Success and failure of telecommunications

business in Iraq: A case study of Korek Telecom

Vs Mobitel

Submitted by: Salim S. Ahmad Supervised by: Mark DeWeaver

A thesis submitted in partial fulfilment

of the requirements of Executive Masters in Business Administration

at American University of Iraq, Sulaimani.

Cohort 11, April 2018

II

Certificate of Completion

It is hereby recommended that the thesis submitted by SALIM SALIMKHAN

AHMAD titled "Success and failure of telecommunications business in Iraq: A

case study of Korek Telecom Vs Mobitel" has been accepted in the partial

fulfilment of the requirements for the degree of Executive Master of Business of

Administration

____________

Mark DeWeaver

III

Abstract

This paper will investigate the main factors that contribute to the success and/or

failure of telecommunications companies in Kurdistan region – Iraq. Two

companies located in Kurdistan region are chosen as they share similar

opportunities and threats that would make the findings more reliable. Some senior

employees from both companies have been interviewed to share their information

and knowledge. The results obtained show that moving first into the

telecommunication industry must be accompanied with having a clear business

strategy, market understanding and readiness and correct capital budgeting

decisions for a company to achieve a sustainable success. Those findings are

mostly in line with the business literature, however, there are some factors that are

beyond the control of any single company, such as the political environment,

which could have different effects on different companies.

IV

Declaration Statement

I declare that no portion of the work referred to in this thesis, as defined by this

course, has been submitted in support of an application for another degree or

qualification of this or any other university or institute of learning. Further, all the

work in this thesis is entirely my own, unless referenced in the text as a specific

source and included in the bibliography/references.

V

© 2018

SALIM SALIMKHAN AHMAD

ALL RIGHTS RESERVED

No part of this thesis/case study may be reproduced, stored in, or introduced into a

retrieval system, or transmitted in any form or by any means (electronic,

mechanical, photocopying, recording, or otherwise) without prior permission of the

researcher or relevant department of AUIS

VI

Dedication

To all my family members whose love and support have helped turn this once

lifelong dream into a shared reality.

VII

Acknowledgment

The author would like to express sincere gratitude to Dr. Mark DeWeaver for his

invaluable support and guidance in the planning and implementation of this

research project. Appreciation is further offered to the managers and

staff/employees of Korek telecom and Mobitel for their help in producing this

research study. Without their contribution of time and resources, this study would

not have been possible

VIII

Table of Contents

Certificate of Completion ....................................................................................... ii

Abstract ................................................................................................................... iii

Declaration Statement ........................................................................................... iv

Copyright .................................................................................................................. v

Dedication ............................................................................................................... vi

Acknowledgment ................................................................................................... vii

1. Introduction ........................................................................................................ 1

2. Mobitel: A first mover without a clear strategy ............................................. 2

3. Why Mobitel failed: Having a great idea alone is not enough ...................... 7

4. Korek Telecom: Dare to Dream ..................................................................... 11

5. How Korek telecom succeeded ....................................................................... 15

6. Conclusion ....................................................................................................... 20

7. References ......................................................................................................... 21

1

1. Introduction

Telecommunications sector has seen a huge shift throughout decades, from being used for voice

communication only in early 1900s to connecting people and even machines by transferring

large amounts of data nowadays. Iraqi telecommunication sector is not much different than the

rest of the world, however, the instability of the country had caused a couple of hiccups to the

growing process of this important industry. After the war in 2003, mobile communication

industry has grown rapidly in Iraq in general and Kurdistan region in particular. Korek telecom,

Asiacell and Zain Iraq have the nationwide license, started as 2G operators and later upgraded

their networks to 3G. In Kurdistan region other local operators such as Mobitel and Newroz

telecom obtained licenses from Kurdistan regional government to provide 3G and 4G (LTE)

services within the territory of Kurdistan region. As the market grew and more players entered

the competition, having competitive advantage became a necessity.

In this study, I have decided to look at Korek telecom and Mobitel which both shared a common

advantage, as each of them was the first mover at start up, however, their future turned out to be

totally different, as Korek telecom succeeded to a large extent, and Mobitel failed substantially.

