PETER KALIAROPOULOS CEO of Batelco

UNITED WORLD: BATELCO has invested US$1.6 billion in Bahrain's telecommunications infrastructure over the past 26 years, and BHD 27 million throughout 2007. Could you give us an outline of the multiplier effects that telecom has on the economy in general and, more specifically, in the case of Bahrain?

MR. PETER KALIAROPOULOS: Before we talk about the US$1.6 billion investment, I would like to say that only last year we invested US$388 million directly out of Batelco's revenue stream - payments we gave to our suppliers, salaries to our staff, and dividends to our shareholders. That is a direct injection into Bahrain's the economy. If you talk to economists, there is a multiplier effect of 6-7 times on the direct investment we madke, in terms of benefit to the economy, job creation, spending power, education, and so on. Thus, we calculate that we have made somewhere between US$2 billion to US$ 2.5 billion worth of investments in the last 12 months alone.

The US$1.6 billion is the capital expenditure which we have basically invested in building infrastructure over the last 10 years. This does not include salaries, training development, and payment to suppliers - t. Even the in-direct investment of course runs into many billions. , if you just look at the US$1.6 billion. These figures show how seriously we take our commitment towards the Bahraini economy.

UNITED WORLD: Batelco has evolved from being just a national telephone company to being a regional player, offering a wide spectrum of services. Could you give us a brief outline of the transformation of the company over the last few years?

MR. PETER KALIAROPOULOS: The best thing that happened to us is to operate in a competitive world. Before competition and deregulation, I believe we were a bit complacent. We were quite happily growing in Bahrain at 3% or 4% a year, delivering technology but not necessarily services to customers, and we thought we were doing a great job.

Since 2003, something happened that announced that the world in the future will be different from the world in the past. The early transformation started from 2004 and the biggest realization for us has been that the market here, despite how wonderful the economy is going with 7% growth per annum, is not growing fast enough for the appetite of Batelco. We have said that we will be a boutique regional company, not purely going into different geographies and being all things to all people. We are defining ourselves in the broadband and the mobility solutions and we are investing where we can pick up licenses for the right price or companies for the right value.

We are creating a regional company with mobile and broadband being at the core - what we call the ICT enterprise business. We have been accelerating our growth this in the last 3 years because until then, we had a very small presence. Today we are operating in Bahrain, Jordan, Egypt, Kuwait, and Yemen. We are just rolling out our operations in Saudi Arabia. We are transforming from a technologically driven stable company in a small market, to becoming a regional challenger across the Middle East. Of course, our ambition goes beyond the Middle East, but we need to have a strong base initially in Middle Eastern countries, leveraging on our heritage, our contacts and our brand name, and then grow more into the Asia Pacific region and Europe.

UNITED WORLD: How has competition forced Batelco to become more consumer-driven?

MR. PETER KALIAROPOULOS: We discovered that what makes a difference in our industry is the customer. We thought until a few years ago what made a difference in our company was technology - having the best mobile phones, the best data network, and the best transaction system. What competition did is transform the company by putting the customer in the center of the company. What does this actually mean? A lot of the decisions we are making today, be it in sales or marketing, are targeted towards improving customers' experience satisfaction.

We tried to transform Batelco into a customer oriented marketing company, and we are making sure technology is one of the ingredients of success, but not the most important ingredient. We are now listening totaking the customers' voice through research and studies., through a number of systems we built. We are now monitoring what customers tell us and change our operations accordingly. For example, at a retail the shop, we used to take 10 to 15 minutes to take a customer's order for a broadband service. Operators had to go through 24 screens and the customer had to wait for close to an hour hoursin total to be served. Now we can take orders in 3 screens and in 1 ½ minutes the transaction is over. This makes the customer's experience very different. Customers can place orders at by coming physically to our shops or . Customers can pick up the phone, as we have electronic voice signature, and place their order with over the call center. Our prices have dropped and our retail distribution network has expanded.

