Around December last year, Khaled Bichara could have been forgiven for feeling a pang of regret that he had accepted his promotion to CEO at Orascom Telecom. The $5 billion, Cairo-based telecom subsidiary of conglomerate Orascom Holding seemed to be facing a perfect storm of problems. A legal battle with France Télécom over control of Egyptian mobile operator Mobinil appeared to be going the French company's way. Algerian authorities were insisting that Orascom Telecom owed them as much as $600 million in back taxes from between 2005 and 2007, while hinting that the company was not welcome in the country. The global recession was also aggravating the company's performance, putting pressure on margins at nearly all of its operations in 11 emerging markets. To crown it all, Orascom's investment in 65% of Wind Mobile Canada was in jeopardy after the national regulator said it breached rules on foreign ownership. The Orascom juggernaut appeared to be heading for a crash.

But recent events have given Bichara a reprieve. In early December, the Canadian government overruled its regulators, declaring that the newly licensed operator would be a catalyst for greater competition in a market with only three other national operators. Then, in January, an Egyptian court ruling blocked the execution of France Télécom's plan to get full control of Mobinil, which would have included wresting a 28.75% stake from Orascom. While Algeria remains a sore spot, Orascom raised almost $800 million in a rights issue in March to help shore up its debt-laden balance sheet.

That's welcome news for Bichara, who took over as CEO in November from Naguib Sawiris, Orascom's chairman and eldest son of the conglomerate's billionaire founder. Bichara had previously been head of broadband provider Wind Italy, which Weather Investments (a firm formerly owned by Sawiris Junior, which has a 51% stake in Orascom) bought for $15 billion in one of the biggest leveraged buy-outs in history. The pressure is now on him to find new ways for the Egyptian diversified network operator to regain the astounding momentum it enjoyed in the early years following its founding in 1998, which saw its subscriber base hit 200 million at one point.

After a period of rationalization, and an often unfruitful search for new growth opportunities, Orascom still could be a powerful force, with more than 90 million subscribers in a number of emerging markets, including not only Egypt and Algeria, but also Lebanon, Tunisia, Burundi, the Central African Republic, Namibia and Zimbabwe, as well as Pakistan, Bangladesh and North Korea in south Asia.

Parallel Universes

If there's one part of the Orascom empire where Bichara has to prove his mettle it's Canada. Having formed a partnership with Globalive Wireless (since rebranded as Wind Mobile), part of a privately held Toronto-based firm, it has provided the bulk of financing as well as strategic backing for the venture, spending C$442 million on a license in Canada's advanced wireless spectrum auction in 2008. Thus, after a "legal and regulatory marathon" – in the company's own words – Wind Mobile launched services in Toronto and Calgary in December, Edmonton in February, and Ottawa in March.

The good news may be that Canada is generally considered to be extremely uncompetitive in terms of pricing, with tariffs among the highest in the Organization of Economic Cooperation and Development and the three incumbent carriers – Bell, Telus and Rogers – hanging on to their fiefdoms. "No one operator has a stranglehold on the national market," says Nicholas Jotischky, a principal analyst with Informa Telecoms & Media, a London-based market research and consulting company. "Existing operators are clearly panicked by Orascom's move and the launch of its networks."

Bichara also sees encouraging parallels between Orascom's typical operating environment and its North American foray, including Canada's relatively low ratio of mobile-phone subscriptions of 65% ("lower even than in Tunisia," he says). Another reason why Orascom finds Canada so compelling, he says, is that the average monthly revenue per user (ARPU) – and important metric for telcos – "is around US$3 in most of our markets, but about US$60 in Canada, which is enough for a new player to make profits and build market share."

Gerald R. Faulhaber, a Wharton professor of business and public policy, says Orascom's experience of serving low-income customers will help it to compete. "It could build market share [in Canada] fairly quickly and have an advantage because the low end of the market there is probably untapped," he says. Orascom might also be well placed to take on the incumbents, he adds. If Orascom can "get boots on the ground, which means towers," he reckons "it should be able to eat them alive. These guys are not going to be used to competition, and they won't know how to respond."

