When Satellite News last spoke to Thuraya CEO, Yousuf Al Sayed, it was in the immediate aftermath of the NSS-8 launch failure, and the potential impact of when its Thuraya-3 satellite may be launched. However, while that question remains, there are other issues regarding the Middle East-based mobile satellite operator. The question of whether it will have an IPO is still very much relevant, and there could be movement on that this year. In an exclusive interview, Al Sayed spoke about the IPO issue, as well as the growth opportunities for the company going forward.

Satellite News: When we spoke last year, one of the main themes of the interview was whether Thuraya would have an IPO. A year on from that interview, could you give us an update on the IPO situation?

Al Sayed: At that time, I said that IPO was on the table, and being discussed. Today, I can say the intention is still there, but it’s a matter of time suitability. To me, next year could be a good time, depending on Thuraya’s performance in the first half of this year compared to the business plan. By saying this, I am not ruling out the idea of having an IPO in 2007. But our performance in 2006 has not met our expectations, that’s why it may not be seen fit for the company to go for an IPO soon after the 2006 results. It is always wise to go to the stock market when you are fully ready, having a robust performance and able to market the company from a strong position. This is very important for both the company and shareholders.

In terms of its significance to Thuraya, the IPO is seen to be a strategic transition. It’s not only designed to be a good measure for our shareholders to evaluate how much their investment is worth and allow trading of company’s shares in public stock markets, but also to broadly transform Thuraya, which is a growing key regional telecom player, from being a private entity to a highly visible and strong brand in the public spotlight.

Up until last year, the idea to launch an IPO had been envisioned as an opportunity to raise additional funds and fuel future growth. However, with the introduction of many more shareholders early last year, many of which are investment companies, the idea of an IPO has become more pivotal.

In terms of our performance in 2006, we encountered delays in the delivery of the second generation handheld terminals. They were delayed by almost a year according to contract, or you can say by six months as per revised agreements. Furthermore, we had some interference into the system, which started at the end of 2005, and continued intermittently until May last year. Then it became continuous and very harmful until August, when we managed to deal with it. That had a major impact on our marketing and sales efforts during the year. Both factors are now behind us, and the outlook is bright for 2007.

Satellite News: Since we last spoke, there has been major consolidation in the satellite industry (SES/New Skies, Intelsat/PanAmSat). What are your views on this consolidation? Do you see this having an impact in the Middle East?

Al Sayed: These are fixed satellite businesses not highly concentrating on the Middle East. The market dynamics for satellite services (for broadcast, fixed and mobile) vary from region to region, depending on market maturity, competitiveness and the regulatory environment. Thus, consolidation – if it means extending a company’s service portfolio, enhancing its marketing and distribution capabilities and doubling its market share – would be very healthy for maintaining a flourishing satellite market. In the Middle East however, satellite services players are only a handful, with Arabsat and Nilesat dominating the market and serving, more or less, the same content providers. Whereas Thuraya, being the sole and key mobile satellite services provider, constitutes a completely different market. Hence, there hasn’t been any kind of mergers in the Middle East thus far, nor has the region been directly affected by mergers taking place in international markets.

Nevertheless, the mobile satellite services (MMS) market saw some signs of alliance formation in 2006 as Inmarsat and ACeS announced joint commercial approach for the Asian market, which is yet to be assessed in terms of effectiveness. As I see it, it may provide some kind of leverage for Inmarsat which is entering into the handheld business, but I am not sure in the case of ACeS.

Satellite News: We also spoke about the African market and you said that would be a key focus for the company in 2006. How would you assess your performance in Africa in 2006? What would you say are the major challenges for the company as it heads into 2007?

Al Sayed: The performance has not been as strong as expected in Africa. It was mostly impacted by regulatory issues relating to licences and the ability to provide services in time. I won’t say we were unable to get these licenses, but we were just not getting them in the time frame of our business plan. That of course impacts our bottom-line and growth-acceleration efforts. For instance, we were anticipating that we would have a licence to operate in the Congo in early to mid 2006. But up until now, we don’t have it, due to ongoing election activities and the anticipated replacement of government officials. Such local market factors impede or delay our operations to some degree. Nevertheless, we have been successful in launching our services in Angola, Sudan, and Algeria, as well as the majority of non-African countries in our footprint.

The other issue concerning going to or operating in African markets is the level of logistics. The commercial and even the civil infrastructure there is underdeveloped, which sometimes makes it very difficult to reach or appropriately serve your target customers.

Satellite News: How many subscribers do you now have? Are you expecting strong growth in 2007?

Al Sayed: We have successfully established a stable subscriber base, actually the largest in the world for satellite handheld terminals. In effect, we have built a strong platform for the company’s sustainable growth and future product expansion.

It is no coincidence that we lost some subscribers in the Middle East (mainly in Iraq) during 2006, however, we gained some more in Africa – which can be seen as a natural trend given the size and ongoing developments of our regional coverage. The loss of customers in certain Middle Eastern markets was expected, and has thus been factored into our business planning with Africa seen to be compensating for it.

The quantum milestone in our progress in 2006 was with the arrival of the first batch of second-generation handsets in September last year. These are satellite-only phones (SO- 2510). We received about 60,000 units, which were all sold by the end of last year. To us, these phones mean new subscribers and service activations for Thuraya once they are passed to the customers through the distribution chain. Hence, it would be logical to say we have 60,000 new customer activations. But, there will be de-activations by other customers in other markets due to ongoing GSM expansion among other reasons.