Also, the way we are rewarding our people has changed. Before they were merely going to work and getting bonuses. Now they have to meet objectives, customer satisfaction is one of those objectives, they have to meet targets. We have introduced individual performance-based remunerations wherein the staff does not automatically get paid the same bonus every year.. Transformation of a company involves many takes part across multiple aspects with customers and employees being at the core..

The Board also injected a new management talentprinciple. If you look at my management team when I came, we had people who had 30 to 35 years of experience. There is nothing wrong with that. But they only knew how to manage in a stable, predictable environment. With competition though, you will never know what will happen, even on a daily basis, and you have to keep up with the challenges, even to the point of changing the rules of the game. To bring about the transformation, you need people who think differently.

Today, in my team we have collectively around 230 years of experience in multiple companies, across multiple geographies. In Batelco, we are trying to accelerate the pace of transformation to make us more competitive and relevant to our customers.

UNITED WORLD: How has the perception of Batelco changed as a result of these measures?

MR. PETER KALIAROPOULOS: The way to measure this is to look at the hard evidence that the customers give us through surveys, which have been conducted externally and internally. We look at measures we have which reflect customer satisfaction - prompt service, innovation, competitive proper and attractive pricing, and resolution of faults within certain parameters. If you measure our whole range of key performance indicators (KPIs) that relate to customers 3 or 5 years ago, and you measure them today, you will notice statistically there is a remarkable shift between what we were delivering on these KPIs 4 years ago and what we are delivering now.

Specifically, at the end of 2007, we had the highest levels for customer satisfaction and quality of service across all the KPIsstatistics. Now that gives us confidence that we are improving. Of course we make 10 millions calls a month through our network in Bahrain alone so when you have these volumes, including that we have (about 4 to 5 thousand orders a month from business customers) we are dealing collectively with and about 1 million transactions every month, . With these volumes, there is always a percentage that we do not deliver. We have introduced process improvement as part of transformation. We are using Six Sigma and we try to keep improving, measuring everything we do to make sure we deliver consistently a better level of service. In my opinion, this process is already paying dividends, the statistics from customers areis telling us we are improving and we will continue to set even higher targets for the following years.

UNITED WORLD: Bahrain is a small market so your overseas operations will take an increasingly important role in the future. Could you tell us more about your plans for regional expansion?

MR. PETER KALIAROPOULOS: Three years ago, revenue from overseas operations was about 5%. Last year it grew to 30%. In the next 5 years, we are targeting 80%. That again is part of the transformation of Batelco, while remaining market leaders in Bahrain. We do not worry about more companies coming into Bahrain because it gives us a strong incentive to improve service and our overall competitiveness and see how we are going to grow regionally.in the business and remain market leaders.

However, our future, by default, is to keep growing outside Bahrain. We plan to get to 80%. We are looking at acquisitions and licenses in the MENA region, Africa, India and Pakistan, Asia Pacific, and Europe as well. By necessity, we will grow outside Bahrain. What will not change though is that we will always remain a Bahraini-headquartered company - the decision-making, the work ethics, and the culture of the company will be decided at the Bahrain office.

The best example I can give you is Singapore Telecom. I worked for them a few years ago; 4.5 million people market but when competition was introduced in 1999, Singapore Telecom was almost exclusively relying on revenues from its operations in Singapore. Today, I believe close to 90% of the revenues of Singtel are outside Singapore. We are looking forward to similar that transformation. Deregulation will create give us uncertainties about what will happen in Bahrain. From a management point of view, that is creates opportunitywhat we want.

We know that a lot of companies are entering the market coming in and the only way we can stay relevant is by being more competitive and aggressive. I am not worried about Batelco. I am more concerned about some other companies that are coming into a small economy, thinking that they will be very successful. Irrespective of the number of companies coming in, we plan to be more aggressive; the question for them would be if the market can accommodate all these new companies?

We have gone into economies where the markets are big: Yemen is 24 million people, Jordan is 7 million people, and in Saudi there are 24 million. We see significant upside for us and maybe we lose another 10% market share in Bahrain, but when you put the numbers together, losse in market share here versus the gains in overseas markets will make a huge positive difference for Batelco.

