Preamble - Cisco Ericsson partnership deal highlights little-known
Iraqi operator Korek Telecom
On March 1st, Cisco
and Ericsson
announced that through their cooperative marketing agreement signed in November
2015 Korek Telecom, a 16 year-old mobile telecommunications provider
headquartered in Erbil in the Kurdistan region, with whom Ericsson has a
longstanding relationship, had selected Ericsson and Cisco to transform its IP
core network using integrated solutions based on Ericsson services and Cisco
ASR 9000 routers.
Although Korek is for the moment
only the third operator in Iraq and Iraq itself is a deeply divided country
whose society and economy are in near chaos, nonetheless the country hosts the
world's fifth largest oil reserves and ranks somewhere in the lower half of the
world's Top 10 countries with the largest natural gas reserves and could grow
quite a bit (particularly in natural gas exports where it lacks the necessary
infrastructure). Iraq still has an operational though weak government but 93%
of the state budget is dependent on oil production. Still, there is a strong
probability that with western help it will recover over the next five years and
of the three Iraqi operators Korek looks to be the most competent and fastest
growing and could have a good future. The general situation of Korek today is
that it dominates the Kurdistan region, which constitutes about one sixth of
Iraq, and from that stable profitable base is now beginning to grow its share
in the rest of the country. The increasing tendency has been for Kurdistan, the
most stable part of Iraq during the last few years, to seek more autonomy and a
crucial issue related to the Kurdistan economy has been a dispute with the
central government over the sharing of oil revenues, which as shown below seems
at last to have been resolved.
Up-to-date fundamentals about
Iraq
The two following quotes are key
extracts from a 45 page official letter, entitled Letter of Intent, Memorandum
of Economic and Financial Policies, and Technical Memorandum of Understanding,
of December 2016 by Iraqi PM Dr Haider Al-Abbadi to Christine Lagarde, MD of
the International Monetary Fund, which is currently providing financial support
to the government in exchange for various specific social and economic
commitments.
Quote on status of internally
displaced persons and refugees:
- "The ISIS
attacks have boosted the number of internally displaced persons - estimated at
3.3 million in September 2016… close to 10 million Iraqis (26% of the
population) need humanitarian assistance…. with 225,000 Syrian refugees, Iraq
is the fourth largest hosting country in the region for people fleeing Syria...
refugees, 60% women and children, mostly reside in the north, including in the
Kurdistan region where they have been granted residency status including the
right to work".
Quote on the latest oil-revenue
sharing agreement between the Iraqi government and the local government of
Kurdistan:
- "According
to the agreement the revenue from the oil extracted in the KRG accrues to the
federal government and the federal government makes transfers to the KRG
equivalent to 17% of non-sovereign spending in the federal budget (i.e. total
spending minus expense of the parliament, the presidency, the cabinet, the
Ministry of Foreign Affairs, the Ministry of Defence, the federal court,
federal government commissions and debt service)… in the revised program for
2016 presented in this MEFP, the oil revenue projected for KRG is IQD 7.8
trillion and the transfers to the KRG IQD 8.5 trillion".
Background and news about Korek
Telecom
Prior long historical relationship with Ericsson and other
vendors
Korek was co-founded in 2000
reportedly by four Kurdish businessmen including the company's current chairman,
Sirwan Mustafa Baser, vice president Dr. Hamid Akridi, plus Jeksi Hama Mustafa
and possibly the company's current MD Sirwan Barzani, who is said to have a
stake in the company and is the nephew of Massoud Barzani, the acting president
of the Kurdistan region and head of the Kurdistan Democratic Party (KDP)
(Sirwan Barzani is not shown as a director possibly because he has had an
active parallel role in the Kurdish military). The company initially focused on
mobile services in Kurdistan, but in 2007 obtained a nationwide operating
license and now operates across Iraq.
In November 2009 Korek awarded a
contract to Ericsson for the deployment of a billing post-paid system in the
country. In September 2011 Korek, which served about 3 million subscribers at
that time, said it had contracted Ericsson to upgrade and expand its network to
make it ready for 3G and LTE, including the deployment and integration of
multi-standard radio base stations, RBS 6000, across the country, and a core
network expansion including EPC and mobile packet backbone.
