready to meet the demands of the market.
High penetration levels in the voice and data segment leaves little room for growth in the sector. Traditional business models no longer work for the telecom operators. In your opinion what should be done for the larger telecom operators to reinvent themselves?
I strongly believe you cannot force people to use what you want them to use. Our customers would use what they would like to use, when they would like to use it. Saudis are 100% dependent on data; they are number one in the world in terms of data consumption, the United States being second to them. I have seen the study and the amount of data consumed by Saudis is tremendous. I have wide experience in the ICT sector, being involved in it since 1995. I had the chance to visit and see countries of all types, from 150 million people to 1 million, and the case of Saudi is exceptional. The consumption of data per day in the kingdom is bigger than what China Mobile customers consume, and if I’m not mistaken they have around half a billion subscribers. Just think about it, Saudi with a population of around 30 million consumes more data than what 700 million consumers do at the same time. In order to support that consumption we need to have a resilient and modern network able to provide the service. Voice is definitely becoming more and more irrelevant while in the past it used to be the big source of income for telecoms and where the biggest margins could be found.
Is it possible to further monetize data usage?
Definitely, that’s the challenge ahead and new models have to be designed and implemented. Data prices in Saudi are among the lowest in the world. One gigabyte, in the UK is £10; one gigabyte in Saudi is 10 riyals (approx. £1.90), which is a big difference. We have networks that have learned a new term in Saudi called “petabyte”. I knew of terabytes, but when I landed here and I was discussing the dimension of our network, I was introduced to this new term. I measured it, did the calculation, and basically we consume here in a day what 10 countries produce collectively in a month.
We have to be more innovative and attractive. The Saudi population has a high per capita income, not only the nationals but also the visitors. One third of the population is non-Saudi, that’s around 10 million people from all around the world with very different nationalities and cultures. In this case we have observed that the kingdom is very particular; expats do not receive calls, they are the ones making the calls because of their economic power, which is much higher than back home. This model, however, which has been also very profitable in the past for telecom companies, is shifting as well with the irruption of voice apps. We need to be agile, innovate and develop other segments in order to mitigate the loss of revenues in the voice segment, for instance focusing on the opportunities that the enterprise segment offers to our company.
You became CEO in very challenging times for the company. In an interview last November you stated: “Sometimes you do some health check, and from this health check you can run further and long marathons, and this is what we intend to do”. How did the health check go, did you start running the marathon?
I need to be very clear about this. Contrary to what many have been saying, what happened in Mobily is not a scam or fraud, it is none of these. What happened in Mobily these past years is that there were certain accounting treatments, which were very non-conservative and put the company in a very difficult position. I will add that also the regulation was not clear enough and added to the overall situation. Of course the company assumed the mistake, recognized the issue and reversed the records. The members of the new board, which is mostly comprised of the old members, have changed the policy and are applying cautious and conservative principles.
Companies, like people, make mistakes sometimes and we do admit that it has had an impact on our image and our share price. I believe that it’s positive to understand these facts and the reality of the situation.
The board, before I arrived, had already taken the decision to reverse the situation and they took the pain. We have taken a step back and analyzed how these things happened so they are not repeated.
It is vital to rebuild the trust in the company and regain the trust of the investors. Very positive steps were taken in this regard, especially to bring comfort and trust to our foreign investors. The CMA has been very active in monitoring our restructuring process, not only using their resources but hiring one of the best and toughest consulting companies to overlook the process and to do an independent report in the interest of our shareholders and investors. This journey of transparency has been done hand in hand with the CMA and they have publicly acknowledged how helpful and active Mobily’s board and management have been. The truth is that nobody tried to hide anything, bend records or shred papers. The CMA again declared that both board and management were very cooperative and informative throughout the whole investigation and the public and investors need to know that there are rules and regulations governing us.
Now, I think further assurances are necessary. I come from a financial background with a CPA from York State so I’m familiar with certain accounting standards. The entire world is moving to a new accounting standard, the International Accounting Standards (IFRS adoption) that banks in Saudi Arabia had to adopt years ago. By 2017 it will be mandatory across the kingdom and that will bring clarity and boost transparency in all sectors.