Satellite News: Could you tell us about the company’s capital expenditure plans? You mentioned last year about needing more capacity for Asia. Is this still the case? When would you look to invest in new satellites? What is the latest in terms of Thuraya-3?

Al Sayed: We will know after the [Sea Launch] launch failure investigation is over. We hope we can launch Thuraya-3 before October. The plan is to start providing service in the Asia-Pacific markets by the end of this year. The coverage will expand from India all the way to Japan, China and Australia. We expect north of China and south of Australia to have an acceptable quality service, but it will not be as good as in the middle area. We were studying different options; whether to go to Russia and South East Asia, or go to Australia instead. We finally decided on the second option: to go to Australia. We have already started marketing our services in that lucrative region. We have set up a regional branch office there, and are getting in touch with the potential service providers in China, Australia, Korea and other countries. Although India is somewhere in the middle, between the Middle East and Asia Pacific, we might be covering it with both satellites. We are also in talks with the Indian regulatory authority for licencing Thuraya services.

Satellite News: What new services are you looking to bring to market in 2007?

Al Sayed: We have several innovations in the pipeline which will be totally new for our customers in the businesses and corporate sectors. The first and foremost of these will be an A-5 sized, high-speed data terminal by the end of this year, or early next year. This will allow Thuraya more than 400 Kbps using the current bandwidth for our 144 Kbps. There is no penalty on the bandwidth. It is just a more efficient system giving users more bits per second.

We are looking into packages that are tailor-made for high-volume users, to allow them benefit from managing their usage a lot more efficiently. This will be for prospect customers. We will simplify prepaid tariffs – since they are currently very complicated – with different upgrades from different distributors in different countries. There are several different scenarios for Thuraya customers with different tariffs.

We are also going to launch Thuraya’s second generation Public Calling Office (PCO) and Payphones which are based on the same technology of the second-generation handheld terminals, yet they would be more compact in size and cheaper in price. A more advanced and efficient Thuraya Marine terminal, with a new powerful omni-directional antenna, is also planned for launch in the fourth quarter this year, positioning Thuraya firmly in the rapidly growing satellite maritime market.

Satellite News: What level of performance would you expect from ThurayaDSL in 2007? How many customers do you have for the service?

Al Sayed: ThurayaDSL is the 144 Kbps service I have just talked about. It was an interim service, and relatively easy to introduce. It is a stepping stone to move more towards DSL+ services, which are planned for later this year, or early next year, providing 400 Kbps per second service. ThurayaDSL itself caters for a niche market comprising mainly of corporate users. We have introduced unlimited user packages as well, for both postpaid and prepaid customers. Currently, we have ordered only 4,000 terminals, out of which 50 percent have been sold. The remaining 2,000 are expected to be sold this year.

In terms of an overall business forecast, the mobile satellite business is really unique. It is a niche market and you have to be very focused to be able to capture your target market. Then, you have to have a good presence in identified markets. Initially, Thuraya relied very much on subscriber acquisition, increasingly enlarging its subscriber base. We currently have between 230,000 to 240,000 subscribers. However, we are now moving a step a head in our business strategy where focus is made on the quality of subscribers and the value they represent. We can acquire another 100,000 subscribers if we want, but that would not have a major impact on the revenue if these do not represent a meaningful value to the company business. That is why we are now focusing our sales efforts on capturing high-revenue customers. I am very confident that Thuraya could add more than 80,000 customers this year.

Satellite News: Finally, what role do you see the company playing on the satellite services landscape in the Middle East? Where do you hope to position the company?

Al Sayed: Thuraya is an international company, given its multi-regional service coverage in Asia, Africa and Europe as well as its widened shareholder base. So, our big focus is not on the Middle East; yes, we happen to be based in the Middle East, but our revenues now come from outside the region.

We see ourselves as a regional operator focusing on different regions. We want to maintain and expand that philosophy. Once we operate and succeed in a region, we want to look at other regions and replicate our success there too. That is why we are looking at Asia. The economy in Asia is different, based largely on manufacturing and export activities. It will be a new challenge for us to operate or even compete with others in that market due to the different dynamics. However, there are real needs in Asia for satellite communications in certain areas, compared to the existing telecoms coverage. Besides, Thuraya is designed and well-experienced in adapting to different market requirements.

From current indications, we see ourselves fully operational in Asia by the end of this year, having at least 3-4 active service providers. I cannot exactly say which countries they will be, though. There will not be huge numbers of subscribers in the first year, maybe 30,000-50,000 subscribers, which is normal for satellite. It will start slow, and then hopefully it will take off. Thus, in 2007 Asia will make a minimal contribution to our revenues, but in 2008, we will see higher contributions coming from Asia, and a more considerable contribution in 2009.

One final point, our strategy in the products side is to make sure that we are leading the whole category of MSS operators. Our SO-2510 handheld terminal is by far the smallest phone today with a competitive feature range. And next month, Thuraya will introduce a satellite/GSM phone (SG-2520), a stunning SmartPhone which has a series of features that are new to satellite phones. The ultimate aim for Thuraya is to make the GSM users happy to carry a satellite phone, without feeling they are different. This, together with the competitive ThurayaDSL+ and the new advanced PCO, Payphones and Thuraya Marine terminals, will give Thuraya a major leap forward in its positioning and differentiation in the satellite industry.

–Mark Holmes