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CASE STUDY

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(ETIHAD ETISALAT COMPANY (MOBAILY

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2019-2020

:About Mobily
Etihad Etisalat Company (Mobily) is a Saudi company established in 2004 , and Emirates
Telecommunications Group owns the largest percentage of its shares, 27.99%, followed by the
General Organization for Social Insurance with 11.85%, and as for the rest of the company’s shares
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 .it is owned by a group of investment organizations as well as individuals
In its founding year, Mobily obtained the second license to provide wireless mobile
telecommunications services in the Kingdom of Saudi Arabia, and thus ends with a monopoly in
.the wireless communications sector and begins providing its services throughout the Kingdom
In 2006, the Global Association for Mobile Operators (GSMA) awarded Mobily the fastest growing
.telecom operator award in the Middle East as well as North Africa
In addition, in the same year, Mobily launched the 3.5G networks services, while for the 4G
.services, it was launched in 2011
The growth stage of Mobily has witnessed a prominent group of stations represented in several
.important strategic acquisitions executed by the company
.In 2008, it acquired Bayanat Al-Oula, a company licensed to provide data services
Later that year, Mobily purchased the absolute majority stake in Zajil, the Kingdom's leading
internet service provider in the Kingdom. Also, Mobily owns 66% of the shares of the Saudi
National Optical Fiber Network project, and it is one of the largest fiber optic networks in the

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whole world. Through this network, Mobily provides its customers with an integrated

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communication infrastructure that includes mobile communication services and fast internet.

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Mobily also provides integrated services to three main sectors, which include both the individual
sector as well as businesses and operators. Also, it has one of the largest wireless networks in

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terms of coverage in the Kingdom and the region in general, in addition to having the largest FTTH
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networks and one of the largest data center systems around the world. Mobily's network consists
of its own infrastructure in addition to “Bayanat Al-Oula” and the Saudi National Optical Fiber
Network. It is the newest fiber optic network in the Kingdom, reaching all major cities and covering
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.more than 33,000 km of roads

The network has been expanded to connect with neighboring countries including Yemen, the
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United Arab Emirates, Bahrain, Qatar, Kuwait and Jordan. Mobily shares have been listed on the
Saudi stock market "Tadawul" since 2004, and its capital amounts to 7,700 million Saudi riyals
distributed over 770 million shares, with a par value of 10.00 SAR per share, fully paid, and as of
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the date of September 31, 2018, the total shareholders' equity It is valued at 13.8 billion Saudi
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.riyals

:Vision
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.To be among the most appreciated Saudi companies, and to find high value for our shareholders
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: Main cases
What happened in Mobily is a tragedy, and it is closer to an administrative and accounting scandal

The two accusations that occurred against them are misleading the beneficiaries of the financial
statements of the shareholders, and by doing an unrealistic financial results, we will talk about
:them in detail as follows
:Two major problems that led to a crisis in Mobily include

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 The first problem is calculating the revenue from the promotional program -
:((customer loyalty
This promotional program aims to ensure customer loyalty by giving customers points at every
payment of the bill due to him before the time allocated to them and thus the customer can
substitute these points with rewards in any way the customer sets, whether it is from the same
.company (services) or through Other independent companies in exhibitions
The text of the agreement between Mobily and the companies was that the companies will pay for
Mobily, but that includes the value of what was replaced with only points and not the full rights of
.the points allocated to them
But what Mobily really did is to "prove the value of these points in full, as if they were completely
replaced", and thus registered them as revenue, while if we came back to reality, the actual
revenue was only a small part of it. To that we add those contracts with some customers, and the
.service has defects, so they lost many customer compensation

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She discovered this error in the beginning of 2014, but unfortunately, it was not announced until 9

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Mobily says it was the one who discovered the error and informed the External Auditor

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PricewaterhouseCoopers that it would correct this error from the revenue in 2014 and accepted
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the external auditor initially set up, but he returned and informed the company in the end of
. October 2014 that this method is improper and requested deduction from the revenue in 2013
Pricewaterhouse is one of the largest accounting and auditing companies in the world, but what
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happened is a scandal that you must share its consequences. How can you agree and then wake up
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?after ten months and ask for the amendment on the pretext that the method is incorrect
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Of course, this led to the modification of Mobily’s results for this year and for 2013 as well. In
2013, Mobily achieved 6.6 billion riyals in net profit, but after this amendment it became 5.9 billion
riyals. What about the dividend that occurred in 2013? What about executive bonuses for 2013?
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?Will it be modified too? Or will the crisis be dealt with only from the shareholders ’funds
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The amplification of Mobily’s financial results in 2013 and 2014 coinciding with the appointment
of a new external auditor for the company is PricewaterhouseCoopers, and the fact that these
abuses would not have been found had it not been for the internal auditor of the company to
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stand against it, necessitating a thorough investigation into the role of the company's external
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.auditor in This issue