Therefore, it was interesting to find out what was done right and wrong by each of the two

companies that decided their fate. It was particularly important to know if the reasons for success

or failure of each company were in line with the relevant business studies. For example, whether

theory of business strategy (Shapiro, 1989) was applicable and taken into consideration by the

companies, if market’s physical and behavioral attributes (Sissors, 1966) were studied well, or if

investment in telecommunication sector is different in conflicted areas such as Iraq than the rest

of the world (Konkel and Heeks, 2009), etc.

2

This paper is organized as follows. Section 2 will provide a history about Mobitel in a

chronological order. In section 3 the reasons behind Mobitel’s eventual failure will be

highlighted and discussed, which include: Lack of strategy and market knowledge, funding

difficulties, unfair competition, etc. Section 4 will provide history of Korek telecom in the same

chronological order, and section 5 will discuss the main factors behind Korek telecom’s success,

that include: having a good strategy, correct capital budgeting decisions, partnership with

vendors and foreign investors, adequate understanding of market and political and sociocultural

environment, etc. Section 6 will summarize my conclusions.

2. Mobitel: A first mover without a clear strategy

While Mobile 3G systems were commercially spread all over the world since 2002, especially in

developed countries, it was not available in Iraq until February 2007, when a new player entered

Iraqi telecommunications market. A company named Mobitel obtained a regional license from

Kurdistan regional government (KRG), to provide 3G mobile services including broadband

internet and video calling to customers in Iraq’s northern provinces of Erbil, Duhok and

Sulaymaniyah. It was a bold move that could have been an astonishing success, however, it was

lacking an important factor: “A clear strategy”.

In early 2000s, internet services were extremely poor all over Iraq and Kurdistan region was not

an exception. A simple internet browsing activity such as checking emails would take a long

time, while watching a video on YouTube would take hours, that is if a person was lucky enough

to not experience an internet disconnection problem.

Because of the 2003 war, Iraq’s landline infrastructure was almost destroyed just like the rest of

the country’s infrastructure, therefore mobile solutions were becoming even more popular as the

3

country was trying to rebuild and catch up with the world’s technological developments, and

most importantly customers needed other solutions, preferably wireless communications

systems. As a result, mobile operators started to take over the market. The Main mobile operators

were providing 2G systems to customers, which was satisfying their voice call needs as well as

short text messaging (SMS), but not the data or what is commonly known as internet needs,

primarily due to low throughput speed. The maximum download throughput speed that could

have been obtained from a 2G system was 9.6Kbps, and even with the upgrade to GPRS (2.5G)

it would not exceed 171Kbps, while the more advanced EDGE (2.75g) could only reach

384Kbps at best case scenario. Therefore, when Mobitel came along promising a 3G system that

would provide a speed as high as 2Mbps, it seemed to be able to dominate the market quickly,

however, the proceeding events showed that simply moving fast to seize an opportunity is not

enough for success, but a clear and not overly optimistic study of the market was needed, to

determine the exact customer needs as well as the market readiness for a new technology,

something that was proved to have been ignored by Mobitel owners.

The company was established in 2006 by a Syrian Kurdish investor who owned 70% of the

capital and some local investors that provided the remaining 30%. Those ratios were later

reversed as the local investors owned the majority in the company. As a first step they started

building their network and preparing it for the planned commercial launch in 2007. They used

Huawei (a Chinese telecommunications company) as their main equipment provider to build

their network infrastructure.

The company headquarter was (and still is) located in a small town called Pirmam, 35 km from

Kurdistan region’s capital Erbil. Ironically, Korek telecom one of their main competitors was

headquartered in the same town back then. Mobitel was planning to challenge the strong and

4

established mobile operators who were still on old 2G system, and they were starting it from

Korek’s home town. They had 4 sales and customer care offices located in Pirmam, Erbil, Soran

and Duhok. The company had approximately 500 employees. Majority of their management

team were expats coming from other countries such as Lebanon, while the below managerial

level employees were mainly Iraqi Kurdish citizens.

