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Edited Transcript of ZAIN.KW earnings conference call or presentation 12-Nov-19 11:00am GMT

Q3 2019 Mobile Telecommunications Company KSCP Earnings Call

Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Mobile Telecommunications Company KSCP earnings conference call or presentation Tuesday, November 12, 2019 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Mohammad Abdal

Mobile Telecommunications Company K.S.C.P. - Chief Communications Officer and Head of IR, Corporate Communications & Corporate Governance

* Ossama Michael Matta

Mobile Telecommunications Company K.S.C.P. - CFO

* Scott Marc Gegenheimer

Mobile Telecommunications Company K.S.C.P. - CEO of Operations

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Conference Call Participants

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* Hassan Abdelgelil

CI Capital Research - Analyst

* Nishit Lakhotia

Securities & Investment Company BSC, Research Division - Head of Research

* Omar Maher

EFG Hermes Holding S.A.E., Research Division - VP of Telecom

* Ramesh Babu Chellappan;HSBC;Analyst

* Siju Philip

United Securities LLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Zain Group Third Quarter 2019 Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Omar Maher. Please go ahead.

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Omar Maher, EFG Hermes Holding S.A.E., Research Division - VP of Telecom [2]

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Thank you. Good morning and good afternoon, everyone. This is Omar Maher from EFG Hermes. I'd like to welcome you all to Zain Group's 3Q 2019 Results Conference Call. As usual, the call will begin with a discussion of the key highlights of the period, and this will be followed by a brief Q&A session. So the link to the results presentation was provided on the call invite, and the presentation is now available on the website.

I'll now hand the call over to Mohammad Abdal, our Group Chief Communications Officer. Thank you very much.

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Mohammad Abdal, Mobile Telecommunications Company K.S.C.P. - Chief Communications Officer and Head of IR, Corporate Communications & Corporate Governance [3]

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Thank you, Omar, and welcome, everyone, to Zain's Q3 2019 Earnings Conference Call. With me today is Scott Gegenheimer, our Group's COO of Operations; and Ossama Matta, our Group CFO. In a moment, we will take you through the IR presentation, which has been posted earlier today on our corporate website. And after that, we're happy to answer any questions you may have.

During the call, we'll be making forward-looking statements, which are predictions, projections or other statements about the future events. These statements are based on the current expectations and assumptions that are subject to risks and uncertainties. Please refer to our detailed cautionary statements found on Slide #2. With that, I will now turn the call over to Scott.

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Scott Marc Gegenheimer, Mobile Telecommunications Company K.S.C.P. - CEO of Operations [4]

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Thank you, Mohammad, and good afternoon to everyone, and thank you for joining us on today's call. We have delivered a robust set of results for Q3 and the 9 months to date, achieving numerous milestones along with profitable growth across all key operations, in particular, Zain Kuwait and Zain Saudi performed very well. We've had strong double-digit growth in enterprise across all our markets, and the execution of our digital strategy and the launch of our new digital services are starting to yield good returns.

The launch of 5G in Kuwait and Saudi are quite significant and demonstrate our drive to accelerate the deployment of our latest technologies. And I'll share with you these initiatives that we've gone -- once we've gone through the financials and operation metrics.

Let me start on Slide 6 -- or Page 6 of the IR presentation. Our group customer base increased by 3% year-over-year to reach 49.1 million customers at the end of the quarter mainly due to 1.2 million additions in Sudan and 509,000 additions in Iraq. This was partially offset by a subscriber decrease in KSA of 348,000, driven primarily by expats leaving the country due to the increase in dependency and labor fees.

For the third quarter of 2019, Zain Group recorded consolidated revenues of USD 1.4 billion. This is up 2% year-over-year. EBITDA for the quarter reached USD 603 million, and this is up 18% year-over-year, reflecting an EBITDA margin of 45%.

Net income for the quarter amounted to USD 183 million. This is up 10% year-over-year, reflecting earnings per share of 13 fils or USD 0.04.

Unfortunately, the Sudan currency translation impact for the third quarter cost the company USD 42 million on revenues, USD 19 million on EBITDA and USD 5 million on net income, predominantly due to a 38% currency devaluation in Sudan from an average of SDG 28.1 in Q3 of last year to SDG 45 to USD in Q3 of this year.