But the challenge is still formidable, particularly if the regulatory winds shift again. "What it needs to do to forestall government regulatory changes is quickly build market share – in other words, get Canadians to purchase the service and not want to turn back," says Faulhaber. "Then it will have clout."

Waiting for Returns

A report published in March by The SeaBoard Group, a telecom consultancy in Toronto and Montreal, calls Orascom a "potent force" in Canada – "it holds the only (near) national license, is building a state-of-the-art network and has an experienced management team. Moreover, the impending changes in Canada's foreign ownership rules should make for tighter integration with the Orascom mothership," says the report.

"On Canada, we are on track," Bichara told analysts in a March earnings call. "As you know, we have always said that we committed $750 million for the venture. The funding is about C$1.5 billion. So we have spent about C$500 million up to now." But Orascom might have to make a bigger financial commitment if Wind Mobile has a chance of expanding nationally. "It's very uncertain whether Orascom will make a return on this investment over the next five to 10 years," says Bulent Akgul, an analyst at Fitch Ratings.

Having to wait for returns might be the least of Orascom's concerns in Canada at the moment, says Seaboard. According to its report, Wind has thus far picked up only an estimated 30,000 subscribers from a potential pool of nine million. Customers have reported network problems and difficulties paying bills online, while the small number of Wind shops, lack of an online ordering service and high price points (at more than C$100 per handset) haven't made buying phones easy. These issues led Seaboard and other analysts to wonder whether Wind's entry into Canada was too hasty, driven more by regulatory risks than its state of readiness. Seaboard, for its part, asserts that the other telcos expected to enter Canada's telecom market in the next year or so – which include DAVE Wireless and Public Mobile – "can learn much from Wind's launch."

Meanwhile, the question is whether Bichara will be able to draw on the lessons he learned at Wind Italy. As the second-biggest provider of fixed-line broadband services in Italy, Wind is one of Weather's most successful investments, reckons Fitch's Akgul, for which Bichara can take some of the credit. He was part of the newly appointed management team who helped Wind turn its first profit in late 2005, after it was acquired by Weather. Having built Wind Italy into a competitive broadband player, he developed smaller content businesses and partnerships under the Wind umbrella. As a case in point, Bichara cites Wind's Libero website, "which was dying out, and is now the number-one portal in Italy."

Inclement Weather

Making a success of Canada is important given Orascom's difficulties elsewhere. The problem in Algeria, Orascom's biggest revenue generator and a highly profitable operation, is especially acute. Launched in 2002, the subsidiary – called Djezzy (which is the Algerian word for Algeria, as well as the Arabic word for reward) – serves more than 14.7 million subscribers and has a 63.9% market share. The tax claims may be only a symptom of Algeria's hostility toward foreign investors in general, and Orascom in particular. "Orascom Group made itself very unpopular when it sold a cement business to Lafarge," Jotischky says. "Selling business to a French company was seen as not the thing to do in Algeria. The Africa Nations Cup also ended in violence between Algerian and Egyptian football fans, which led to some consumers boycotting Orascom."

Algeria's $600 million tax claims followed, despite an agreement allowing Orascom to enter the country in 2001 with a five-year tax holiday. The Egyptian company's appeal of the claims was recently denied, raising analyst expectations it will sell its Algerian subsidiary at a distressed price. A rights issue by Orascom Telecom that raised $790 million in mid-March, though, has helped it hedge against the risk that it might not be able to repatriate dividends.

"We want to stay there unless we get a clear signal from the government that we're not welcome, in which case we'll sell and go somewhere else," Bichara says. As he told analysts in March: "I don't want to paint too rosy a picture, but we have overcome most of the operational challenges we've had in that market."