In February 2007 Mobitel started providing services in Pirmam and Erbil with a very limited

number of sites (approximately 50 sites), which were not enough by any means to give a good

coverage area to customers. Later, they launched in 2 more cities Duhok and Soran, but they

never managed to launch in Sulaymaniyah because of political constraints. During 2007 and

2008 they sold approximately 100,000 SIM cards, but after 2008 they struggled to increase their

customer base. One of the main reasons was the lack of 3G capable mobile devices in Kurdistan

region’s market, as majority of the customers owned old mobile phones that were only

supporting 2G. The reason behind lack of 3G supportive devices was the higher cost of newer

models as well as lack of knowledge among mobile subscribers, especially less educated

customers, about the latest 3G technology. In some areas people were skeptical about using 3G

due to cultural beliefs that saw services such as video calling to be against their family norms

and religious beliefs. Another question that skipped Mobitel owners’ minds before launching a

high speed 3G system was: “How large is the internet using community in Kurdistan region?”.

There are not many official or reliable surveys about internet usage in Iraq, however, as per a

report from Reuters back in 2014 only 10% of Iraq’s population (3.4 million) was using internet

(Smith and Salman, 2014), which could only be an indication of how low the internet usage was

7 years before by the time Mobitel decided to launch.

5

In the beginning, Mobitel provided decent services wherever they had coverage, but the lack of

continuous coverage affected the customer experience negatively. Subscribers were frustrated for

not being able to use the services wherever they go, as they were feeling deceived by the

company who promised to provide them with a mobile 3G service but was acting more like a

fixed line since the coverage gaps would often cause call drops.

Mobitel managed to hold on to their customers and continue providing services until 2010

despite all the difficulties, however, after 2010 they faced a huge blow when another competitor

(Newroz telecom) came along providing fast speed internet services. Newroz had a big

advantage over Mobitel as they were using the existing infrastructure owned by Kurdistan

regional government’s Ministry of telecommunications, which was part of privatization plan of

public services, which meant they could almost cover all Kurdistan region, even though it needed

to fix or renew some parts of the infrastructure, but it was much better than building from the

ground up. Adding to Mobitel difficulties was the fact that other Mobile operators such as Korek

and Asiacell were not willing to play a fair game. They would either disallow interconnection

with Mobitel or would raise the call prices between them so high that people would be unwilling

to use Mobitel SIM cards, knowing that almost everyone in Kurdistan region was using Korek or

Asiacell SIM cards for voice calling. Lack of government regulations and political factors helped

the main operators impose their own rules over a smaller player such as Mobitel. In case of

Asiacell, they even used their political strength within Sulaymaniyah region to stop Mobitel from

offering their services altogether, even though it is hard to see a different outcome if they were

able to do so.

In August 2007, Iraq awarded three mobile operators (Korek, Asiacell and Zain) with nationwide

license to provide 2G services, which further limited Mobitel in taking any meaningful actions

6

against those operators, who were now abiding by Iraqi telecommunication authorities and were

not obliged to follow the regional regulations imposed by KRG. Mobitel could not even consider

bidding for the nationwide license due to the hefty price tag of USD1.25 billion that Iraqi

government requested, since it was way beyond the financial capabilities of Mobitel owners.

In June 2013 a company called Fastlink (belonging to Newroz Telecom) started to provide 4G

(LTE) data services in Kurdistan region, that took away the slim advantage Mobitel had in terms

of high speed internet service providing. In addition, starting January 1st, 2015 all three

nationwide mobile operators launched 3G services of their own after receiving an upgraded

license from Iraqi government, which meant Mobitel had no chance to compete anymore.

Until this moment Mobitel is supposedly still operating, although as an internet service provider

only, however, they are struggling to cover their costs and most of their staff, especially the

technical team, have left the company because they could see no future staying on a ship that is

eventually going to sink.

Mobitel is a good example of how lack of clear vision and strategy could cause a great

opportunity to fail despite having all the characteristics and potential for success. This paper will

examine the main factors that contributed to the failure of Mobitel, whether internal or external

(such as Lack of a clear vision and strategy, ignoring the market conditions and identifying

market readiness for introducing a new product or service, limited capital which in turn imposed

limitations on the network growth that was essential for having a reliable coverage area, Political

and sociocultural constraints that limited the company’s market penetration as well as

maneuvering capabilities, etc.) and provide suggestions on how each of those issues could have

been avoided or even exploited in a way that it would have turned to a success story. Some old

7

and existing employees of Mobitel were interviewed to provide insights about what went wrong

and why no real actions were taken earlier to at least avoid or correct some of those issues.

