file_download ENGLISH
REPORT
العربية

ZAIN HOMEPAGE

BOARD OF DIRECTORS

BOARD OF DIRECTORS
MESSAGE

2018 AT A GLANCE

KEY MILESTONES

VICE CHAIRMAN & GROUP
CEO STATEMENT

GROUP KEY PERFORMANCE
INDICATORS

OPERATIONS OVERVIEW

A YEAR IN REVIEW

THE WORLD OF ZAIN

OPERATIONS SNAPSHOT

REGULATORY LANDSCAPE

OUR STRATEGY

TOGETHER WE ARE ZAIN

TECHNOLOGY

ZAIN DRONE

COMMERCIAL

CORPORATE
SUSTAINABILITY

ANNUAL CORPORATE
GOVERNANCE REPORT

CONSOLIDATED ANNUAL
FINANCIAL STATEMENTS
AND INDEPENDENT
AUDITOR'S REPORT

Table of Contents

REGULATORY
LANDSCAPE

1. REGULATORY

In 2018, telecommunications markets in Zain’s footprint in the MENA region and beyond, witnessed major moves by National Regulatory Authorities (NRA). This was evident from the critical relevance and extent of public consultations initiated; the high impact of regulatory final determinations and decisions made; spectrum auctions completed; and new licensing frameworks, laws and regulations either adopted/promulgated. Regulatory developments spanned several broad areas including 5G, IoT, spectrum, infrastructure sharing, data protection and privacy, digital services, competition safeguards and industry costs.

PUBLIC CONSULTATIONS
AND DECISIONS

5G

SPECTRUM

ACCESS TO FIBER

PASSIVE AND ACTIVE
INFRASTRUCTURE
SHARING / TOWERS
MAST REGULATIONS

DATA PROTECTION
AND ONLINE PRIVACY

DIGITAL SERVICES AND IOTS

COMPETITION SAFEGUARDS

INDUSTRY COSTS

OTHER REGULATORY AREAS

Figure 1 - Areas of interest to National Regulatory Authorities in MENA

Some of these moves have been made to facilitate digital transformation or to support infrastructure development or to attempt to create a more level playing field in markets where a dominant incumbent controls essential facilities such as inter-city fiber networks.

Zain’s strategic approach has been to actively engage with national stakeholders to help shape regulatory outcomes by focusing on regulatory forbearance, value preservation, removal of regulatory impediments and future digital services enablement. This has yielded positive results across Zain’s key markets.

2. KEY DEVELOPMENTS

2.1 PUBLIC CONSULTATIONS AND DECISIONS

Across the Zain footprint, NRAs issued over 40 public consultations, eliciting feedback and opinion exchange from industry participants, system vendors, advocacy bodies and the public-at-large on a broad range of issues including mobile termination rates and consumer protection. Saudi Arabia topped the list of countries with over 18 consultations reflecting a strong desire by the Communications and Information Technology Commission (CITC) to develop regulations that will help to realize ambitions set out in the National Transformation Program 2020. Bahrain issued 10 public consultations designed to elicit feedback on the implementations of initiatives outlined in the 2016 Fourth National Telecom Plan and the Report on the April 2018 New Telecommunications Economic Regulatory Framework for the Kingdom of Bahrain.

In Saudi Arabia, as a consequence of the public consultation processes and the active engagement of the government of the Kingdom, CITC made regulatory determinations to issue wholesale passive infrastructure licenses, create IoT virtual network operator regulations and reduce the commercial provisioning fee/revenue share from 15% to 10%. In Bahrain, the public consultation responses by respondents including Zain gave rise to decisions made by the Telecommunications Regulatory Authority (TRA) on future grant of spectrum in the 800/2600 MHz band on a managed assignment basis instead of an auction. It also prompted the implementation of appropriate measures towards the legal separation of Batelco into a wholesale fixed telecommunications infrastructure business and retail business – accelerating the establishment of the national broadband network and Zain’s access to the nationwide fiber by Q2 2019.

The Telecommunications Regulatory Commission (TRC) in Jordan issued six public consultations addressing issues on personal data protection and customer data retention, amongst other topics. The Communications and Information Regulatory Authority (CITRA) in Kuwait launched four public consultations on topics ranging from competition guidelines to data collection and private networks. The Communications and Media Commission (CMC) in Iraq issued three public consultations on environmental guidelines on tower construction, site sharing and quality of service.

