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Orascom to Cut Costs This Year
Published May 17, 2009
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Orascom Telecom will spend this year cutting costs and focusing its investments into new networks in Africa, Canada and North Korea, says Aldo Mareuse, its chief financial officer.
Competition with bullish government-backed operators from the Gulf had pushed Orascom Telecom Holding, Egypt's largest public company, to be more alert and disciplined, he said.
The company is owned by the billionaire telecommunications tycoon Naguib Sawiris, and is the only major Middle-Eastern operator not partially owned by a government or sovereign investment vehicle.
"It makes things easier and more difficult," Mr Mareuse said. "It is easier because decisions are shareholder driven, return driven, so there is no strategic or political decisions entering the picture. Naguib says 'every buck I put down, I want to see returns', and that's the culture of the company."
The company was largely absent from the multibillion-dollar acquisition spree of regional operators in recent years, focusing instead on building up operations in Algeria, Egypt, Bangladesh and Pakistan.
Mr Mareuse said the high prices paid for licences in recent years - in 2007, OTH withdrew from an Iraqi mobile licence auction when prices reached US$1.25 billion (Dh4.58bn) - reflects the partially sovereign nature of the Gulf's biggest telecoms players such as Etisalat and Saudi Telecom.
"We have to rely on markets. And obviously that is a much more challenging job. In a way it's a much more disciplined approach."
As telecoms markets across the region mature after years of rapid growth, the industry's major players are beginning to focus more on cutting costs and rationalising operations, which often grew bloated during the boom times. "We are entering a more low-growth scenario for our existing assets, so this is a new challenge for us," Mr Mareuse said. "One example is advertising. The mentality is, 'we have 60 per cent market share so we have to have 60 per cent share of TV'. Is this a returns mentality? No."
The company is already decreasing its capital expenditures on operations in Pakistan and Bangladesh, where falling currencies and social instability have hit profitability hard. It aims to cut overall operational spending across the group by 10 per cent this year.
A major question mark hanging over the business is its ownership stake in Mobinil, Egypt's largest mobile operator. After a long arbitration process, the company was ordered last month to sell its share in the network's holding company to France Telecom, its joint-venture partner.
The sale has yet to go through, with both sides accusing the other of failing to comply correctly with the ruling, and could enter further arbitration if it remains unresolved.
Orascom has expressed its preference for the two companies to remain partners in the venture. Mr Mareuse offered no new updates on the state of the negotiations, but said the window for a takeover by France Telecom was closing.
"We believe there are two options: France Telecom executes the tender, or it remains in the status quo," he said. "The more we progress, the more we progress toward the status quo, because this option cannot last forever."
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VMD - [Virtual Marketing Department]
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