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Interview

Karim Cherfaoui – CEO, Divona Algeria

29.07.2015 / Energyboardroom

06_Karim CHARFAOUI, CEO - Divona

The CEO of a leading Algerian telecoms company discusses the entrepreneurship environment in Algeria and how to work with Sonatrach, the national oil company, as a private sector company.

Can you tell us about being an entrepreneur in Algeria, in particular in the oil and gas sector, between multinationals, Sonatrach and its subsidiaries?

Entrepreneurship in Algeria is often full of challenges, but there are no insurmountable obstacles. First, there is the problem of coordination with and between institutions. Second, the entrepreneur has to take on many roles that are not his own, get involved in every stage, be them regulatory, administrative, or technology related. The path is also complex because there is no organized value chain at the national level. There is a lack of players in all sectors, both generalists and specialists. To undertake a project, especially when the industry is quite structured as is the case with oil and gas, means that one must be able to create several sub trades before gaining a real foothold into the market.

It is easy to start a business in Algeria: procedures have eased, which has created the formidable inspiration that we have been feeling these past few months. Yet, even if the regulatory framework ensures wide latitude in initiative on paper, as entrepreneurs, we are still bound to provide the link between the various institutions, which wastes a lot of time and energy. In the oil and gas sector, there are very specific features – including the Ministry of Energy running such a significant public structure – which facilitate the environment. However, the existing lack of coordination between the ministry and the ministry of ICT, on which telecommunication players like ourselves depend, makes things more complex on the ground, while besides this, the country would actually have the capacity to do much better.

Divona, like other initiatives before, has had to deal with this state of fact. We are a telecommunications operator in the Algerian market; we have been granted a license that provides us with the highest authorization level in the country, yet we have to achieve vertical integration or installation interventions on a day-to-day basis; that is to say a variety of transactions that are not directly related to our activity, and therefore do not fall within the scope of our expertise as such.

Divona was granted its operator’s license eleven years ago. What has your strategy of approach been since, between Sonatrach, which manages integrated markets with complex procurement processes, and in parallel, private operators, i.e. large groups with large requirements?

Prior to 2004, Sonatrach and the multinationals were, for all or the most part, supplied by international operators, very present in this market. The reason is that there was no regulation regarding satellite communications. The new regulations were put in place in 2004, and two licenses were sold on the market. We acquired one of them, for the sum of USD two million.

For the authorities, it was of course a leveling operation, through price. But the other operators that had been in existence before were not going to disappear overnight. Therefore, we had to be patient before we could enter these accounts, which took about two years.

Even after this legislation was enacted, Sonatrach remained very closed: it still requires its service providers to be experienced in the oil and gas sector and to submit references. Divona, as it was starting from scratch, obviously did not have such experience. However, having been initiated by Monaco Telecom, which had references in the sector, Divona did manage to get its first contracts in the oil and gas sector. In 2007, we worked on the Berkine facilities for the Sonatrach and Anadarko consortium, the biggest of its kind at the time. This constituted the first prestigious reference for us. Our work with them spanned the entire value chain, with advanced technology. This immediately gave us the image of an operator especially focusing on the most innovative and effective technologies

Subsequently, we worked with the various different consortia, because it turned out to be more interesting to convince international operators, which only judge companies based on pragmatic efficiency, rather than to face the burden of public tenders the way they are conducted for Sonatrach.

However, even if we share the same language as these international players and this was a real gateway to the market, the legal structure of the consortia was a hindrance, given that they also obey public procurement regulations. So we decided to focus on international operators of smaller size than the EPCs, some of them even from the time of their establishment.

What share does the oil and gas market hold in Divona’s activity?

Divona generates approximately 60 percent of turnover in the sector, and accounts for about 70 percent of market share. We have managed to touch the market directly across the whole value chain, from seismic to production regulation systems.

Finally, we became Sonatrach’s supplier, directly, through the consortia, and sometimes through our distributors: the global top five telecom operators for the oil and gas sector distribute our services in Algeria.