For the 9 months of 2019, group consolidated revenues were up 35% to USD 4 billion. EBITDA for the period reached USD 1.8 billion. This is up 66% year-over-year, reflecting an EBITDA margin of 44%.

Consolidated net income increased 12% year-over-year to reach USD 504 million. Earnings per share for the 9 months stood at 35 fils and it's USD 0.12.

For the 9 months 2019, foreign currency translation impact predominantly due again to the 41% currency devaluation in Sudan from an average of SDG 27.1. This is just again SDG to USD in the 9 months 2018 to SDG 46 in the 9 months of 2019. And it cost the company USD 141 million in revenue, USD 62 million in EBITDA and USD 21 million in net income.

Moving on to CapEx. The group tangible CapEx for the 9 months reached USD 354 million. This accounts for 9% of the total group revenue and another USD 600 -- I'm sorry, USD 216 million was invested in tangible CapEx. This is mainly for the 5G spectrum in Saudi.

Group data revenues, and this exclude SMS and VAS, increased 56% year-over-year for the 9 months, representing 37% of the group's consolidated revenue.

Looking at some of the major highlights for Q3 2019, they were as follows: in 5G, we had good take-up in both of the Saudi and Kuwait market. In Kuwait, we currently have more than 1,300 5G sites deployed, and we anticipate that we'll see another 400 sites for 5G deployed by year-end.

In KSA, in early October, we launched -- I believe it was October 5, launched 5G commercial services. Within the first phase of the network rollout, we had over 2,000 sites covering 20 cities in the Kingdom. Currently, we are the largest 5G network in the Middle East, Europe and Africa. And as of today, we've expanded to 27 cities with over 2,600 towers deployed.

In Iraq, the ongoing discussions with the regulator for 4G and the extension of the 2G and 3G license have been held up due to the ongoing demonstrations and the challenges in the country. We expect to resume these discussions early next year.

Our focus on exploring new lucrative areas of growth in the FinTech area saw several significant milestones.

In Zain KSA, we were admitted to the SAMA regulatory Sandbox to offer micro-lending to consumers, and we subsequently launched our micro-lending platform, trading under the brand name Tamam in October. This made Zain the first telecom operator in the region to offer micro-financing to our customers.

Zain also entered into an agreement in September with Boubyan Bank in Kuwait to launch a digital platform for Islamic banking services, making the first in the digital space.

Zain also -- sorry, furthermore, the volume of Zain cash transactions in Jordan and Iraq continued to grow exponentially, reinforced recently by the agreement with UNHCR and IrisGuard to implement iris technology for cash distributions for the refugees in Iraq.

We're also proud of the success in the group API program that was launched in 2018 that has been seen in the company's operations in Kuwait, Saudi Arabia, Iraq, Jordan and Bahrain connecting to the group API platform.

We now have about a dozen partners connected to our platform, including Apple, Google, DoCoMo Digital, Deezer, Starzplay and resulting in more than 2 million monthly transactions.

On a final note, last week in Bahrain, we attended -- the attendance of the Ericsson Group CEO, Börje Ekholm, we conducted our first 5G call and announced a deployment agreement with Ericsson, and we will commence launching 5G by the end of 2019, making this our third 5G network.

And with this, I'll hand over to Ossama to discuss the results in more detail. Thank you.

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Ossama Michael Matta, Mobile Telecommunications Company K.S.C.P. - CFO [5]

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Thank you, Scott, and good afternoon, everyone. Operational excellence is very much on track, and we continue to generate strong free cash flows across our business segments in key markets, enabling us to both invest in growth and improve the value to our shareholders.

As advised in our previous calls, the group applied the new accounting standard, IFRS 16, related to leases from January 1, 2019. Accordingly, during Q3, the adoption of the standard led to a benefit of KD 18 million, which is equivalent to $59 million in EBITDA; and KD 2 million, which is equivalent to $7 million in net income.

And for the 9-month period, the benefit was KD 55 million, which is equivalent to $181 million in EBITDA; and KD 5.2 million, equivalent to $17.1 million in net income.

Our strong cash flow is allowing us to reduce the group's leverage, even the debt to EBITDA, including guarantees, which currently stands at 2.1x.

