Batelco rings the changes with strategic and management shake-up

Big changes are underway at Bahrain’s incumbent operator Batelco, which has just unveiled an overhaul of its senior management; is reported to be planning to sell most of its stake in its Indian venture; and might soon be in control of Zain Saudi Arabia, with partner Kingdom Holding.

Turning first to India, where Batelco was reported last week to be looking to sell a 30% stake in its local subsidiary, the mobile operator STel. Batelco is said to have hired an investment bank to approach potential buyers.

The move shouldn’t really come as a surprise: Batelco’s group CEO Peter Kaliaropoulos said in May that the Indian market was proving to be much more difficult than the company had expected, as a result of fierce price competition as well as factors such as restrictions on the import of Chinese network equipment. STel also faces a lawsuit over licenses that were awarded to it in 2008.

Batelco has not confirmed or denied the India report but the fact that STel is a very small operator, with little prospect of becoming a major player, combined with the fierce competition and legal challenges it faces, suggest that Batelco might well have decided that its best option is to reduce its exposure to the Indian market.

STel had 3.3 million subscriptions at end-June, according to Informa estimates. That represents a tiny fraction of India’s total mobile subscription count of 853.6 million at end-June. Batelco paid US$225 million for a 49% stake in STel in 2009. Batelco sold part of its holding in STel in 2010 and currently has a 42.7% stake.

The news about STel follows Batelco’s announcement at end-August of the appointment of a new group CEO, Shaikh Mohamed bin Isa Al Khalifa, who is currently deputy chairman of Batelco and will take up his new post at the start of October, replacing Kaliaropoulos.

Kaliaropoulos – who has been CEO of Batelco since 2005 – has been given a new, but apparently lesser, post as CEO strategic assignments, tasked with developing Batelco’s joint ventures. That means Kaliaropoulos is likely to play an important role in Batelco’s efforts to complete the acquisition of a 25% stake in Zain Saudi Arabia and possibly the subsequent management of that operation. Kingdom Holding, Batelco’s partner in the bid for Zain Saudi, said on September 10 that it expects the due diligence on Zain Saudi to be completed by the end of this month.

The rationale for the changes lies in the challenges that Batelco faces, both in its home market of Bahrain, which is small, highly competitive and has been hit by domestic political instability; and in crafting a strategy for successful international expansion.  The effect of those challenges is reflected in Batelco’s recent financial performance. Batelco’s revenues for 1H11 were down by 4.4% year-on-year, while net profit for the same period declined by almost 17% year-on-year. The next few months will tell us whether Batelco has found the right response to its difficulties.