UNITED WORLD: You are now rolling out your operations in Saudi Arabia. What has been the challenge in terms of regulatory issues and the like?

MR. PETER KALIAROPOULOS: We were up against some very formidable global companies when we put the bidding and we are very pleased that Batelco and another company, a Hong Kong-based consortium PCCW Limited, were granted WiMax spectrum for broadband services. Interestingly enough, when we actually bid for that spectrum, we paid half the price and we got double the spectrum than that of our competitors. got. We believe it is got a great deal for our consortiumin terms of buying spectrum at a very competitive price.

The challenge is really the time it has taken to get the Royal Decree because things do take time: we got it 10 months after the Rregulator gave us the go-ahead. We had a team of Bahraini people and others planning the network, the technology, negotiating contracts. We have aligned ourselves during this time and are actually ready to commence operations. We are investing up to US$1 billion in the next 5 to 6 years in Saudi Arabia. You do not enter into contracts until you are certain that you will be granted the license. That happened last week and soon we will announce significant contracts with various global companies and start building the network. We expect in November or December to start selling services to consumers in Saudi.

UNITED WORLD: Here in Bahrain, the main nucleus of your operations now goes around the Next Generation Network (NGN). Could you explain the benefits it offers to the consumer?

MR. PETER KALIAROPOULOS: NGN is a great marketing spin. Our industry from a technology point of view is fairly complex. We have multiple generations of technology: wireless and technology, fixed technology supporting legacy services such as and others like telex and telegram. The buzzword in our industry is simply called "convergence". If you want to communicate between 2 people, you should be able to use any device, whether it is a fixed device, a wireless device or a mobile device. How do you communicate the technology between us instead of having different layers of technologies? Ideally you should have only one type of technology. NGN is an Internet-Protocol (IP) product based technology which would allow us to simplify all the complexities we have in our network.

Basically, we have lots of people, lots of supply contracts, lots of technologies and it was very costly in terms of supporting the network. It would become very efficient, lower costs but also it will you enables us to launch new products and services quickly because weyou have a uniform 1 type of technology. In fact we think we are almost the global leaders in NGN because we will have deployed NGN by June this year in the core abd access, in the axis, fixed and wireless. Of course, the smaller size of the geography helps, but by June this year we will be end to end NGN infrastructure compliant.

Basically, the customer on day 1 will not see any difference. He will still be able to communicate. But on "day two"2, if we are going to launch a new products and , we will do it quicker. For example, six or seven 6 or 7 months from today, if you are a customer who has a fixed telephone at home, and you call us and ask for a broadband service, from our call center, within a few minutes, we will be able to activate your line and change it to a broadband line through a software-controlled instructionsprogram. Today, you might have to wait 5 or 6 days with us, or go to a shop to buy a modem and install it yourself. What NGN will do is deliver broadband connectivity instantaneously at a lower cost.

UNITED WORLD: What do you make of the Telecommunications Regulatory Authority's (TRA) strategic review?

MR. PETER KALIAROPOULOS: We made our views known to the TRA before the so-called consultation. I do not think it was a fair consultation simply because none of the 130 pages were submitted. None of those iinitiatives we submitted in our 127 pages report were actually taken into account as proposed. But having said all that, my views are very simple. Tthe TRA has a responsibility job to interpret government policy into specific initiatives. The challenge we have with the TRA is not the government policy; we all want a competitive environment and competition has helped us beyond what we could have imagined 4 or 5 years ago. It stimulated and motivated us to become bigger and better. People like us come from competitive backgrounds. We believe in competition, not in monopolies. Thus, I have no problem with competition, no problem with the initiatives the TRA has announced, but on how they arrived at those conclusions outlined in the Strategic Review.

As I mentioned, all the initiatives they have introduced, theoretically, will increase the perceived competition. I think long term, the market will consolidate. I am not concerned about Batelco, because if you look around the world the incumbents have become stronger and maintained majority market share.

