A sideline of earning a few pennies in London distributing mobile phones has been transformed into a multimillion-dollar telecommunications business based in Dubai. The company's chief points to its micro distribution system as a key reason for its expansion, Rory Jones writes
Axiom Telecom is the biggest mobile-phone retailer in the Gulf.
But surprisingly, the business, based in Dubai, started life as neither a mobile phone retailer nor based in the Gulf.
Instead, Faisal Al Bannai, the founder and chief executive of Axiom Telecom, initially began a software company in London in 1996 with friends from City University London. To make a few extra pennies for the company, Mr Al Bannai began distributing mobile phones from London to the UAE but soon realised this should become the main business.
Now, 16 years on, Axiom is flourishing, with Dh7.3 billion (US$1.9bn) in sales last year across its retail, distribution, repair and services divisions.
"We have four business units and I think that is one of the reasons for our success," says Mr Al Bannai. "The Dh7.3bn is not just retail. If it was just from retail, we would be making a gazillion percentage increase in profit."
Axiom's brand is well known across the GCC in a sector that is highly competitive. In the UAE, its biggest competitors are the electronics retailers, such as Sharaf DG, Jumbo Electronics and Jacky's.
This year, Axiom plans to consolidate its position in the Gulf, where it has nearly 700 retail outlets, and also expand its 200 sales outlets in India.
Here, Mr Al Bannai discusses those plans and reveals why Axiom shunned a high-profile initial public offering last year.
Which brands are the biggest sellers across the Gulf?
Current trend, iPhone is definitely a strong player. And despite many negative comments coming from the US market, BlackBerry is still the largest smartphone player in our region and they are still doing extremely well. So BlackBerry is doing extremely well, iPhone is doing well, but the runner-up, climbing like a rocket is Samsung. It is really … becoming a major player. Big time.
So Samsung is the one to look out for?
Samsung in the last 18 months has been growing sharply, especially in the smartphone market.
What about the iPad 3? There has been quite a hoo-ha over its launch. Do you think it will be a success?
I think iPad is still the dominant player in the tablet business. I'm disappointed at what the iPad 3 has because I don't think it does any new things.
Nothing to wow Apple fans? There are no wows. But at the same time I'm sure iPad 3 will do very well because of the customer base that is out there. It didn't wow me but when Apple went from iPhone 4 to iPhone 4s, look at how much it sold.
You expect the iPad 3 to sell well?
I think we have to respect [Apple's] strategy because whatever anyone says, industry guys, PR or media, [Apple] are the guys making 75 per cent of the industry's profit.
Near field communication (NFC), where customers pay with their mobile phone, has been talked about a lot recently in the UAE. Do you think we are likely to be paying with our mobiles any time soon?
I believe it will start becoming a reality soon. In the next one to two years you will see it being used. At the end of the day, you need the system: you need it on the phone and it has to be on the terminal on the other side. If there are not enough devices, you can have all the NFC technology you want in the phones but there aren't any retailer devices. All our devices are becoming NFC-enabled. Not because there is NFC today but you need the ecosystem. Now you are definitely seeing the tip of this curve going up, there is momentum.
How much of the total phone sales, distribution and repairs market in the Gulf does Axiom make up?
In the UAE, we represent more than 60 per cent of the market between our retail and distribution. In smartphones, we are around 50 per cent of UAE's business and around 30 per cent of [Saudi Arabia's] market. We hold a pretty massive majority in UAE and a massive share in [Saudi Arabia].
How many retail outlets does Axiom operate in the UAE?
In the UAE, we have in total of 110 stores, plus we have 300 points of sale in petrol stations. In the GCC we have close to 700 retail points. And 200 retail points in India.
Is the business performing well?
Last year we grew sales by more than 30 per cent to Dh7.3bn. We grew the top line by 30 per cent because in 2010 we did Dh5.5bn. Last year, we doubled profit year on year. We don't declare profit figures.
Why is the business growing so strongly?
We pushed micro distribution, which you would refer to as the milk round at someone's house. There are around 1,500 small shops in the UAE. Our micro distribution goes from shop to shop, with stock in the van. The driver has a specific route. We cover, today, 95 per cent of the shops in the country directly ourselves through this.
Who currently owns Axiom?
There is nearly 35 per cent owned by Al Bannai Group. Another 4 per cent is owned by Al Zarooni Group. Then there is 35 per cent owned by Mannai Corporation, which is the Qataris. Then there is 26 per cent owned by Tecom/Dubai Holding.
Last year you decided to sell to Mannai, a large Qatar company that is involved in retail through to engineering, rather than publicly list the company. Why?
We evaluated the public option and the private option. We wanted to go public because we wanted to support the growth of the company. Then at the end of 2010, when we came to the shareholders to make it public [on Nasdaq Dubai], they were unhappy with the price we got at the time.
What was that?
The range was between $800 million and $1bn. So we cancelled that transaction [on Nasdaq Dubai]. Frankly, we got a lot of criticism. People said this decision is going to damage the company. [We thought] investors will continue to be interested in the company as long as our numbers are good.
Did you also look at listing in London?
In the beginning of 2011, we were doing our documents for London and at the same time a lot of private investors were coming in. We said as long as it meets the need, to increase my capital and strengthen my balance sheet for future growth, it does not matter whether I go public or not. It is all a means to an end. This is where we came to an understanding with Mannai [for 35 per cent of the company].