If we move to Slide 14, which is Zain Kuwait. Operationally, Zain Kuwait remains the most profitable operation within the group and continues to maintain its market lead in both value share and customer base, as it now serves 2.7 million customers.

From a local market perspective, that continues to be extremely competitive. Zain Kuwait's market leadership is reflected by the fact that its revenue represents 39% of the total market revenue and 63% of the total net income in the Kuwaiti telecom market.

For the third quarter of 2019, revenue grew by 12% compared to Q3 2018 to reach KD 83 million, equivalent to $274 million, mainly on account of the solid growth in data revenue and impressive growth in enterprise revenues.

EBITDA jumped by 15% to reach KD 33 million, equivalent to $110 million, on account of improved gross margins and benefit obtained on implementation of IFRS 16 amounting to KD 2.4 million.

Net income increased by 8% to reach KD 22.4 million, which is $74 million, including a benefit of KD 1.7 million on adoption of IFRS 16.

For the 9-month period 2019, revenue dropped slightly by 1% to reach KD 248 million, which is $818 million. This was mainly due to the additional enterprise revenue, MEW project, which we mentioned before and bulk sales that were realized in 2018. If we were to exclude the onetime MEW project revenue and bulk sales of approximately total KD 20 million, revenue would have grown by 8% year-on-year.

Year-to-date EBITDA increased by 17% due to the improved gross margins and benefit obtained from the adoption of IFRS 16 amounted to KD 7 million.

Net income increased by 10% year-on-year to reach KD 66 million, $217 million, including an IFRS 16 benefit of KD 4 million.

In Zain Kuwait's launch of 5G services, the operator offers a smart lifestyle for customers and boost the business sectors in numerous ways that further empower the vision of New Kuwait 2035.

Zain Kuwait invested so far $101 million, which is approximately 12% of its revenues in CapEx during the 9-month period, growing its digital platforms and implementing an entire range of data monetization initiatives. The benefits of such investment and focus are reflected in the data revenue that grew by 8% and now represents 37% of total revenue. This is for Kuwait.

We move to Saudi, which is Slide 15. Zain KSA continues its growth in all KPIs, financial KPIs as well and reported its fifth consecutive quarter of net profit. It's the group's largest revenue contributor, representing 41% of group consolidated revenues.

The Saudi telecom market is very competitive, and the team's effort there is evident as the operation attained double-digit growth in revenues and EBITDA for the 9-month period. Revenue for the third quarter increased by 3% to reach $536 million compared to Q3 2018, driven by the revamped postpaid consumer segment and other new revenue streams like FTTH, DIA and IBS, et cetera. EBITDA jumped by an impressive 30% to reach $253 million, including IFRS 16 benefit of $34 million, reflecting a healthy EBITDA margin of 40%.

Net income for Q3 reached $32 million, including IFRS 16 benefit of $2 million, compared to $13 million during Q3 2018, mainly attributable to the positive EBITDA performance, including benefits from regulatory agreements, which is basically the CITC waiver and the reduction of the royalty fees from 15% to 10%.

Impressively, for the 9 months of 2019, revenue increased by 12%. EBITDA for the period jumped by 49%, and net income soared to reach $102 million compared to $18 million of loss in the same period last year.

On the CapEx side, we invested so far $147 million, which is equivalent to 9% of revenues in tangible CapEx and $177 million in intangible CapEx, which is spectrum and license fees.

Zain KSA launched 5G commercial services within the Kingdom in October 2019, with the first phase of rollout being implemented through a network of 2,000 towers that cover more than 20 cities. We expect to cover a total of 26 cities utilizing 2,600 towers by the end of 2019.

One relevant and positive point I wish to highlight that the ARPU in Zain KSA increased from $18 to $20 over the last year, [11%] year-on-year growth. This is an indication of the success of our focus on the postpaid lines and data monetization initiatives.

Data revenue currently represents 44% of total revenues. The company's strong performance and the solid cash flow generations led to early voluntary payment towards the senior Murabaha financing agreement of approximately SAR 1.4 billion savings. This has resulted in a savings of approximately $20 million in financing costs annually.

During the Q3 2019, the company refinanced the ICBC facility through a junior Murabaha facility of SAR 2.25 billion.