3. Why Mobitel failed: Having a great idea alone is not enough

As discussed earlier, Mobitel had a great opportunity to become the leader in providing 3G

services in Iraq, however, it failed substantially. The main reasons behind Mobitel’s lack of

success and/or failure could be summarized as below:

• Lack of a clear and coherent business strategy: A strong business strategy is the roadmap

for any business that is looking for a sustainable success. The theory of business strategy tells

us that we must examine each industry wisely and identify the type of competition in that

industry to be able to predict correctly performance and behaviors of that industry. A

business strategy needs to separate long-term strategic decisions than short-term tactics, and

more importantly the timing for making a strategic decision must be well thought of and

should be based on proper information. (Shapiro, 1989)

In case of Mobitel, firstly, the telecommunications industry in Kurdistan region was not well

studied when it comes to the type and impact of competition, which affected Mobitel’s

growth greatly. Secondly, long-term plans were ignored, and main focus was put on short-

term goals and tactics. Finally, lack of market knowledge caused Mobitel owners to make an

entry decision based on imperfect information.

• Market readiness: The main advantage of 3G technology over 2G systems is the higher data

(internet) speed which could give subscribers a better experience. However, to get most of

this competitive advantage the market must be ready to use the new technology. To

determine market readiness, studying a market’s attributes is essential to make correct

8

business decisions. The market has two main attributes, physical and behavioral. The

physical attributes include the size of the market, geographic location and demographic

description of customers, and the behavioral attributes include when purchases are done,

reasons for purchasing, social and psychological classification of customers, purchasing

influences, and how buying is done. (Sissors, 1966). As stated before, there are no clear

statistics on 3G capable devices’ penetration in Kurdistan region market back in 2007 when

Mobitel launched its services, but considering that in 2014 only 10% of Iraq’s 34 million

population was using internet (Smith and Salman, 2014), it is safe to say that the Kurdistan

region’s market for a mobile operator, whose differentiation strategy is a higher internet

speed, was not large enough and growth options were limited, which means both physical

and behavioral attributes were not taken into consideration, that is the size of the market

(physical attribute), and what uses the product, in this case 3G capable devices (one of the

purchasing influences, behavioral attribute).

• Capital structure: To start any business, one of the most important factors that need to be

considered is the capital structure. In developed countries where there is a proper financial

market, companies usually use a mixture of owner’s equity and debt (long-term and short-

term) in their capital structure. The firm’s size and characteristics have a great impact on the

capital structure decision. Smaller companies tend to use their profits to lower the debt levels

as they would rather raise capital using internal funds instead of borrowing or debt, while the

growing companies need to use more funds and consequently increase their debt levels

(mainly long-term debt). Also, companies that have more fixed assets tend to use more long-

term debt. (Degryse, De Goeij and Kappert, 2012)

9

The financial market in Iraq and Kurdistan region was not highly developed back in 2007,

and even now in 2018 is not close to world standards, which could be considered as the main

reason why Mobitel owners needed to use their own equity rather than debt in their capital

structure, which in turn limited their growth capabilities. In addition, Mobitel did not own too

many fixed assets, that made it more difficult to obtain much needed long-term debt. Also,

the low revenue coming from the limited number of subscribers was not enough to pay for

the operating costs and provide needed capital for growing the network.

• Unfair Competition: Interconnection between mobile operators is one of the most necessary

services that subscribers require, because not every subscriber owns subscriptions to all

available operators. Therefore, it is essential for a new entrant to provide interconnection

with the available operators to attract subscribers. New entrants usually have a weak position

when discussing interconnection agreements with established operators because of their

smaller size which is mainly due to the high cost of building a complete network

infrastructure up front. Therefore, free competition may not be the best solution but instead it

is necessary that a regulatory body is available to simplify and regulate the interconnection

agreements between different mobile operators. In addition, the new entrant must try to get

benefit from available public infrastructure which could lower its initial cost. (Iqbal, 1998)