One thing that the TRA shouldmust understand though is that it is also responsible for the sustainability of the industry long term, especially in micromarkets. Short term, you allow everybody to come in, 65 companies, 135 licenses, terrific!, euphoria. Everybody can set up a business and operate, with access to the network, etc. Then one day you might wake up with a headache because the euphoria is over. There are some fundamentals in this industry: this is an infrastructure business with fixed costs. I do not believe all the companies operating today will be able to sustain their operations long term unless this market increases from 1 million to 3 million people, say. The realities of the market place will create consolidation even quicker. It happens aroundin the world in big markets. If you look into the U.S. and Asia, after the initial euphoria from deregulation, you start to see consolidation within a few years.

It is possible to have effective competition with a few strong companies versus many who may not be able to sustain operations after a few years. They might complain Batelco is too strong and too dominant powerful and loudly lobby then ask for special support from the TRA and other industry stakeholders. I am more worried about mid to long term prospects for the industry. As for the short term, I know there will be a 3rd mobile carrier. Do we mind a 3rd mobile carrier? I think the shareholders of the 3rd mobile company need to ask themselves that question. There are 65 companies, 17 are relevant; 30% of industry revenues today are not Batelco's…. We will react to the competition and try to remain market leaders.

At the end of the day, what I think about TRA is not relevant. W because we have to accept their mandate to implement a more competitive environment. The TRA also has to accept the consequences of their decisions on the economy, industry and individual companies. live with them.

I believ the think those 9 determinations from the Strategic Review will reshape our company quicker than we were planning to because it will create the most competitive open environment in the Middle East. Not all companies will survive. My management team and I will now have to transform the company to the "next level", not in 2 - 3 years as initially planned, but in 2 to 3 months! There will be an impact on my people and the size of Batelco in Bahrain, but these would have happened anyway. This just accelerates Batelco's plan to transform and seek new business opportunities outside Bahrain..

UNITED WORLD: What do you think of the companies that go to the TRA with demands?

MR. PETER KALIAROPOULOS: First of all, I have worked for several telecommunications companies around the world. New entrants are making the same mistakes by underestimating what it takes to be successful in an infrastructure business. They also make the mistake of underestimating capital investment. This is a capital intensive business. They will complain for a very long time about access to the network- which they want for almost free. By law, I have now need to offer access of the Batelco pen up my network to all licensed operators.and give it to them. We support access to the network not because of the legal requirement but also because it is the best option in a small market The whole debate with the TRA and new operators is the cost that they should will have to pay for accessit. We have to make huge fixed investments.

Batelco I am now in a position that I needs to invest significant big amounts in infrastructure whilst , the new operators y want to pay me a few Bahraini Dinars per month, at small a variable cost versus huge fixed cost by Batelco.for a link. They have a huge advantage. They do not have to invest US$7100 million minimum a year like we do. They want access at low incremental price. But they want the links. No one forced them to enter the market. They have a business plan, they should have enough experience and they should have done their homework on the investment costs of entering a market.

From the TRA, we want fair and reasonable commercial rates for to access to the network. In my opinion, the TRA, which knows as everyone else in this industry that these companies will not last too long, is making the costs very low to support these companies so they can last a little longer. We will always have the debate on what the cost should be forto access to the network. If the TRA forces us me to charge these companies at a very low price, it will not encourage us to continue investing in a smaller market versus capex requirements for high growth regional markets. I will stop investing because I cannot be forced to invest. It is a fine balance. We are determined to keep investing in Bahrain but for if the right commercial returns that results from what the regulator insists on is low…then they will need to start investing themselves, as there will be very little incentive for us to do so- which would be great! In other countries, I invest and I get a good return.

On the other hand, if I am forced to invest in one geography and get a very low commercial return, and since my shareholders demand a certain level of performance on return on investment, I would not want to continue investing. The new entrants se companies will have to fund infrastructure and their business in order to grow and show true commitment in the Bahraini market ratherthan just continue to complain to the TRA for lower access prices to the existing network. , instead of trying to get a free ride from Batelco (free ride meaning very low variable costs).