We move on to Iraq, which is Slide 16. The unrest in Iraq is making headlines across the globe these days, and it is a matter of concern, which both the group and local management is trying to address in the best manner possible. The operator's customer base increased 3% to reach 15.5 million customers and representing 32%, which is the highest of the group's total customer base.

For Q3 specifically, intense competition continued to impact the top line, which reached $270 million, 8% lower compared to last year. However, EBITDA for the quarter was stable, which stood at $115 million. Of course, we have benefited from $8.5 million on adoption of IFRS 16, which is included in the $115 million of EBITDA.

EBITDA margin grew to a healthy 42%. However, net income for the quarter decreased by 28% to reach $12 million, mainly impacted by the top line performance and higher amortization and interest costs, which wiped out the EBITDA benefit of the IFRS 16.

For the 9-month period, revenue reached $792 million, a 7% drop year-on-year, mainly due to the market competition, as mentioned above. However, EBITDA increased by 9% due to the cost optimization initiatives implemented at the operation as well as the $26 million benefit from the adoption of IFRS 16.

Net income increased by 8% to reach $36 million, even after a negative impact of $1.1 million to the bottom line due to the adoption of IFRS 16. The operator invested approximately $77 million in CapEx, which is equivalent to 10% of revenues, to support the increase in data demand. The team in Iraq is focusing heavily on the enterprise, which is B2B as this is proving to be a very profitable growth area in both services and data revenues.

We move on to Slide 17, which is Jordan. Zain Jordan continues to maintain its market leadership, now serving 3.8 million customers. Revenue for the third quarter was stable at $128 million compared to Q3 2018. The increase in data revenue was offset by the new regulated lower interconnection rates, which became effective from 1st of January 2019, that saw the rate changed from 11.6 fils to 8.4 fils. The impact is approximately $2.8 million.

EBITDA jumped by 8% on account of improved gross margins. Gross margin has improved from 75% to 77% and the benefit that we got from IFRS 16, which is equivalent to $3.6 million, while net income for the quarter was stable at $20.7 million with no material impact on the bottom line on account of IFRS 16.

For the 9-month period, revenue was stable at $369 million. EBITDA increased by 14%, mainly due to the improved gross margins and decrease in OpEx, lower utility cost, as well as the benefit on the adoption of IFRS 16, which has amounted to $11 million.

Net income for the period increased by 6%, with IFRS 16 having no material impact on the bottom line.

EBITDA margin for the year improved to a healthy 46%, up from 40%, with data revenue growing 6% year-on-year and representing 40% of total revenues.

Zain Jordan is gaining traction in the FTTH segment and continues with its fiber rollout plan, which has translated into significant revenue growth of over 90% year-on-year.

We move on now to Sudan, which is Slide 18. The operation continues to perform well given the political crisis in the country. The official currency exchange rate has strengthened by 1% when we compare to Q2 2019, which is encouraging. And we are hopeful that the recent agreement between the army and civilian bodies result in further strengthening of the currency and better socioeconomic conditions.

The operator is performing exceptionally well in local currency terms, but the significant 41% currency devaluation in Sudan during the 9-month period compared to 2018 affected both the group's and operation's financial results in USD terms.

For 9-month 2019 in local currency, which is SDG, Zain Sudan revenue grew by 47% year-on-year. In dollars, it has dropped unfortunately by 14%.

EBITDA increased by 49% in dollars, a drop of 13%, and net income increased by 41%, and in dollars, it has dropped 19%. The adoption of IFRS 16 had no impact on the -- no material impact on the operation.

Data revenue accounted for 16% of total revenue and grew 34% in SDG terms.

The operation serves around 15.4 million customers, which grew by 8% year-on-year, making it the second largest within the group after Iraq, representing 31% of the group's total customer base.

With that, I will hand over to Mohammad for Q&A.

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Mohammad Abdal, Mobile Telecommunications Company K.S.C.P. - Chief Communications Officer and Head of IR, Corporate Communications & Corporate Governance [6]

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Thanks, Ossama. Now we'll move to the Q&A session. (Operator Instructions)

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will take our first question from Nishit Lakhotia from SICO.