The fact that Iraqi government and Kurdistan regional government, acting as the regulatory

bodies in Iraq and Kurdistan region respectively, did not impose clear rules and regulations

on competition and interconnection agreements, have made it more difficult for new entrants

such as Mobitel to benefit from a fair competition environment. Even though there are no

clear evidences that governments were favoring certain operators to others, but the

knowledge of Iraq and Kurdistan region politics could help us understand to some extend

10

how the three main mobile operators (Zain Iraq, Asiacell and Korek telecom) managed to use

their strong market position to impose their own rules on the smaller rivals, and eventually

make it impossible for the likes of Mobitel to interconnect with them. As for using the

available public infrastructure, Newroz telecom, using their strong relations, managed to

obtain that privilege from the Kurdistan regional government which made it impossible for

Mobitel to do the same.

• Expensive nationwide license: A study of awarding telecommunication licenses in

European countries back in 2003, have shown that when the number of bidders exceed the

number of licenses at least by one, and if the license auction is the first of its kind (such as

UK UMTS license auction), the higher the value of the license will be. (Börgers, Dustmann,

Carillo and Thum, 2003)

When in August 2007 the auction for nationwide 2G licenses in Iraq was conducted, there

were five bidders and only three licenses were to be awarded. The final results of the auction

were shocking as the price of a single license have reached USD1.25 billion. This is very

much in line with the European study mentioned above. Such a high price tag compared to

the limited capital available for Mobitel’s owners was one of the main reasons that Mobitel

did not enter the auction at all.

• Political and sociocultural constraints: As highlighted before, Kurdistan region was

divided into two regions in terms of administration because of the civil war in mid 1990s,

where Sulaymaniyah was governed by one political party and Erbil and Duhok were

governed by another. This divide affected most businesses too and mobile operators were not

excluded. That is why Mobitel which was perceived to be owned by people close to the

ruling party in Erbil was having a hard time to get required permissions to launch in

11

Sulaymaniyah region. In addition, people of Kurdistan region were mostly loyal to one of the

two main parties and were skeptical to use services of a firm that was perceived to be

supported by the rival party.

4. Korek Telecom: Dare to Dream

Korek Telecom started operating in north of Iraq back in 2000 having a small network covering a

limited area and servicing only a few hundred subscribers. Now after more than 17 years of

operation, Korek Telecom is covering all Iraq providing services to 7 million subscribers which

counts for around 20% of Iraq’s market and places Korek telecom at 3rd place behind Zain Iraq

and Asiacell. The reason behind their success can be summarized in their slogan: “Dare to

Dream”.

When Korek started operating, Iraq was still under the rule of ex. dictator Saddam Hussain, and

Kurdistan region was a semi-autonomous region which was protected by the United States and

their allies’ no fly zone which was imposed on Iraqi government after the invasion of Kuwait

which resulted in first gulf war. The economy of the small region was not well developed. People

were hardly using landlines and starting up a mobile communications business didn’t seem

profitable at all as majority of people were struggling to bring food to their tables, however,

Korek owners were not afraid to dream. We cannot be sure if a pre-study was performed by

Korek owners before investing in this new line of business, however, investment in

telecommunications tends to be not affected by security or bad governance, to the contrary it

may even be higher than average in countries where there are conflicts. (Konkel and Heeks,

2009)

12

Unlike Mobitel that needed to challenge the big players, Korek Telecom owners were lucky

enough to avoid competition as there were no other mobile operators working in Erbil and

Duhok, the areas that they wanted to start their business in as first step. Having the advantage of

no competition, they didn’t require a huge capital to start up, therefore, they started with a small

network and with only a few sites covering some VIP areas where the people wealthy enough to

afford this new service were located. (due to confidentiality terms I cannot name those

locations).

Between 2000 and 2003 they were using Tellus Interwave equipment and only a few local

engineers were running the show. The local engineers were responsible for operating the

network, installing new sites and even troubleshooting and maintenance of faulty HW was

performed by the same team, which enabled Korek Telecom to keep the costs as low as possible.