Zain welcomes and supports the approach by regulators of launching public consultation processes as these not only help to notify operators in advance of the intentions of the government; they also provide an opportunity for a multi-sided exchange of ideas amongst industry stakeholders as well as participation in the drafting of legislation.

2.2 5G

The launch of 5G services is expected to herald an unprecedented digital revolution for countries, positively transforming and embedding ICT in a broad range of areas including connectivity, healthcare, transportation, agriculture, smart cities, energy management and contributing to GDP growth. In the GCC, 5G is no longer a prerogative of the telecommunications operator – the launch of 5G services is now inextricably linked to the advancement of ICT services to deliver transformative impacts at a national level. To this end, in 2018, governments and NRAs in the GCC announced ambitious plans that will see 5G launched by H1 2019 in Saudi Arabia and Kuwait, with Bahrain following on later in the year. Licensing, spectrum awards, coverage rollout, quality-of-service targets, and deployment strategies are currently under discussions. To succeed, 5G needs a significant amount of new harmonized mobile spectrum of up to 100 MHz of contiguous spectrum per operator in prime 5G mid-bands (in the 1 to 6 GHz bands).

Zain continues to advocate that the success of 5G is predicated on strong public-private partnership models and a level of cooperation and collaboration between private industry and governments beyond that which exists today given the substantial investment required and the new business models across various verticals. Zain advocates a “New Deal Approach” in which spectrum is granted at low prices in exchange for more investments and coverage rollout targets (negotiated-frequencies-for-investments) to maximise long-term societal benefits.

2.3 SPECTRUM

The access to ample spectrum is fundamental to the growth of high-speed broadband services. In 2018, Zain secured spectrum blocks in both sub-1 GHz and above 1-GHz bands to strengthen 4G layers and to serve as precursors to the grant of 5G spectrum in some markets. In February 2018, in Saudi Arabia, Zain secured 2 x 10 MHz of paired spectrum in the 800 MHz band (Band 20) and in January 2019, 90 MHz of unpaired spectrum in the 2600 MHz band (Band 41). In Kuwait, Mada (Zain’s fixed wireless access subsidiary) secured 100 MHz unpaired spectrum in the 3.4 – 3.8 GHz band. In a number of markets, Zain has already been granted spectrum in the 800/2600 MHz. Zain anticipates the award of spectrum in the C-band for IMT 2020 services in markets such as Kuwait and Bahrain and other bands in Iraq, Sudan and Jordan.

Zain continues to promote technology neutrality and contiguity of all spectrum bands as this will allow each operating company to plan methodically for the introduction of new technologies, or the switch-off of existing technologies (e.g. 2G versus 3G), or traffic balancing between network layers. Zain also advocates longer licence terms (over 20 years) and low-cost spectrum particularly for 5G as higher-priced spectrum risks more expensive, lower quality mobile services with poorer coverage.

2.4 ACCESS TO FIBER

NRAs within Zain’s footprint acknowledge the critical role played by fiber not only in the connectivity of network elements and infrastructure but also in the provision of high-speed broadband services to customers through FTTH. In Kuwait, Zain is awaiting the launch of a new licensing framework by CITRA that is likely to allow existing players to accede to a universal license allowing access to or deployment of fiber. Zain already has substantial fiber assets in the country.

In Saudi Arabia, CITC issued wholesale infrastructure licenses that allow new players (e.g. utilities) with fiber assets to offer services on a wholesale basis to telecommunications operators. This development paved the way for Zain Saudi to enter into wholesale agreements on fiber with existing and newly licensed fiber assets owners in the Kingdom. In Bahrain, the TRA has continued efforts on the legal separation of Batelco that will see a National Broadband Network / Separated Entity (NBN/SE) established, tasked with providing 100% fiber coverage to businesses at a throughput of 1 Gb/s and 95% fiber coverage to consumers at a throughput of 100 Mb/s no later than May 2019. All operators will be able to purchase multiple capacity links on a wholesale basis from the NBN/SE entity.

In Jordan, the existing integrated licensing regime permits the operation to deploy fiber for network connectivity and FTTH purposes. In Iraq, the deployment of fiber is handled by ITPC on a monopoly basis. In April 2018, Zain was able to secure a contract with the Iraq Telecommunications and Post Company (ITPC) to deploy fiber in Najaf and Karbala.

Zain continues to advocate that fiber is an essential facility and that deployment should be liberalized or that access to national ‘dark’ fiber, on pricing and non-pricing terms that are fair, equitable and non-discriminatory, should be granted. Fiber is critical for 4G and 5G deployment – for backhaul (network edge to the core) and fronthaul (distributed radio units to central units) and FTTx.