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Nishit Lakhotia, Securities & Investment Company BSC, Research Division - Head of Research [2]

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Congratulations on a very solid third quarter. I have actually 2 questions from me. One on the data revenues in Saudi Arabia. We have seen that this year, data revenues as a percentage of total revenue is around 44% averaging this year. It used to be above 50% last year. So what has changed? Is it the way you're accounting for data? Or is there any change that it has gone down from around 50%, 52% levels in 2018 to around 44% currently? That's my first question.

And second, on your CapEx intensity. You're currently less than 10% and given -- as a percent of revenue. So going forward, how do you see this in terms of -- given the 5G rollout is going on in Kuwait and Saudi and perhaps in other countries eventually, you see this moving up to any, say, 12%, 13%, any guidance on that? And that would be helpful.

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Scott Marc Gegenheimer, Mobile Telecommunications Company K.S.C.P. - CEO of Operations [3]

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Related to your first question, on data, there's been a couple of changes. One is the allocation, because of accounting standard changes, have been an allocation when we're selling bundles with handsets. So that's changed a little bit on that. I don't have the exact number on change of it. Also, fiber is not included in -- on the data where it was. We've broken that out.

The other issue -- we've had a little bit of an issue on the MBB, mainly the -- with the MVNOs. And so that's hurt us in Q3. We've made some corrective course changes in October to address that. And so hopefully, we'll continue to start growing the MBB there as well.

Regarding your other question on -- mainly on CapEx, we believe we'll get back to 11%, 12%, especially as we start to grow heavily on 5G, and we have the license payments for those as well. Hopefully, that answers your questions.

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Operator [4]

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(Operator Instructions) We will take our next question from Siju Philip from United Securities.

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Siju Philip, United Securities LLC, Research Division - Research Analyst [5]

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You mentioned that your digital growth strategy is driving your earnings rate now. So how do you see your digital strategy evolving in the future? And the follow-up to that is that how you plan to leverage on Omantel's data expertise for the B2B and B2C segment?

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Scott Marc Gegenheimer, Mobile Telecommunications Company K.S.C.P. - CEO of Operations [6]

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The -- regarding the digital strategy, we had a couple of things that we're trying to continue to grow the business. Obviously, the underlying business is somewhat saturated. There's still pockets of growth in areas. The main area of growth is going to be the enterprise and B2B sector, and that's Fiber-to-the-Home. This is a lot of the enterprise piece as well, so there's strong growth. And then the digital stuff they're moving into, whether it's in a lot of the FinTech that we're moving into, the API platform or group, so there's very strong growth on it. They're relatively small, even the enterprise is relatively small. The digital piece is quite small, but their growth is quite high.

So very strong double-digit growth in there. So we expect those to continue to grow.

We're trying to stay out of price wars because we have a lot of saturation in our markets when it comes to the consumer business. That's why we're focusing a little bit on the digital and trying to get uplift to continue to grow our business. So hopefully, that answers your question on that.

Regarding Omantel, yes, we've been working with them, talking about the strategies, looking at a data center for the region and the go-to-market strategy. So probably in the next quarter or so, you'll hear a little bit more on our strategy and how we're going to drive that, working together on it. Hopefully, that answers your questions.

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Operator [7]

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(Operator Instructions) We will take our next question from Nishit Lakhotia from SICO.

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Nishit Lakhotia, Securities & Investment Company BSC, Research Division - Head of Research [8]

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I [didn't mind] to come back in the queue so quickly. But just one thing, which I found very interesting in this quarter's press release was the FinTech micro-lending that you're doing in Saudi Arabia. I know it's a very small portion currently. But what I was interested in is knowing whether this lending that you're doing to the Tamam platform, if I'm not wrong, is it on the Zain's own books or have you tied up with any bank for lending? How does it work?

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Scott Marc Gegenheimer, Mobile Telecommunications Company K.S.C.P. - CEO of Operations [9]

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Currently, right now, we're still in the -- underneath the regulatory Sandbox rules and regulation down there. So it's more of a pilot. We have commercially launched it. But it's fairly small, and it's based on our balance sheet that we're lending. Once it starts to grow, then we'll have to decide whether we'll bring a bank with us or not and how we're going to split the revenue share on that. But currently, it's our balance sheet for testing, and it's with our existing customers. Hopefully, that answers your question.