After 2003 war which resulted in a regime change in Iraq, Kurdistan region was open to many

opportunities which was drawing attention of investors in different sectors. Korek Telecom

owners that were ready to exploit the potential, saw the necessity of having a reliable network

that will be able to handle their eventual growth, that is why they decided to swap their existing

small Interwave network with the market leader of telecom equipment provider Ericsson. Since

2003 Ericsson has been the main equipment and service provider for Korek Telecom and their

relation has changed from vendor-customer relationship to a partnership, where Ericsson treats

Korek Telecom as one of their most loyal customers and finances many of their projects, and

Korek Telecom has shown they are well worthy of this trust by awarding most of their network

growth projects to Ericsson and paying back the financing money regularly as per agreed terms.

Korek Telecom faced a setback between 2003 and 2007 when they could not obtain the

nationwide license from Iraqi government, which limited their operations to Kurdistan region

13

and particularly to Erbil and Duhok. Due to a civil war back in 1990s, Kurdistan region was split

between the two main political parties, where Sulaymaniyah region was under the rule of

Patriotic Union of Kurdistan (PUK) and Erbil and Duhok was ruled by Kurdistan Democratic

Party (KDP). This split affected almost all businesses too and that is the main reason why Korek

Telecom was not able to operate in Sulaymaniyah region until 2007. (The same was applied to

Asiacell as they were not allowed to operate in Erbil and Duhok before obtaining the nationwide

license).

When in August 2007 Korek Telecom managed to obtain the nationwide license from Iraqi

government, they required a rapid expansion of their network, but that was not easily possible as

Iraq was not a stable country and security risks were very high in the middle and southern parts

of the country. In what could be considered a very smart move, Korek Telecom owners acquired

a small local operator named Sanatel, who were licensed by Kurdistan regional government and

were operating in Sulaymaniyah region. That move expanded Korek Telecom’s coverage area to

all Kurdistan region territory (3 provinces) and enabled them to shift their focus towards

expanding in the remaining 15 provinces of Iraq.

After acquiring the nationwide license Korek grew rather slowly, mainly because of tough

competition from Asiacell and Zain Iraq who had a couple of years advantage in terms of

covering all Iraq, and limited financial capabilities of Korek owners. However, back in 2011 in a

strategic move Korek started a partnership with Orange group who in a joint venture with an

international logistics company called Agility, acquired 44% of Korek Telecom share for

USD295 million in addition to USD285 million in loans. (“Orange-directed Korek”, 2017)

14

The partnership with Orange not only helped Korek Telecom from a financial perspective, but

also it injected a much-needed directing and managing expertise that was lacking for all these

years, as Orange took responsibility of reorganizing the structure of the company in a way that

was able to respond to the rapid technological and managerial changes in an effective and

efficient manner. In addition, the partnership with Orange meant that Korek Telecom can now

benefit from the global discounted prices that Orange group had with vendors such as Ericsson.

The strategic move by Korek Telecom to partner with Orange is in line with the fact that

telecommunications being a globalized industry requires alliances and specifically in terms of

foreign direct investment. (Sarkar, Cavusgil and Aulakh, 1999)

Even though competition among telecommunications companies in Iraq is not completely fair,

especially since Kurdistan regional government and Federal government of Iraq have separate

rules and regulations and even licenses, however, availability of an administrative agency called

Communications and Media Commission (CMC) have made it quite easier for Korek to compete

with Asiacell and Zain Iraq. This is aligned with the literature that suggests such administrative

agencies, which are resulted from the emphasis that politicians place on competition, have a very

effective role in promoting the competition. (Levi-Faur, 1999)

Korek Telecom is now operating in all 18 provinces in Iraq and has around 7 million subscribers

with more than 3500 sites. Their subscriber base has almost doubled compared to 2011. The

company’s revenue is estimated between USD 500-1,000 million and the whole company is

rumored to be worth USD 2 billion. (“Orange-directed Korek”, 2017) Despite all the challenges,

Korek Telecom is deemed to be more successful in the coming years if they continue to exploit

the opportunities and turn the threats into other opportunities.

