Three years after going private, Batelco, Bahrain’s telecommunications provider, is struggling to rid itself of public sector baggage that threatens to hamper its ambitious growth plans. Despite posting a record operating profit in 2006 of 84.9 million Bahraini dinars ($225.2 million), a 10 percent increase from 2005, the company is stuck with massive overstaffing, a share price decline triggered by the departure of a founding partner, and a host of labor headaches including a botched voluntary retirement scheme offer and a workers’ protest narrowly averted at the eleventh hour.

The labor dispute is the main symptom of Batelco’s malaise. The company union, Batelco Trade Union, representing a disgruntled staff who claim they have seen little increase in pay since 2002, despite the soaring cost of living in the kingdom, presented management with unprecedented demands: a 25 percent wage increase and larger bonuses on top of the incremental increases the company routinely awards. The startled management said no.

Face-offs between workers and management are not quite as rare in Bahrain as they once were – or as they are in the rest of the Gulf – but even Bahrain drew the line when union demands threatened to spill out onto the streets, and the minister of labor was forced to intervene.
The union had planned a February 28 demonstration outside a hotel in the Diplomatic Area precinct in downtown Manama where the company’s annual general meeting was to take place. The protest was not, strictly speaking, a strike. Strikes by communication workers are prohibited, because communication, like hospitals and civil defense, is deemed a “vital facility.” Nevertheless, the day before the strike was to go ahead, the minister of labor, Majeed Al Alawi, brokered a deal between the union and management that effectively bound both parties to sit down and talk.

Maki Abbas, the chairman of Batelco Trade Union, told TRENDS: “This was not a strike, it was just a demonstration.” Strikes are illegal, he averred, but warned that the union may yet resort to a strike if they felt it necessary. He said the union demand for a 25 percent wage increase for laborers was the main sticking point with management, but the union had also objected to a management proposal made in December to replace the voluntary early retirement (VER) scheme with a redundancy package.

In December the Bahrain Tribune reported that a group of 14 Batelco employees who had already accepted an early retirement package had been advised by the company that their entitlements might be cut by almost half. The union was furious that such treatment was being meted out to employees who, in some cases, had given 25 years of service to the company. Also, what at first sight appeared to be a simple cost-cutting measure was viewed by the union as a preemptive move by Batelco to reduce its financial exposure to a new wave of swinging job cuts.

In a follow-up report in the Bahrain Tribune, Ahmed Al Janahi, the corporate affairs general manager of Batelco, denied that the company had any immediate plans to cut jobs. However, he said, competitors were entering the market and there were regulatory changes in the offing that might force the company’s hand. He said the revision to the pension scheme was solely a financial decision. “Batelco has entered into an agreement to negotiate with the union and will undertake an independent research study,” Al Janahi said. One industry insider believes, however, that this is a temporary truce and that the company is determined to lay off staff, with some reports suggesting that as many as 25 percent of the company’s 1,600 staff face the chop.
“It is only a matter of time before they slash staff and send people home and this may not have been the right time for them. How they do it is the issue here. Since a lot of hue and cry happened this time, they may have decided to hold back for the time being. Anybody who reads the company’s releases carefully can figure out that they have been hinting at such a possibility,” said the journalist, who has been covering the company for several years.

Al Janahi insisted there is no target set for any reduction in jobs nor is there any specific plan but added: “We are monitoring industry and regulatory developments and assessing their impact on Batelco. It is natural for any competitive business, including Batelco, to review the total headcount as its business evolves.”

Meanwhile, the company’s fourth-quarter profits took a 9.4 percent dip, to 20.2 million dinars year-on-year. Analysts have attributed the fall to a depreciation of goodwill from a deal Batelco made in June: the acquisition of Jordan based Umniah Mobile Co. Batelco has denied that the Umniah valuation has slumped, or that there have been any write-offs, but there’s no denying that shareholders and analysts alike questioned whether Batelco paid over the odds for its 96 percent stake in the mobile firm. At an AGM at the time of the buyout shareholders grilled management and the board on the wisdom of such a large capital outlay considering the state of the health of the company.
The acquisition forms part of Batelco’s quest to expand away from its saturated home market, and in February the company borrowed $300 million to fund the next step in its growth strategy. The company could spend as much as $3 billion, half in newly minted equity, on its acquisition trail across the Middle East. Al Janahi offered this justification: “As competition in the Bahrain market increases and Batelco expands its operations into new geographies, we anticipate that an increasing percentage of our revenues will come from overseas. By the end of 2008, Batelco aspires to achieve 30 percent of revenues from international operations.”
But the value of Batelco’s mostly government-held shares has been falling. The share price has shed 13.8 percent since the start of 2007. Part of the reason is that in its eagerness to move beyond its borders, Batelco failed to carry along a company that was its founding partner, Britain’s Cable & Wireless. On January 17, Cable & Wireless sold its 20 percent stake in Batelco for £258 million. The shares were sold at a discount, depressing the price at which they trade.
So far, a government-brokered truce over the labor issue seems to be holding. But with the threat of increased competition at home forcing it to expand its horizons, Batelco is running out of time to transform itself into the leaner, meaner company it needs to be to succeed on the region’s tough acquisition trail.

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