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Operator [10]

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We will now move to Ramesh Babu from HSBC.

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Ramesh Babu Chellappan;HSBC;Analyst, [11]

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I have just one question on Iraq. Now that we are into like halfway through fourth quarter, can you just give us some -- what are the early trends so far in Iraq? How is the competition? Like do you expect the similar competition even in this quarter as well or in any immediate next couple of quarters?

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Scott Marc Gegenheimer, Mobile Telecommunications Company K.S.C.P. - CEO of Operations [12]

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So the competition on Iraq, we -- 2 things on here. First off, just with all of the instability going on right now in the country, it really hasn't affected our revenues. Actually, in contrary, our revenues are actually slightly up from this, as people are using more calls and network resources on there.

As far as the competition, I think I mentioned on the last call as well, there's been a little bit more stability in the market. Also, the regulator came out recently and told us that we had to have uniform pricing throughout the country, so that we're not allowed to go into individual territories. And if we drop the price on one territory, you have to do it for the whole country. And that's kind of put a stamp around -- on the competition coming in to each of our markets and trying to destroy value and pick up market share, so that's helped as well. So overall, we think that we'll continue to try to drive the growth, and we haven't seen as strong a competition on pure pricing level. Although there was some pricing war in the first quarter, and it's taken a little while for the customer base as they pick up new packages in Q1. It takes a while for them to go off and pick up new packages afterwards. So it has some effect on us for the rest of this year. But we don't see that going forward. Hopefully, that answers your question.

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Operator [13]

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(Operator Instructions) We will take our next question from Hassan Abdelgelil from CI Capital.

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Hassan Abdelgelil, CI Capital Research - Analyst [14]

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Congrats for the results. Just have 2 questions. The first is related to the market share in Jordan. It appears to have dropped from 42% to 35% to -- what's the reason behind this? The other question is related to the deal that you mentioned before, the one with the Boubyan Bank. Can you explain to us how does Zain Kuwait profit from this? Is it, sort of, a onetime payment that the Boubyan Bank paid for you to set the digital platform? Or is it more of a -- an annual fee? Or is it related to the per transaction type fee?

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Scott Marc Gegenheimer, Mobile Telecommunications Company K.S.C.P. - CEO of Operations [15]

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Regarding the market share in Jordan, there really hasn't been any change from our perspective. This is more of the regulator putting out slightly different numbers. But from our side, we haven't seen any market share loss in there.

Regarding your second question, regarding the Islamic banking with Boubyan. We're still in negotiations and discussions with them and with the Central Bank and -- on how this is going to look and what the share of revenue splits are going to be on this, so it's a little early to discuss that. Probably on the next quarter, we can give you a little bit more light. We expect to launch that sometime in the first half of next year. But again, this is fairly new on this. And even the regulation of Central Bank, these are the first discussions on it. So we're happy that we got the approval for them to move forward. But it's going to take a little time to work out the details of the deal. Hopefully, that answers your questions.

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Hassan Abdelgelil, CI Capital Research - Analyst [16]

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Yes. Just one more question related to the Iraq. You said that the team in Iraq is focusing on the B2B and the enterprise segment. Can you share with us any, sort of, quantification for this in terms of total value for the market, in terms of how will this change the growth sort of going forward? How -- what are the growth rates for these segments?

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Scott Marc Gegenheimer, Mobile Telecommunications Company K.S.C.P. - CEO of Operations [17]

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We haven't broken out enterprise in total for the group and/or for the opco. So I can't necessarily divulge that. There are quite a bit of opportunity for growth in the enterprise space in Iraq. There's very little fiber in the country, and we're starting to roll that out now for enterprise. So -- and the other part of it is actually microwave for enterprise. So we expect that to continue the double-digit growth on there. But we haven't given out any specifics, but I think probably in 2020, we maybe will start to break out the enterprise because it's becoming fairly large for all of the opcos. So we'll probably split that out for Q4.

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Operator [18]

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We will now move to our next question from Siju Philip from United Securities.