With due respect to Saudi standards, for an investor it is crucial when making an investment decision to be able to access to an audit report governed by IFRS Accounting Standards. This combination of government regulations and international standards is the only way to build more trust for foreign investors.
What happened in Mobily did happen, but referring to my statement, we are checking all the aspects of the company and implementing governance in all areas. The shareholders at the end of the day, govern us, and our compromise is to bring positive results and value to them
And this work is paying off. The company in 4Q-2015 posted earnings of SAR 11mn, as compared to a loss of SAR 2.1bn in 4Q-2014. How do you plan to compete, gain more market share and build a stronger brand?
In order to build a stronger brand, you need to address how relevant you are to the consumer. For me it is important to strengthen what I call the “stickiness” of our consumers, how they stick to the company, and that is something we need to start building. Market share is good but I would rather go after value share and most importantly value creation for my shareholders. From a personal philosophy I look at three things, and not in any specific order: value to my shareholders, value to my subscribers, and value to our staff. So, these are the three things we started to work on. We could have 40% market share and still not be profitable.
How is Mobily aligning itself with the government’s vision, to society’s needs and to the rest of the business sector when it comes to showing the other side of Saudi Arabia to the world.
I don’t know the “right ingredients” to shape international perceptions, but I am absolutely sure that everybody is pushing in one direction which is definitely the betterment of Saudi Arabia. From our side here at Mobily we are committed to that betterment and our service to Saudis, both male, and female, also shows it.
For example, internally, we took a decision not to outsource our call centers. We can honestly have the option to outsource to India or to neighboring countries at one-third of the price that we pay, but we said, “No outsourcing.” We do insourcing in the kingdom. The minimum wage in Saudi is high compared to other countries so what we decided to do is to use ICT to decentralize our services as much as we can and offered different options when calling us. Customers can chose to deal with a person or download an app to do all their procedures. Instead of having 2,000 jobs outside the kingdom, we would rather have 500 here but with a higher efficiency and add to the employment growth of the country.
We respect local traditions and for the ladies we do also offer the chance to work for us remotely from their homes. We have many females working for us, at their homes and in our offices; for us women’s empowerment is a priority. Women are wonderful workers, and maybe they will not be happy with my statement, but they are more productive because they have the need to prove something. They always perform at the top and they are making a strong statement: “We are here and we can compete”.
What would you tell people with preconceived misconceptions about the Kingdom of Saudi Arabia?
Well it is about ignorance; people want to paint a picture of Saudi Arabia that is absolutely not true. There is a strong religious and traditional culture here that needs to be understood not criticized. It is a nice place to live. Honestly, we have so many visitors from so many parts of the world, women who come and say, “You know what, we feel so secure and so relaxed in Saudi Arabia compared to other parts of the world.” I am not trying to influence anybody’s opinion, I just think people have to take the time and effort to know more about this culture Personally, maybe because I speak the language, it is easier for me to dig into this culture, but in every culture I can give you an example of something negative and definitely something positive. The Saudi culture is no different; there is a lot of positive that people can capitalize on.
If you have a closer look at what the kingdom does during the Hajj season, accommodating and receiving million of pilgrims. The kingdom has the mission of receiving the Muslims of this world coming to their most sacred places in Makkah and Medina. Mobily and the rest of the operators are part of this effort, part of this spiritual journey. There is a phrase in Arabic history: “To serve the visitors as much as we can.” We talk about around 2 million people who come during Hajj. Imagine a network that needs to hold and give service to 2 million people, after 8 o’clock, who need to make a call home, all of them at the same time, and the call goes through, or take a snapshot and send it.
The amount invested in these areas is not attractive for Mobily, the ROI makes no sense but it is part of a mission that the country, its leadership and the private sector have, and we will definitely be part of it. We have a network in Makkah that, after Hajj season, is shut down because it is only used once a year, more than 600 sites there, but it is our contribution and our duty, and this is a good example of how we try to reflect and promote, as much as we can, the image of the kingdom and its culture.