15

Korek Telecom success shows how combining a good vision and a proper strategy will be

fruitful. This paper will study the main factors that enabled the success of Korek Telecom, both

internal and external (such as having a clear vision and strategy, proper knowledge of the market

conditions and determining whether market is ready for introducing a new product or service,

correct and timely capital budgeting decisions which allowed for the network growth, identifying

political and sociocultural threats and turning them into opportunities, etc.) and finally provide

few suggestions on what else could have been done in order to make this success story an even

better one. A few high rank employees of Korek Telecom, who were part of the company from

the start, were interviewed to share their thoughts on what was done properly throughout the

years that turned Korek Telecom from a small regional company into the third largest mobile

operator in Iraq.

5. How Korek telecom succeeded

Korek telecom was facing the same or even bigger threats as Mobitel when they started up back

in 2000, however, they not only avoided a failure, but after 18 years they have become one of the

biggest companies in Iraq. Below is a summary of the main factors that contributed to Korek

telecom’s success:

• Proper business strategy: As stated earlier, to have a proper business strategy it is very

important that long term commitments are distinguished from short term tactics. A company

which is planning to stay in the market for a long time, must have a clear strategy in different

aspects, such as: how much investment is needed in physical and/or tangible assets vs

intangible assets, weather a horizontal merger could help profitability, what is the level of

network competition, etc. (Shapiro, 1989)

16

Unlike Mobitel, Korek telecom owners had a good strategy when they started their business.

First, they built a small network because the risks were too great, and they wanted to test the

waters before jumping in, however, they knew in order to grow they need to invest heavily in

physical assets, including offices, buildings, towers, telecommunication equipment of

different sorts, etc.

Later, when Korek telecom obtained the nationwide license, the owners realized that having

an experienced partner would not only help them financially, but it will also bring in the

required expertise to manage the business operations, therefore, they partnered with Orange

group and Agility.

Korek telecom owners were aware of the level of competition in Iraq’s telecommunication

market and having lost the opportunity to obtain the nationwide license until 2007, they knew

exactly their position as they were playing a catch-up game compared to Asiacell and Zain

Iraq. The awareness about network competition helped Korek telecom owners set their plans

accordingly as we will see their strategy in the coming points.

• Market Knowledge: Even though Iraq and Kurdistan region markets were not ready for 3G

operators in early 2000s, however, the destruction of telecommunication infrastructure,

specifically the landline, combined with the increasing need of people for modern

communication tools such as mobile phones, was a great opportunity for 2G operators who

were mainly providing voice calls, which were the major requirements of subscribers. Korek

telecom managed to exploit this opportunity and grew its subscribers base quickly in Erbil

and Duhok governorates, which they dominate till now, knowing that people were able to at

least afford basic handsets that could only be used for voice calls. This is in line with the

17

literature that suggests neither penetration or growth of mobile phones in developing

countries depends exclusively on income levels. (James, 2010)

When the market changed, and people needed to use internet on their phones, Korek telecom

responded by introducing EDGE which could provide the highest speed for a 2G system, in

addition to upgrading their network to be 3G compatible for the time that 3G license was

going to be issued by authorities. That eventually happened and on January 1st, 2015 Korek

launched 3G all over Iraq. The actions taken by Korek telecom shows that, they were well

aware of both physical and behavioral attributes of the market (Sissors, 1966), that enabled

them to respond appropriately.

• Correct and timely capital budgeting decisions: As mentioned earlier, Iraq and Kurdistan

region’s financial market were not well developed in early 2000s, making it harder for a

company to obtain debt. Small companies usually start up with owner’s equity as the main

source of capital and use their profits to support their future investments. However, when

they grow bigger, the profits are not enough to cover operating costs and provide additional

funds for investment that is required for further growth, consequently they need more debt,

which could be backed by the physical assets that they own. (Degryse, De Goeij and Kappert,

2012)

Korek telecom owners used their own equity to start up their company, however they only

built a small network, which didn’t require too much capital. As they grew slowly in the

beginning, they used their profits as additional funds for reinvestment in the company, noting

that their operating costs were low since only few engineers were running the operations

including the operations and maintenance of existing equipment and installing new

equipment and sites. By the time Korek telecom obtained the nationwide license, the owners

18

injected the company with extra equity and in parallel started looking for partners, and

eventually they partnered with Orange group and Agility in 2011, which helped them raise

the required funds for much needed network growth investment. It is worth mentioning that

majority of the investments were in physical assets such as new buildings, towers, etc. that

could have increased their opportunity to borrow long term debt, however, no information

about Korek telecom’s debt level was found.

