In June of last year, Kalaam Telecom closed on its fourth acquisition, that of Kuwaiti ISP, Zajil Telecom. Not only did the purchase of a tier two player bring significant additional reach to Kalaam’s network, but it also saw the firm become a consortium member of the 15,000km Europe-India Gateway cable (EIG) and gain licences for new markets.
These factors are just part of why the deal won Best Strategic Acquisition at the 2021 Global Carrier Awards.
“M&A has been part of our strategic vision for four or five years,” says the group’s chief executive, Veer Arjun Passi, citing the earlier acquisitions of NGNS and Lightspeed Communications in Bahrain, and Tawasul Telecom in Kuwait.
That said, Kalaam’s strategy is not to simply build strength, it is also about building agility to carve a long-term role for the group in a corner of the world that still has huge untapped potential.
“We have an ambition to organically and inorganically drive growth, and we realised that in the GCC region there are many operators, ISPs, or data service providers, the ones who are not mobile providers, but are into the B2B space and they have the licences for data services or ISPs,” says Passi of the criteria such acquisitions need to meet.
Explaining how this then becomes Kalaam’s niche, he adds: “Many of these ISP operators are part of large, diversified groups with no long-term strategies to grow in the telco space. Our strategy is to consolidate such businesses in the region to create a large regional entity that is Kalaam, We also look, from a strategic fit perspective, if they have assets we can integrate post acquisition.”
At the time of the Zajil deal, the integration of its infrastructure expanded Kalaam’s network across 25 countries in the MENA region, Europe, the US and Asia, including 53 fully-owned PoPs. As a result, Kalaam became a US$100 million technology solutions company with licensed operations in Kuwait, Saudi Arabia and Bahrain.
Statistically, Passi shares, this acquisition put Kalaam in the top three ISPs in the GCC region – although, technically, the other two operate only in Saudi Arabia. “We want to be one of the largest players in this data, digital and ICT space in the GCC, and we want to be pan-GCC,” he adds.
Joining the dots
While money and vision are integral to that strategy, it is the projects that bring in the customers.
The market for capacity is evolving quickly, so last year, to take a greater slice of the carrier pie, Kalaam launched its own terrestrial cable system, Kalaam Network Optical Transit (KNOT). Demanding an investment of more than $10 million, KNOT spans 1,400km across Kuwait, Bahrain, Saudi Arabia, the UAE and Qatar, underpinning the digital economies of the GCC and positioning Kalaam as a one-stop operator for the region.
“These strategic investments, like cable investments and the Zajil acquisition, have brought in audiences such as hyperscalers that want to use our cable system to leverage the large customer base of the Kalaam group and also reach deeper into the GCC countries,” says Passi. But hyperscalers also, famously, demand ever-increasing capacity. For example, in Bahrain, AWS hosts Fortnight – and a growing number of other gaming servers – for the entire GCC region.
“Amazon has its core data centre and [other] data centres in Bahrain, which is where our KNOT cable is landing, so it’s also allowing us to support the likes of Amazon,” Passi says of the future potential.
“On the carrier side, with the launch of our cable we’ve been supporting a lot of the regional telecom operators to connect within the region and most of our capacity has gone towards supporting hyperscalers, cloud operators and large enterprises,” he says, adding that the federal business is also working across the region’s many military bases to meet demand for layer one and two connections.
To meet the demands of its customers in the B2B, carrier, hyperscale and cloud segments, Kalaam’s plan will link major terrestrial and submarine projects; a proposition expected to be a hit with financial institutions and other latency-sensitive sectors. The next step is to extend the 12.8Tbps capacity KNOT cable via Saudi Arabia towards Europe within the next 18 months and join it with EIG – itself upgraded in 2020 to offer a total 28Tbps – and create a fully resilient ring connecting Europe with the Middle East.
“It is kind of a ring with submarine and terrestrial. We are joining our dots with operators in Saudi and Jordan,” Passi says.
Reinventing capacity
But what happens when the hyperscalers begin to deploy their own cables in the region? It is already starting to happen, but while Passi admits that data is changing the outlook and strategy for businesses such as Kalaam around the world, he is not concerned. “Will they put the telcos out of business? The answer is no,” he says. And the reason is customers.