UNITED WORLD: What about the local loop unbundling?

MR. PETER KALIAROPOULOS: We have no problem with that. As I said, Bahrain is a small market so if people will put up their own exchanges and infrastructure, that's fine. I respect Zain because they compete with their own infrastructureresources. I think that is fair competition. New entrants will have a fixed cost that they do not have today. Today they can buy bit stream access, which is at variable cost. If they go down the path of local loop unbundling, they will have to set up an exchange, put up equipment and maintain it. That will make competition more balanced and rational. RBut right now, we do not object to LLUanything. I am quite happy. I think the market dynamics will dictate who will survive. The only concern we have is the commercial access to the network.

Third carrier, fourth carrier, local loop unbundling, mobile number portability - all these we have factored in our business plan. Yes, the level of growth ofor f Batelco will decline in Bahrain because it is natural with so many new companies. My concern is that our the long term growth does not lie in Bahrain. The industry here will grow marginally. There is long term growth but for the short term, you will need to fund it. There are far too many regulatory initiatives being introduced in a short period of time. In my view, there is no use debating these; things. Tthey happened. We put our views forward.

I think what will happen is that out of the 65 companies registered, if you come back in 3 or 4 years, you will find a very different landscape. You will still get the comments from the smaller companies about survival due to high costs. If you look at the business plans of these companies, you would d think we are operating in a 15 to 20 million people market because of false assumptions regarding market share. Eventually of course, they will find out it is a tough place to do business. Even for Batelco, there will be tougher times - less people, more selective investments -, but these are natural things you will need to do to transform your company.…b But we are not about to give up market share easilyeither.

UNITED WORLD: Could you give us an insight into Batelco's role in preventing a major internet disruption through its connectivity with 3 international cable systems? Is Bahrain safe from future disruptions?

MR. PETER KALIAROPOULOS: Yes, at 99.9%. There are only 3 major international cable systems that Bahrain can get access to today, and we have access to all 3 of them. We also have the Middle East's largest earth station. That type of diversity and redundancy is considered atthe world's best practice. Also from a telephone exchange to get access to those cable systems, we have 3 different levels of diversity. We do not have 1 cable going from this building to the international gateway, we have 3 diverse paths. We have domestic and international redundancy.

We are investing in every international cable system we can identifyget our hands on. If we had not invested, there is a case for us to answer. What happened was drastic but we managed to recover the majority of the traffic and we did a pretty good job compared to a lot of other countries. Unless there is a calculated act to disrupt communications, this Kingdom is served very well.

UNITED WORLD: What is your opinion on the potential of WiMax and the concerns regarding data security?

MR. PETER KALIAROPOULOS: The data security at concern applies to any wireless. My view in a big market, it is less of a concern because WiMax allows you to deliver a number of services.

For heavy users, eg iIf someone wants to download a movie, WiMax is not the best product ftfor it. But if you take a market of 10 or 20 million people and all of them want to download a movie, WiMax is a great technology for what I call mid-speeds, "lite for access" to the internet.

If you are an architect, journalist, lawyer and you want to download content 24/7, nothing beats cable. That is why I think WiMax technology will have limited segment success here in Bahrain, which is not a big market. In a 20 million market if you get 10% you have a great business. WiMax is an emerging technology and in some countries, you do not have a choice because it would take forever to dig up streets and put cable access to 4 million homes, say, as in Saudi. You will need to make use of available technology. It allows us to access customers very quickly. Once you have the customer you can decide if you want to extend to him services like fiber. It is a great challenge in big markets. In Bahrain, we do not need it as much due to the widespread fixed network access. WiMax allows you to capture a segment of the market, deliver a reasonable good eexperience in terms of internet access, voice and data but if you really want to appeal to the very intense users of the internet, that certainly will not allow you to offer a strong customer experienceoperate at that speed.

UNITED WORLD: How important is corporate social responsibility for Batelco?