2.5 INFRASTRUCTURE SHARING / TOWER REGULATIONS

Infrastructure sharing and new mast regulations are on the agenda of regulators in Zain’s footprint. On the one hand, NRAs acknowledge that it is vital to have both passive and active infrastructure sharing to allow operators to optimize CAPEX particularly in the context of significant investments in 5G and against the backdrop of increasing data consumption. This approach is in line with principles adopted in several international markets. CITC in Saudi Arabia has issued supportive regulations, and a new wholesale infrastructure licensing framework has paved the way for the establishment of tower companies. On the other hand, NRAs have also issued new regulations governing mast site acquisition, construction, upgrades and maintenance that impose strict requirements on operators. In 2018, CITRA in Kuwait, TPRA in Sudan and TRA in Bahrain all issued tower/mast regulations that call for more stringent mast construction specifications with attendant CAPEX and OPEX increases.

Zain continues to advocate that active and passive infrastructure sharing is essential for CAPEX and OPEX optimization and business sustainability. Zain also advocates regulatory forbearance on mast construction – regulations that impose stringent requirements will increase the cost of service delivery.

2.6 DATA PROTECTION AND ONLINE PRIVACY

In 2018, data protection and privacy and the handling of personal data of natural persons increased significantly in importance following the adoption of the General Data Protection Regulation (GDPR) across 28 EU member states in May 2018, and concerns over data breaches with social media. Data protection and privacy legislation set out impacts on the treatment of personal data of natural persons (or “data subjects”); what rights data subjects have; what powers are vested in supervisory authorities; what responsibilities data controllers and processors have; and the consequences of non-compliance.

In Zain’s footprint, regulators have stepped up the development or issuance of stand-alone regulations in this space. In Jordan, a draft Personal Data Protection Law issued by the Ministry of Information, Communications and Technology (MoICT) is currently going through an industry consultation process. In Bahrain, early in November 2017, the TRA issued a draft sector-specific Data Privacy and Protection Regulation for comments; however, in Q3 2018, a new cross-sector law was issued. Zain expects other NRAs to initiate similar efforts in 2019.

Zain continues to advocate throughout its operations that data privacy is mandatory and operations have already prepared internal guidelines and policies. Furthermore, Zain continues to promote the removal of data localization restrictions in legislation and that regulations should permit cross-border transfer of personal and non-personal data to selected neighboring countries that espouse and apply similar or more stringent data protection principles. This is important to facilitate cloud and B2B services.

2.7 ENABLING DIGITAL AND THE INTERNET OF THINGS

Efforts are being made by NRAs to facilitate the launch of digital services including the creation of a regulatory sandbox framework by the Central Bank of Bahrain to support FinTech services in markets such as Bahrain, or the issuance of national cybersecurity strategies and policies across Kuwait, Saudi Arabia and Jordan. Digital services are also supported by the approaches of governments and NRAs on the development of strategies on cloud services as well as artificial intelligence (AI), machine learning (ML), blockchain and the internet of things (IoT). While policy documents for AI, ML and blockchain, are still nascent, IoT is now well developed, with Zain’s operations offering IoT services in Kuwait, Saudi Arabia, Bahrain and Jordan. For example, the New Kuwait Vision 2035 reflects the State of Kuwait’s intentions to entrench ICT across seven pillars of public administration, economy, infrastructure, living environment, healthcare, human capital, and global position. From a regulatory standpoint, in Saudi Arabia, CITC issued regulations governing new IoT-virtual network operator licences that will see new IoT-specific operators emerge. Other enablers of digital services such as regulations governing electronic contracts and electronic signatures as well as identity are also being examined in some markets.

Zain is focused on supporting the development and the accelerated introduction of regulations that will facilitate the growth of digital services. Zain is advocating government-led cross-sector alignment and collaboration involving telecom, health, finance and transportation policymakers and regulators to boost the take-up of digital services.

DATA-DRIVEN ANALYSIS AND FACT-BASED ADVOCACY

GROUP-WIDE SYNERGIES AND THINKING TAILORED
TO LOCAL MARKET DYNAMICS

PROACTIVE RESULTS-ORIENTED REGULATORY MANAGEMENT

2.8 COMPETITION SAFEGUARDS

In 2018, regulators within Zain’s footprint took proactive steps to examine competition issues impacting the retail and wholesale markets and associated ex-ante and ex-post remedies. Some market regulators introduced new legislation or new guidelines while others either launched public consultations on SMP-operator reference offers, mobile termination rates, long-run incremental cost modelling (LRIC) or initiated strategic market reviews. In Kuwait in Q2 2018, new competition bylaws for the telecommunications sector were issued to set out procedures that CITRA will adopt. Kuwait also commenced work on a strategic market review to define relevant markets, to determine dominance in those markets as well as to re-examine ex-ante and ex-post remedies.

