Company Trend Analysis - Zain's Tower Sale To Have Market-Wide Benefits - DEC 2017

BMI View: Zain's tower s sale is a positive development for the operator and for the Kuwaiti mobile market at large. The deal will allow Zain to focus on a data-monetisation strategy while running a leaner operation. M ore tower sharing will lower barriers to entry for new players, improving competition in the medium term.

Zain has agreed to sell and lease back its telecoms towers in Kuwait to tower operators IHS and Towershare for USD165mn. The deal will lead to the creation of a new entity to manage the 1,600 tower sites, a company in which Zain will have an undisclosed minority stake. The deal, expected to close in Q118, has been approved by the Kuwaiti regulator CITRA but remains subject to consent from other regulators. This is the first tower sale in the Middle East outside of Saudi Arabia, as the towers market for the region at large remains underdeveloped, but this development shows our global key view on investment rationalisation starting to play out in the Middle East (see ' Telecoms Mid-Year Update: Key Themes For 2017 ' , July 5 2017).

Strong 3G/4G Uptake Reflects Data-Hungry Customers
Kuwait - Mobile and 3G/4G Forecasts
f = BMI forecast. Source: Operators, BMI

The tower sale will be beneficial for Zain, as it will allow the operator to significantly reduce its capex, running a more efficient operation. Zain can then focus the freed up capital in investment on its core business as well as new technologies to meet rising data demand. This will allow Zain to deepen relationships with customers and offer more advanced services, improving its monetisation strategy. Zain's data revenues have followed a slight downward trend since Q116, so a more data-focused strategy will help mitigate this decline. As such, we expect Zain to make efforts to migrate customers to 3G/4G mobile plans to be able to upsell advanced services.

The Kuwaiti market will also benefit from this development. Tower infrastructure sharing allows more telecoms players to come into the market by tapping tower operators for wholesale services, removing the need for a heavy upfront investment in infrastructure assets. As Kuwait is well-served in terms of coverage, these assets would be duplicated and inefficient in a market with few organic growth prospects, meaning any network-based entrant would face losses at least in the short term. As specialised tower operators can build and maintain infrastructure more efficiently thanks to scale, competitive wholesale fees should make entry more attractive, giving upside to market competition in the medium term.

Mobile data demand in Kuwait will be driven by rapid expansion of 3G/4G subscriptions. We forecast these to number 6.5mn by 2021 and represent 95.1% of the mobile market, up from 66.3% in 2016. Further development of the tower sharing market poses upside risks to our forecasts.