In March 2011 Orange,
in a JV with Agility, a large international logistics and infrastructure
investment group, acquired a 44% share of Korek Telecom for a combined $295
million, plus about $285 million in loans. Through this JV Orange held an
indirect 20.24% and Agility the remaining 24% in Korek, while the remaining 56%
majority stake was held by CS Limited, an SPV reportedly owned by the four
Kurdish businessmen who founded the company. Reportedly, Orange also acquired
an option to increase its indirect stake in Korek to 27% in order to gain
indirect control of the company.
In July 2012 Korek signed a three
year managed services agreement with Ericsson to provide field maintenance
services including day-to-day services for Korek’s network in Baghdad. In April
2013 Korek hired Ericsson to deploy a new convergent charging and billing
system designed to provide subscribers with greater personalisation, control
and quality of service. In July 2013 Korek selected Nokia (NSN) to deploy
advanced radio, microwave transmission and packet core network elements and to
expand its 2G network in southern Iraq. The operator also renewed its care and
managed services contract with Nokia.
In February 2015 it was announced
that Korek Telecom had chosen Ericsson to provide a spare parts management service,
designed to deliver a higher standard of network performance to subscribers
which would cover operations of warehouse storage in Erbil and Baghdad, as well
as logistics such as transporting parts between Ericsson's global replacement
warehouse to different delivery points across Iraq.
In March 2015 Korek announced at
MWC that it had chosen Ericsson's Telecom CRM system to automate its sales,
marketing and customer care processes, which would include the consolidation of
user data and the capability to expose user data in real time through the
system's User Profile Gateway. In October 2016 Ericsson announced it was
helping Korek prepare for a predicted strong growth in traffic as well as for
the implementation of LTE by transforming and expanding its WCDMA core network
for greater capacity and scalability with new SGSN and GGSN platforms from
Ericsson.
Other developments affecting the
company
Asiacell and Zain Iraq execute successful IPOs of 25% of
their equity
According to the terms of their
2007 national licences all three operators were required to offer 25% of their
equity to the public through IPOs and in 2012 it was reported that all three
companies were being fined for not having done so. In February 2013 Asiacell,
majority owned by Qatar's Ooredoo, raised $1.24 billion through its 25% IPO. In
June 2015 Zain Iraq listed on the Iraq Stock Exchange as Al Khatem Telecom. At
the end of its first day of trading its market capitalisation was $9.4 billion,
which added almost 50% to the exchange’s total value. Korek Telecom has made
several moves towards an IPO in the past but has not yet gone ahead with one.
Korek litigation against Zain Iraq
In May 2014 the National reported
that Zain Iraq was being sued for $4.5bn by Korek Telecom, which claimed that
Zain's acquisition of the mobile operator Iraqna in 2007 had stopped Korek from
buying the unit, resulting in huge losses.
Possible approval of a 4th Iraqi mobile operator
At the end of 2015 the Iraqi
regulator, the Communication and Media Commission, called for expressions of interest
regarding a 4th mobile license. However, as of early 2017 no decision had been
made on that issue.
Agility reported to be claiming confiscation of its Korek
stake
On February 10, 2017 Capacity
Magazine, a specialised source, reported that Agility, a global logistics
company based in Kuwait, had filed a complaint with the World Bank’s
International Centre for Settlement of Investment Disputes, claiming that the
government of Iraq had 'indirectly confiscated' its 54% stake in Korek, worth
$380 million . However, it said that so far it had been unable to ascertain
what the fundamental reason was for the complaint.
Summary
As of January 2016 Korek Telecom
was reported to employ about 2,500 people, to have deployed 3,500 towers and to
be serving 7 million subscribers, giving it just over 20% of an estimated
national Iraqi subscriptions base of about 34 million and showing a roughly
doubled market share since 2011. In competing with Asiacell Iraq and Zain Iraq
Korek's revenue may be somewhere in the range $500-$1,000 million and some
estimates have suggested it is worth around $2 billion. Korek has some
advantages, i.e. a relatively secure base in Kurdistan, where it has been
reported to have a 70% share, and a good relationship with the local government,
which now has an assured income from its 17% share of national oil revenue. Through
further market share gains, Iraqi national growth, diversification into markets
like banking and social stabilisation, as well as the lack of fixed
infrastructure in Iraq, it is possible that Korek could double in size in the
next five years. However, in January 2015 Orange CEO Stephane Richard,
reviewing some of Orange's investments, said that although Korek Telecom was
performing well it was very unlikely that the group would increase its involvement
and exposure in Iraq.