• Good understanding of political and sociocultural environment: The political scene in

Kurdistan region is well known to the public, as the main two political parties (KDP and

PUK) have been controlling the region including its economy. Also, the fact that Kurdistan

region was practically divided into two parts since mid-1990s, where PUK controlled

Sulaymaniyah region and KDP controlled Erbil and Duhok, made it more essential for any

business to know how to maneuver if they were planning to work in both regions.

Korek telecom owners understood from beginning that they can dominate Erbil and Duhok

region as their company was perceived favorable by people and managed to have some sort

of monopoly in those areas. What helped Korek telecom in dominating Erbil and Duhok

market was the fact that in oligopolistic industries such as telecommunications, the first

mover can collect all the strategic and economic benefits and create entry barriers as well

(Sarkar, Cavusgil and Aulakh, 1999). However, they faced a huge challenge to break into

Sulaymaniyah region for the same reasons that held back Mobitel, since Asiacell had the

same advantageous position in Sulaymaniyah region as Korek telecom had in Erbil and

Duhok. But, Korek telecom owners understanding of the situation helped them be prepared

for when the nationwide license was granted to them in 2007, as they bought a small operator

called Sanatel, which was working only in Sulaymaniyah region, using their strong business

19

and social relations with Sanatel owners. That move helped Korek telecom owners to put

their efforts in growing their network in the remaining 15 provinces of Iraq.

• Partnership with Ericsson: The relationship between Korek telecom and Ericsson has

changed from a customer-vendor relationship to a partnership throughout the years. The main

factors contributing to this change are Korek telecom’s trust in Ericsson, which is providing

more than 90% of Korek telecom’s network, and Ericsson’s treatment of Korek telecom as a

loyal customer. The benefits of this relationship from Korek telecom’s perspective include:

enjoying financing deals from Ericsson to help grow their network, discounts and incentives,

knowledge transfer, etc.

Partnership with Orange and Agility: International telecommunication firms tend to enter

foreign markets rapidly to gain the perceived first mover advantage, however, when entering a

market with few international players, the firms prefer to partner with local firms to share the

large resource requirements as well as associated risks. (Sarkar, Cavusgil and Aulakh, 1999)

From this perspective it is easier to understand why Orange group and Agility decided to partner

with Korek telecom for entering Iraqi telecommunication market. From Korek telecom’s

perspective it was not much different, as the new partnership had the same benefits for them too,

but in addition, Korek telecom was able to benefit from the experience of Orange group in

running a nationwide operator. The partnership meant that Orange group needed to bring in high

level executives to oversee the operations and growth of the network, as well as setting screening

processes for recruiting new employees to make sure that the right technical expertise are

available. One more positive side of this partnership was the ability of Korek telecom to benefit

from the global price books that Orange group had with main telecommunication vendors such

as Ericsson.

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6. Conclusion

After analyzing success and failure of Korek telecom and Mobitel respectively, we can conclude

that to establish a successful telecommunication business in Kurdistan region and Iraq below

factors need to be available:

• A good business strategy which is in line with the literature suggesting the importance of

having a complete business strategy from all different perspectives such as network

competition, and investment in physical capital.

• Market knowledge which mean studying the market readiness before making the first move.

• Carefully made capital structure decision which include partnering with foreign investors,

especially since level of investment in telecommunications is not affected even if the area is

conflicted, instead it is seen as an opportunity.

In addition, there are some factors that do exist, but it is hard to determine what actions can be

taken to overcome the obstacles created by them, such as the complex political and sociocultural

environment and their huge impact on the market. Korek telecom have done a decent job by

overcoming this issue in Sulaymaniyah which can open doors towards more research in this area

to find out other possible solutions.

Finally, this paper concludes that having a first mover advantage is not necessarily a guarantee to

succeed if the aforementioned points are not properly addressed, on the contrary it may cause a

golden opportunity to go to waste, and other competitors would eventually catch up since the

window of opportunity as first mover is not wide open for a long time.

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