In Bahrain, a new cross-sector competition law No. 31 of 2018 was issued, complementing the sector-specific Competition Guidelines issued by the TRA in 2010. In Saudi Arabia, CITC issued public consultations on the reference offer and broadband service access offers issued by STC, on mobile and fixed termination rates (FTR and MTR), on the weighted average cost of capital (WACC) employed in regulatory accounts and on accounting separation. CITC also issued a decision on market dominance, imposing additional ex-ante remedies on the incumbent operator. Furthermore, regulators in Iraq, Saudi Arabia and Kuwait took steps to institute controls on pricing and to put in place competition safeguards to mitigate impacts of price wars.

Zain welcomes regulator-led initiatives to improve competition, to create favorable outcomes for customers and to encourage investment and innovation for operators. Practical enforceability of ex-ante and ex-post remedies is a critical area that regulators will need to pay attention to.

2.9 INDUSTRY COSTS

The industry is still subject to high costs, and while some markets are taking cognisance of this fact, others still impose high taxation on telecommunications operators. In 2018, CITC in Saudi Arabia lowered the commercial provisioning fee (annual royalty) from 15% down to 10% with the consequent positive impact on the industry. In Bahrain, however, the TRA’s Schedule of Fees Regulation No. 7 of 2017 came into effect on 1st January 2018 with a consequent increase of annual regulatory levy from 0.8% to 1% and an additional increase in microwave spectrum fees. At a country-level, Bahrain also introduced a value-added tax of 5% as per the Value Added Tax Law No. 48 of 2018. In Jordan, in December 2018, an amendment law (No. 38) for the year 2018, amending the Income Tax Law (No. 34) for the year 2014 was approved with a consequential rise in additional national contribution tax of 2% imposed on telecommunications companies – thus increasing the corporate income tax to 26%. As noted above, the introduction of new mast regulations has also had a consequential impact on the cost of site construction.

Zain continues to advocate a lowering of industry taxation as this has a consequent negative impact on the development of the industry. Income tax, radio access network spectrum fees, backhaul microwave fees, revenue share, mast fees and other attendant government fees should be lowered in lieu of more network investments. Zain also advocates longer licence durations to allow for better management of cash flows and to trigger lower amortisation.

2.10 OTHER AREAS

Markets also witnessed moves by regulators to initiate mobile number portability (Jordan and Iraq), fixed number portability (Saudi Arabia), initiate biometric SIM registration (Jordan), and to consolidate and nationalize international gateways (South Sudan). Positive outcomes included the extension of Zain Bahrain’s frequency licenses for spectrum in the 900, 1800 and 2100 MHz bands (originally due for renewal on 12 August, 2018) until 31 March, 2019.

Zain welcomes initiatives that will help to enhance telecommunications services; however, Zain also highlights that some initiatives – such as the launch of mobile number portability in markets that are already very competitive – may not warrant the investments that are being called for and should be re-examined by regulators to assess the real impact of such.

3. REGULATORY AGENDA

Actively help to shape regulatory outcomes through engagement with regulators on public consultations, multi-stakeholder workshops, and conferences

Lobby for pro-investment and public-private partnership approach to 5G

Advocate technology neutrality for all existing spectrum; secure ample spectrum in new 5G bands; support regional spectrum harmonization efforts (e.g. at WRC-19)

Lobby for long-duration frequency licences (>20 years) at low cost

Recommend liberalization of national fiber, international gateway and open-access cable landing stations

Advocate for regulations supportive of active and passive infrastructure sharing

Recommend regulatory forbearance on CAPEX-intensive mast regulations

Champion enactment of legislation to accelerate digital services, B2B and internet of things and to address convergence of ICT and verticals - telco, digital, media, fintech, health

Espouse data privacy principles but advocate cross-border free flow of data

Advocate enforcement of ex-ante and ex-post remedies to foster fair competition

Lobby for lower industry fees: spectrum fees, licence renewal fees and taxation

Leverage support of industry associations including GSMA, SAMENA Council and ITU, to advance these positions with government stakeholders and other industry participants