How do you avoid resting on your laurels, having this kind of leadership?

Income remains very reasonable in the oil and gas telecom niche, as there are not so many players in this market. We keep a cool head and great efficiency also because our structure remains on a human scale with roughly fifty employees, two thirds of which are deployed in field operations.

Our human resources have been integrated, we initially had a lot of expatriates and we chose to go local to increase our field presence. 70 percent of our employees are engineers who operate on each function: technical, commercial, and so on: this enables us to remain efficient.

We grew simultaneously with some of the operators in this area, took advantage from their evolution in order, gradually, to cover the whole value chain and adjust our services and products to the evolution of their projects. In the end, today, we really can assist them and offer increasingly accessible, innovative and robust solutions.

How is your offer structured?

Our offers are divided into three families, specifically adapted to our clients’ profiles. First of all, there are deals intended for extremely cautious companies that take every security option. Then there are the ones intended for technology-sensitive companies, as is often the case with German and Japanese businesses. Finally, we also address companies that I call “insiders”, which find their way into this area through heavy price and cost control.

We provide coverage to the oil and gas via satellite, and Broadband since we’ve been acquired by SLC, a very specific technology combination which requires a multi-territorial presence. This gives us enough flexibility to adapt. In addition to technology-driven flexibility, we enjoy a great efficiency level since our whole management operates from Algeria, although we maintain a strong presence in Europe, Asia, and of course in the MENA region.

In an emerging country like Algeria, where technology changes slowly, how do you manage to stay on top? What are your benchmarks?

We run our own benchmarks, and then have a client-focused benchmark, which sets very high standards. Learning and recurrence are our best positioning levers, to prevent gaps from arising between technological possibilities and operational realities. Contrary to what one may think, majors in the sector are usually pretty fond of traditional technologies, thought to carry information from point A to point B, reliably and without embellishment.

Then, there is a benchmark focused on our distributors, which themselves are telecom operators. We supply the service that in turn, distributors interface with their own infrastructure and clients: this requires that we be compatible first in terms of customers, but also and especially technologically speaking.

Finally, there is a benchmark focused on satellite operators: our activity also follows a value chain. In our sector, there are two kinds of upstream players: satellite manufacturers and equipment manufacturers. Therefore, we absolutely have to participate in every event around the world related to this specific sector, in addition to those oriented on oil and gas.

What are the reasons that brought Monaco Télécom to sell its shares in Divona’s capital to Smart Link Télécom? What opportunities did this new partnership bring?

Monaco Télécom established Divona in Algeria. In 2007/2008, the English group Cable & Wireless took control of Monaco Télécom and later split it into two large entities: C&W Communication and C&W Worldwide. CWC inherited Divona Algeria’s branch and made an attempt in the satellite adventure in 2010. But they finally decided to get out of this activity: it was too small a market for them, even after downsizing. Therefore, all entities working in the satellite sector were sold.

At the time, I was leading Divona Algeria, and the opportunity arose to recover this company. Being an Algerian company brings bonus criteria to tenders, including Sonatrach’s. However, we share this advantage with our main competitor.

The transaction satisfied both parties, and greatly benefited to the Algerian party: we inherited the real know-how of a company with much experience in the international market.

Divona is present in Europe, Asia, the Middle East and the United States. Can you shed some light on the strategic importance of such geographical coverage?

When it comes to satellite services, the first characteristic is that there is no territoriality. We took advantage of this feature to export our service worldwide, from Algiers. This way, we enable our clients’ headquarters to be constantly connected with field operations, which necessarily involves to export our service: the traffic is raised in Algiers, and delivered via the satellite where the customer needs it. This is the reason why we have had to develop partnerships as well as our own branches abroad to ensure physical presence in a number of countries.