“It depends on your business model. For most of the telecoms operators, our biggest assets are our customer relationships. We own the customers out there,” Passi says while the hyperscalers, tech giants and OTTs-turned-infracos instead focus on content and application reach, leveraging their telco relationships for the rest.
“That’s why we need to reinvent. There are some telecoms operators which have around 20% of their top line coming from the business of supporting hyperscalers, either for connecting them to the US or Europe where their content hub is. This business is at risk from the investment of hyperscalers into their own cable assets. Most of the other operators will have exposure of 4-5% if these cloud companies invest in their own cables here,” he adds.
The challenges ahead for those with the higher exposures are undeniable, but one solution for Passi is to jump on the content bandwagon. He says the region needs to “reinvent and invest in local content”.
“That’s the future,” he adds, although “it remains a long way off”. He adds: “Most of the other business, traditional telco businesses, I don’t see a challenge in that particular space,” he says, but all concerned “still need to evolve”. The provision of capacity itself requires reinvention, too, as the gap telcos now fill leans on the more costly provision of IP Transit.
“There’s a lot of capacity available and more coming. But the fact is that the incremental commercials for these capacities are going down and the business model on IP Transit is very strenuous on telecoms operators in the region like us. It comes with no margin and takes up all the capacity,” he says.
Instead, that could be used for high-margin B2B operations. “We’ve started to prioritise our business,” Passi says. He adds that while Kalaam has healthy carrier, infra and federal operations, he says it has “an advantage in that we also have a large B2B audience”.
As to how other regional players can leverage such customer bases, the simple act of listening is his top piece of advice.
“We need to create a business model, and find a model to use that capacity by using propositions for our B2B audiences, so we enable the journey of digitalisation towards cloud. That’s where operators need to reinvent their services,” he explains.
“The large capacity connectivity is set for the next three to four years and, as operators, we don’t have much to offer. So we have to reinvent our business on the capacity side by investment in SDN, allowing all the carriers and hyperscalers to be able to connect on demand, and be part of a digital ecosystem to connect with the B2B audiences.”
Connecting the GCC
One problem the industry will not be able to evolve out of is the rent seeking that has crept into landing fees. When asked about the barriers created by such policies, Passi describes the cross-connect charges levied in some countries as being prohibitive to say the least. “It does not allow you to flourish,” he says.
Compounded with high last-mile charges across the GCC and Middle East, it puts many at a disadvantage and there are “hardly any” carrier neutral data centres. The ecosystem is opening up, slowly, but for anyone expecting to see the same low-cost entry options that exist in markets elsewhere, Passi says “that ecosystem is missing here”.
“The Middle East needs to explore, in terms of digital transformation, the cost of cross-connects, cable landing systems and carrier neutrality,” he adds.
While it appears Kalaam already has its work cut out, there is more in the pipeline for the group.
The Zajil acquisition came with a licence to launch and operate an ISP in Saudi Arabia, giving the group the potential to create “quite a sizeable B2B business” that will replicate the strategy and proposition delivered in Bahrain and Kuwait. Passi says investors are ready to back the move and Kalaam is liaising with authorities to roll out enterprise and digital solutions in “the fastest-growing market in the Middle East”.
“Given the size of the economy and hyper investment by the Saudi government in digital transformation, it’s a no brainer for us to be there to have a piece of this growth,” he says.
Digital transformation
The other big opportunity is digital transformation, evolving beyond the provision of digital solutions and modernising Kalaam’s own network.
“We need to make our operations lean, mean, efficient, and we need to make sure we have also digitally evolved so we can offer digital transformation services. We are investing in not only digitalising our process and systems, but also in our network through virtualisation to make it lean and adaptive to the changes in the customer demands,” he says.
Supporting this is Kalaam’s chief digital officer, Akshay Lamba, formerly of Deloitte Middle East, who is building a 10-strong team of transformation advisers.
On network modernisation, the shift to SDN is underway at Kalaam and investments in virtualisation will allow the group to offer on-demand bandwidth to carriers. Across its Middle East operations, Kalaam is integrating PoPs over a virtual network so carrier partners in Europe, the Middle East and India will be able to reach the Middle East as needed.
“We are moving towards it step by step,” says Passi.