MR. PETER KALIAROPOULOS: Corporate responsibility is not a fashion. Companies our size have no option but to be the best corporate citizens we can be. The approach I have taken with the group and certainly the Board supports, is what we refer to call "a balanced score card". It is about giving customers good value and being competitive, it is about giving shareholders the good returns they are looking for, it is about giving employees career development and a reason to stay with the company and it is also about giving something back to the community.

We benefit from the immediate community. We are a sizable and profitable company. We have a responsibility to help people who are not in the same circumstances as us. We take corporate social responsibility very seriously. In fact this year we increased our budget for corporate responsibility from 2% to 2.5% of our profit. We support many causes including everything: sports, health, education, women's rights, and hospitals. Social responsibility should be taken very seriously irrespective of what type of business you are in; it is fundamental that you give back to the community because you are benefiting from it.

UNITED WORLD: What are the main challenges you are facing in terms of human resources?

The future is all about being relevant to customers, but if you do not attract and retain some of the best people that are available to us, then we will never be a great company. If we have a better brand, marketing campaigns, donate more than other companies, how do we develop these strengthsthings? What is the core ingredient to in a high performance companydo all these things? The answer of course, is very simple. It is the quality of people. In my opinion, oura competitive advantage in the long term would be stronglymuch correlated to the quality of the people that we have.

We are trying to recruit as much Bahraini talent as we can because we are going through a very quick transformation from the old world into a very competitive world. We have a few expats to help us accelerate this transformation. I am delighted with the Bahrainis, especially with the people who have been with the company 6 to 10 years. They have a different attitude and behavior with regards to customer relations. Like all incumbent operators wWe have had challenges with some of our senior managers ment because we had people who have been set in their ways for there 20 to 30 years.

The challenge I have is no different to Steve Jobs of Apple. He once said to his people, "I can't guarantee you a job for life in this company, but I can guarantee you a job for life in this industry." This is what we are finding now. People are mobile. They come and work for 3 to 5 years. Another company in the industry comes up, they tend to move around. We have another challenge to keep winning them back to work for us instead of going somewhere else. But if we loose some of our good people, and this may sound like a paradox, I am proud of them because the time they worked here, they probably made a great contribution, so we benefited from that.

I do not want to lose any of my talent, because the Middle East has a shortage of people with the right skills, experience and the right behavior. It is not only the technical skills in people we are looking for; we are also looking for the right behaviors. We have introduced a number of programs to accelerate the training and development, to improve leadership, the retention of people, succession planning, and behavioral trends.

We work to attract the talent and develop them in the Batelco way. We are attracting our fair share of good people. The challenge is keeping them because of remuneration offered from many new operatorss. You have to build into your plans the fact that some of your people will move on and you have to work around that. The answer is not to pay whatever it takes to keep that person; you also have to look at your succession plan and training. I do not believe people leave for the 20 or 30% especially if you have the right leadership. There will other circumstances because a majority of people will remain stick around in companies with good leadership.

UNITED WORLD: On a more personal level, you have a long career which spans Asia, North America. What has surprised you most about Bahrain when you first came here?

MR. PETER KALIAROPOULOS: What has surprised me is the willingness of people to change. I came into Batelco thinking it would be hard to change people's minds or resist change. To my pleasant surprise, the people were open to change. I have worked in other cultures and in the most recent company I was in, it was very hard and changeing took a longer time. Here, the people understand the need to be more dynamic, pro-active and entrepreneurial; and to be more relevant to the Middle East and the rest of the world.

Another surprise was the access to people. It is not hard to access people of influence across our society. It is a lot easier than in other markets, but then it was not really a surprise maybe because of the size of the market. The last surprise was the entrepreneurial talent. There are many Bahrainis who are very business minded. They try to raise the bar. That entrepreneurial thinking plus the willingness to change are good ingredients to start working with.

UNITED WORLD: What message would you like to convey to the readers of the USA Today?

MR. PETER KALIAROPOULOS: If they are willing to expand to the Middle East, Bahrain is the best gateway!

UNITED WORLD: Thank you very much for your comments.