Tariq Gulzar, Chief Financial Officer of Warid Telecom, is an accomplished professional with a diversified experience in leadership roles gained over the past 18 years in Asia, Africa, Europe and North America, in Finance, Corporate Strategy, Enterprise-wide Risk Management, Corporate Governance, Control Assurance and General Consulting in Telecommunication, Media & Technology industries. A qualified Chartered Accountant (England & Wales and Pakistan), a Certified Public Accountant (Colorado, USA) and a Certified Internal Auditor (New York, USA).
Before serving as the CFO of Warid Telecom, Tariq Gulzar has also served as a Chief Strategy Officer (CSO), and also headed the Audit, Risk Management & Corporate Governance function at Warid Telecom International (Abu Dhabi, UAE) covering Pakistan and overseas operations in Asia, Middle East & Africa. Prior to joining Warid Telecom, Tariq Gulzar was working as Assistant Vice President in the Risk & Regulatory Advisory practice of PricewaterhouseCoopers (PwC), Canada. He has also worked with Mobilink, Pakistan, Millicom International Cellular S.A., Luxembourg, and Modern Times Group AB, Sweden (before joining PwC in Canada.
Below is the edited transcript of a recent sit-down of BR Research team with Tariq Gulzar at Warid's head office in Lahore.
BR Research: Tell us about Warid's future investments plans?
Tariq Gulzar: Warid Telecom got its commercial license in 2004, and in May 2005 we started our commercial service. For the initial couple of years, we were going pretty fast, but over the last 3-4 years we slowed down in terms of investment due to various reasons mainly being successive merger and acquisition activities.
However, in March 2014, the merger and acquisition discussions were called off by the shareholders in the absence of agreement on the desired valuation for the company.
Since then, we have been working with the shareholders to come up with a long term business plan. Obviously, the strategy now is to be more growth oriented compared to the strategy of perseverance followed during last 3 to 4 years to avoid any value destruction of the business.
Since inception, Warid Telecom has invested $2.3 billion in Pakistan's telecom sector. Out of this, almost $1.5 billion came through direct shareholders' funding. Having said that, we are anticipating to invest around $470 million in capital spending over the next five years.
Now we are planning to roll out 4G with commercial service in five major cities of the country, which will further be expanded to other major cities within next few months. For 4G, we have partnered up with Ericsson that is provider of our network services and equipment since the beginning. We have a small patch from Huawei, but primarily 100 percent core, and almost 75 percent of radio network is Ericsson.
BRR: Considering Warid as highly leveraged, what will be the break-up of the half a billion dollar five-year investment?
TG: We are EBITDA positive since the second year of our operations; that is what is required for funding of Capex. In the last two to three years, our debt to equity ratio has reduced significantly as the shareholders have supported the company by offloading significant part of commercial loans.
In future we plan to be less leveraged, and the current business plan aims to improve the financial health, enabling us to retire debt more aggressively.
This investment will have two components to it: (a) there will be no external financing for this five year plan, (b) investment in the network will primarily come from the operations, and wherever the gaps are found shareholder funding will come in.
BRR: How will this $470 million investment be spread over the next five years?
TG: The investment in Warid Telecom will be front loaded primarily, where in the initial couple of years we will see a significant amount of investment coming in. Most of this investment is in the first year eg over $100 million of the total is being invested in the LTE service.
We are also expanding our footprint, which is a little shorter than 70 percent right now. We plan to increase our footprint around eight to nine percent of the population. Customers today are so smart that they prefer to remain on the same eco-system, which includes their dwelling place, place of commute and place of business or work. We feel that we have not been able to cover the entire eco-system because of which we were facing some of the challenges in subscriber acquisitions.
Significant amount of investment is being made to fill in all those coverage holes to get the critical mass in the coverage of the eco-system and to complement our subscriber acquisitions strategy. For this we will go into semi-urban and rural areas to consolidate and further improve our coverage in those areas. At the moment, we have around 5000 sites, and we would tend to take increase this number by another 2,000.