2014 was the year of Divona in Korea: many projects have been awarded by companies from this country, and we provided them our support by implementing a robust infrastructure between Algeria and Korea. For some of these clients, they were so happy about our service quality that they asked us to join them to go to other destinations. This is how we were able to start a service in Turkmenistan, raising traffic there to deliver it to Dubai via Algeria. We also provide a similar service for our customers in Iraq and Germany.

Algeria is currently expending in the energy sector, the leading sector in the country, especially through offshore deployment. Is there still potential for growth in Algerian oil and gas?

Yes of course. In this sector, it is very difficult to be present all across the value chain at the same time. Production projects usually last eight to 12years, so our goal is rather to support all these actors, according to their specialty, during this time period.

More specifically, as an operator, Divona is the first company to provide hybrid networks. This is now possible thanks to the complementarity between Divona, leader in satellite telecoms for oil and gas, and Smart Link Communication (SLC), leader in broadband telecoms. Indeed, between the satellite that requires very little infrastructure and broadband which in the opposite needs specific equipment, the equation balances quite well. Broadband can be backed up by satellite, and vice versa, both on the economic and technological levels.

Moreover, since oil and gas projects are settling, terrestrial infrastructures are going to develop in order to provide a basis to intensify exploration, especially in the case of shale gas. Our ability to offer through a single contact “Backhauling and hybrid services” – which is relatively rare and consists in putting a satellite communication equipment in the middle of the desert to collecte any type of traffic and provide a whole range of services (Voice, Data and Video) in the area spreaded by Boradband, for the convenience of staff in the field – will become our primary source of strength. Only three operators worldwide can offer this service.

We have managed to bring together the right elements in the right formula between Divona and SLC. The technology mix that we use combines Wi-Fi, Wimax, satellite and MPLS as well (submarine cables): in order to prevent any significant satellite latency, because of double liaison for instance, we have developed a submarine optical fiber network of large capacity (2GB) which enables us to connect any place in the world through our Point of Presence in Europe. This way, we implemented a connection through major Telecom partners to Paris, another to Seoul, Houston, Montreal, London, and Hong-Kong. This represents a great technological opportunity for our customers, who are actually well aware of it.

Divona remains a human-sized SME. Do you intend to accept all projects regardless of location?

No, it would be difficult. However, risk-taking is a recurring feature of success stories; because Divona was able to take risks, we succeeded in our adventure to Turkmenistan for instance: we managed to establish a great partnership, and to grow our expertise in partnership management, risk absorption and even day-to-day management.

One of our tools to achieve this is satellite connectivity back-up: it secured our service stability in Turkmenistan, and also in Illizi, an area where conditions are very complicated: for example, on the first day of our arrival, an attack took place some 150m away.

Internationalization is definitely in our plans. We aim to acquire a European satellite telecoms license, and this project should have moved forward by early summer this year. This will enable us to enhance our presence on the ground via ground stations located in Europe, which is a highly strategic issue for us.

The territorial coverage that we manage, references that we have accumulated in Algeria, in a totally fair competitive context, mean that we bring real added value. We want to keep these advantages: the heart of our network in Algeria, the relays in Europe thanks to our future license.

What is your message to the international players who are now considering coming to Algeria?

When settling in a country, the first challenge is to adapt one’s habits and instincts to this new country’s context. Divona is the one operator which truly provides network continuity, makes sure the client’s environment is transposed in Algeria in its dematerialized form. This is a great added value for the players who wish to come to Algeria and benefit from the most robust and most suitable technology to cover their needs all the same.

Finally, our understanding of the field, of technology and of our international clients’ needs has made us one of the best global telecom partners for foreign company establishing in Algeria and even for constructors. As a result, we became one of the beta testers on the Skywan 7000 technology (by NDSatcom), intended for the oil and gas as well as the military. The first implementation was done in August 2011, and this is a sign that Divona will remain the key partner to international oil and gas players eager to work with an operator at the leading edge of technology.

Click here to read more articles and interviews from Algeria, and to download the latest free oil and gas report on the country.

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