Then there is Mobinil, which has more than 24 million subscribers in Egypt, giving it a market share of more than 43%. France Télécom and Orascom Telecom initially fell out over the operator's investment policy. Bichara claims Orascom wanted to fund growth, while France Télécom was more interested in collecting dividends. Whatever the origins of the conflict, France Télécom has since been fighting to take full control of Mobinil. Court rulings have been in favor of one shareholder, only for a subsequent appeal to back the other.

While a final decision could yet go Orascom's way, it could be forced to sell up, just as it may be driven out of Algeria. Some analysts have suggested a sale of either asset would be welcome, because it would erode or even wipe out the company's net debt. But Orascom seems unwilling to consider the possibility of an Egyptian exodus. "It's not just another country for us," says Bichara. "I'm Egyptian, the chairman is Egyptian and the company is Egyptian. So we're looking at how we can resolve this issue and hope we can eventually reach an agreement."

The problem with the sale of a major operation – which Bichara acknowledges – is finding something worthwhile on which to spend the proceeds. Emerging market opportunities are not as compelling as they used to be. Before Wind Italy, Orascom was taking huge risks with its investments in search of new growth, moving into North Korea, which most companies would not dare go near.

Connected with that is the deterioration in emerging markets where Orascom already operates, as the effects of the global recession took hold. Revenue growth has slowed and it is facing a surge of competition in most of its markets. That has forced it to cut prices, with the result that the average revenue per user (ARPU) in 2009 fell in all its markets around the world, with the exception of North Korea, compared with the previous year.

In 2009, Orascom cut capital expenditures in all its markets except Algeria to $1 billion from $1.6 billion the previous year. Its net debt has been hovering around 2.3 times Ebitda. That is not especially high for a large telecom operator, but Bichara does not want the figure rising. Given its track record, Orascom would stoke fears if it did. "Weather ran into problems when it acquired a fixed-line business in Greece," Akgul says. "It had to restructure all of its liabilities and that left a sour taste in investors' mouths." The sale in 2007 of an operation in Iraq was also done partly to ease concerns about debt.

Could Orascom become a takeover target? While individual assets could lure particular investors (Etisalat, an operator from the United Arab Emirates, has already expressed an interest in Algeria), Jotischky says the overall entity doesn't look very attractive. "It's got such a disparate [geographic] spread of businesses, and today it's all about having a clear geographical footprint," he says. The valuations attached to standalone units might also be low, considering Orascom's troubles. Yet chairman Sawiris has spoken frequently about how being part of a bigger entity would allow Orascom to confront the giants of the global phone industry, such as Vodafone of the U.K., Spain's Telefónica or Germany's T-Mobile.

For now, however, Bichara's focus is elsewhere. He says his job currently is to knock the company's existing operations into shape. "The only way for us to grow now is by providing value-added services, like mobile banking and mobile health," he says, noting that this plays to his strengths. "When my chairman gave me the job, he said we've done the customer-acquisition part. Now we have to do the value-added services and data part. I was appointed because I come from that world."

Introducing data services to emerging markets will not be easy, especially where the vast majority of customers are on low-cost prepaid deals. But Wharton's Faulhaber says chasing after data services makes sense, and it's a challenge all the global telcos are facing as they compensate for a decline in their traditional voice business, and possibly lay the foundations for new growth. "Telcos have to really re-make themselves," he says. "They're becoming conduits for a data-rich environment. If they can offer [customers] economical offerings that get them data they need, [the telcos] can make money."

Experts also note that by targeting the right kind of consumer, building out a mobile-data business would not have to be a hugely expensive endeavor, especially if executive teams keep a tight grip on their businesses, which Bichara seems to be doing. "Orascom is cutting down on rollouts in rural areas and focusing more on larger urban areas, where it feels there will be more interest in data services," Jotischky says.

"Mobile broadband and data services in general are the way forward," he adds. "We're already seeing huge growth in mobile broadband across East Africa. I don't see why that shouldn't happen in Pakistan and Bangladesh either." Or even Canada.