BRR: Why has Warid been left behind when it started at almost along one of its competitors?
TG: The primary reason for slower pace of growth is extended M&A discussions making shareholder cautious to commit in heavy investments. Further, from foreign investor perspective, previous minority shareholders viewed overall business environment as very challenging due to difficult economic circumstances, discriminatory taxations and changing regulatory regimes during the last 5-6 years. Despite these factors, Warid kept a minimum level of investment while standing committed to its subscribers base with best quality network.
However, I would not agree to Warid being left out in the race because we didn't participate in the bidding for 3G/4G spectrum. Why we never participated in the bidding process? We already have enough spectrum to launch these services. We kind of stand on equal footing with the competition as far as spectrum availability and dedication is concerned as we have carved out 5 MHz out of our existing 1800 spectrum to launch 4G LTE service.
BRR: There are rumours that PTA would not allow you to roll out the service from your existing spectrum. How would you defend this controversy?
TG: It's not a controversy but a misconception, the reason being the license given to us and other competitors at that time were technology neutral. What happened in April and May this year was the auction of additional spectrum; it was not the auction of a new license. We never were in a need of buying a new spectrum as we had enough spectrum to launch a 4G LTE service with a very good user experience. There is no denying of the fact that buying additional spectrum is useful, but we do not see optimum utilisation of additional spectrum in foreseeable future, given the already carved out 5 MHz spectrum.
BRR: How would you address the market perception that Warid's investors are not interested in the telecom business of Pakistan, which comes from the fact that Warid has been on sale for the past three years, will be on sale again if not now then maybe a year later?
TG: When talking about the valuation of the telcos in 2007 and 2014, let me remind you that 2007 was the hay day for the stock markets globally. So comparing the valuations of the two periods makes little sense. If you compare company investments in 2007 versus 2014, the investment has increased; it is just the valuations of all the organisations - not just ours - that has gone down.
As for Warid specifically, the M&A discussions were the only reason that has resulted in whatever not-so-positive perception. Warid's majority shareholders interest is demonstrated by calling off M&A discussions and reiteration of commitment to investment and growth strategy. In short, Warid Telecom is here for a foreseeable future to serve its customers with its technologically advanced network and best quality services.
BRR: What is your current market share?
TG: We had about 12.5 to 13 percent market share until three years ago. But now we are 9.5 percent of the subscriber market share. Our target over the next five years is not only to regain our market share, but also improve it by a couple of percentage points.
BRR: How feasible is site-sharing for telcos given high operational costs of these companies eats away a huge portion of the revenues? Why did this model not work in Pakistan?
TG: A tower is set up between $150k-200k, and the practice of no-sharing-with-your-competitors prevailed very strongly three to four years ago, as operators wanted competition to invest as well rather than hosting on their tower.
Even today, instead of thinking from the commercial and financial point-of-view where one definitively benefits from the cost subsidy and less capital investment, operators still think mostly from the competition perspective. However, things have moved around a bit with the concept of reciprocity and barter agreement in this model. Tower-sharing is an excellent way of rationalising costs and Warid is one of the operators who have the highest tenancy ratio in the country ranging from WLL operators to CMOs. We are now actively engaged on site sharing model by hosting over 1,700 sites, which is subsidising costs as well as contributing to revenue growth.
Having said that, the concept of a nation-wide tower-sharing, which was propagated a few years ago, has not progressed. There could be multiple models of tower sharing including spinning off radio towers by mobile operators to set up a tower co, bringing in a new investment altogether to rollout infrastructure for offering to existing operators, etc.
BRR: What is Warid's progress on mobile financial services?
TG: In Pakistan MFS is a bank-led model unlike Kenya and Philippines where it is an operator-led model. Warid has launched its mobile financial services, with the most robust equation in the market. Why I say this is because there is no other operator who has strategic alliance with a scheduled bank and a technology partner as its group company. We have partnered with Bank Alfalah and Monet to provide various mobile financial services like utility bill payment, domestic remittances and much more in the coming years.
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