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Siju Philip, United Securities LLC, Research Division - Research Analyst [19]

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I just have a follow-up question. Since you mentioned data center, is it going to be a greenfield or a brownfield project? Because Omantel has its own data center here, which is called Equinix. So just wanted to hear thoughts on that. And I had one more question also. How long do you see -- going to see devaluation continuing in Sudan? And what is your strategy going forward for this stake in Sudan? Are you planning -- when you plan to sell -- look for an exit?

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Scott Marc Gegenheimer, Mobile Telecommunications Company K.S.C.P. - CEO of Operations [20]

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I will take the second question first regarding Sudan. Right now, the currency, and we've been trying to say that it's been stable for the last 2 quarters on there and the market's opened up, and we had a new government in there. So it's really hard to forecast what the currency is going to look like and how it's going to change going forward. Again, I can't really give you too much visibility.

We can't hedge the currency, so it's a big problem for us. We don't expect this to sell. We don't have -- we're not looking around and shopping around to sell it. But we are trying to use excess cash that we have there to buy local land and buildings in order to preserve some of the value of cash there. Regarding your first question on the data center, we will probably end up using the data center out of Jordan. We already have the data center and a bunker there. And that will probably be for regional and using it for Kuwait and Jordan and possibly Saudi, but it's still a little bit early on the plan for this. And probably next quarter, we'll give you a little more visibility on it. I hope that answers your question.

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Operator [21]

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(Operator Instructions) We will take a follow-up question from Nishit Lakhotia from SICO.

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Nishit Lakhotia, Securities & Investment Company BSC, Research Division - Head of Research [22]

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Possibly, this is my second question for the quarter. I have -- I want to ask about the Kuwait operations. It's been a fantastic quarter, perhaps even a very strong year. Last year, we had seen a lot of competition, especially on the handsets, where the operators are offering 2 handsets per customer and the regulator then came down on these kind of offers. So I wanted to check this improvement that we're seeing, why are year-on-year in your gross margins in Kuwait? Is it because of lower competition? Or is it because of the cost optimization and a mix of -- if you want to break it down, how much is it between these 2 in terms of competition stabilizing and cost optimization? And also on your 5G aspect, when both -- all the 3 operators are rolling out 5G, particularly Viva and Zain, how are you seeing the competition on the 5G-related products and services right now in the market? And any color on where you see this competition moving in Kuwait would be very helpful.

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Scott Marc Gegenheimer, Mobile Telecommunications Company K.S.C.P. - CEO of Operations [23]

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So yes, there's a few things on the Kuwait market. So overall, things are going very well across the board in almost all of our segments. We brought in a new CCO about 1 year, 1.5 years ago, and he's come in and straightened a few things out. The accounting changes in the accounting standards has helped as well, where if you sell a handset, now you have to take the handset all upfront on revenue. So no more amortizing and putting it on the balance sheet. That's changed, I think, it was about 2 -- 3 quarters ago, 2 quarters ago. So that's had an impact on some of the high level of discounting and subsidies that you've seen in the market, especially in new handsets has gone away. So that's helped quite a bit.

Regarding the 5G, it's still a little bit early to tell how that's going to play. There is no real fiber play for the incumbent or for the operators, the mobile operators here. Everything is controlled by the government, and you have to go to the ISP. So for us, fixed wireless substitution works quite well on 5G.

So we're starting to see quite a bit of a pickup on that, especially with the speeds that we're seeing on 5G. So that's working quite well. I think also, enterprise is going and MBB is picking up quite well in this market as well. So overall, I think we've done a very good job across the board. Even some of the cost optimization that we've done is helping the margins on. I think about 3% of the difference on the margin -- on EBITDA margin year-over-year is related to the accounting standard change, and the rest of it is based on performance of the company and operation efficiencies. Hopefully, that answers your questions.

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Operator [24]

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It appears there are no further questions at this time. Mr. Mohammad Abdal, I'd like to turn the conference back to you for any additional or closing remarks.

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Mohammad Abdal, Mobile Telecommunications Company K.S.C.P. - Chief Communications Officer and Head of IR, Corporate Communications & Corporate Governance [25]

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Thank you. Please refer to our Investor Relations website for additional updates and feel free to contact the IR team for further information. We look forward for your future participation in our year-end 2019 update. Thank you all for joining the call, and have a nice day.

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Operator [26]

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This concludes today's call. Thank you for your participation. You may now disconnect.