The second problem is the incomplete availability and readiness of the optical fiber network to
.make full use

;(The second case concerns the so-called Indefeasible Rights of Use (IRU -
This problem arose first with Atheeb when the two companies signed an agreement to use it
through Bayanat Al-Oula Network Services Company (Bayanat Company), one of Mobily's
subsidiaries. However, Atheeb Company terminated the agreement due to some difficulties that it
said are technical and logistical and that these difficulties were not overcome by a data company

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 (which means that they were not actually ready for use). Why did "Atheeb" cancel the agreement?
The IRU agreement means a long-term lease agreement that gives the exclusive, unrestricted right
to use the energy of the relevant communications network, and through accounting standards
related to this type of rent the contract should be counted as a sale and prove its revenue, but the
user should not have the right to Undo the contract. When "Atheeb" and others agreed with
"Mobily" on this long lease and signed the contracts, they would adhere to a lease similar to the
final sale (somewhat like car rental ending in ownership). "Atheeb" will commit to paying all the
installments annually, but after the signing and the outlets were not ready for work, it has become
"Atheeb" in a solution of that agreement and canceled it, but "Mobily" did not. As soon as she
signed the agreement with "Atheeb" and others, she immediately considered these contracts as a
capital rental lease contract and confirmed them in the accounting records, even though she
knows that the outlets are not ready and that the contracts have the right to back down and this
.proof is contrary to the relevant accounting standards
About 1035 days ago, I wrote in Al-Iqtisadiya an article entitled: "Accounting manipulation in the
Japanese" Olympus ". How do you hide losses?" I wrote then that the important result of the
investigation is that the administration (i.e. an administration) can do what it wants in order to

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achieve its interests, and hide its bad decisions and adventures with investor money, that it is a

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cultural problem in any company and that collusion is possible even by multiple parties, and relying

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on Principles only will not prevent such collusion, and that the process of concealing losses or

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beautifying financial statements develops and complicates from year to year and no country will

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deliver them, and I said then that good corporate governance that includes an audit committee
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and a sophisticated and independent internal audit committee may prevent such behavior, the
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most dangerous of The report that The external statutory auditors failed to perform their duties.
.”This result is the same result that can be reached from the “Mobily case
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Hence, in the Mobily scandal, the level of oversight and the penalties imposed on auditors in the
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Kingdom should be highlighted when they fail to perform their tasks entrusted to them by the
general assemblies of the shareholders of those companies and not their executive departments,
and the Saudi Organization for Certified Public Accountants and the Capital Market Authority need
to review Swift to their oversight role and to ensure that the penalties established in their systems
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.are a real deterrent to the external auditor from acting at a low professional level
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Some auditors in the Kingdom deal with the tasks assigned to them with an unacceptable degree
of low professionalism and moral responsibility in the absence of any control or deterrent
penalties, so that the external auditor finds that his interest is always served by satisfying the
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executive management of the company he audits and recommends that he continue in this task ..
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On the other hand, its executives receive an inflated bonus performance bonus, the more the
company’s earnings numbers inflate the more the bonus increases, all you need to achieve this
.illegally is an external auditor who does not mind passing cosmetic results to the financial results
Many who work in the private sector and deal directly with the external auditors find in many
cases a lack of sensitivity by many of them to any self-control in their business and that they
exaggerate in their attempt to satisfy the executive departments of the companies they audited, so
that their role often becomes closer to counterfeiters than to the auditors Accounts. For example,
when the company has an exceptional expense that can affect the financial results in a year, its
executives do not hesitate to ask the external auditor to suggest an accounting treatment
“accounting fraud” that allows them to hide this effect. In most cases, the auditor will not find
anything wrong with He will do the job completely disproportionate to the professionalism and

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 .moral responsibility of him
The following decision was issued against her, as the Capital Market Authority announced today,
Tuesday, 25/5/2018, the issuance of a final decision by the Appeal Committee for the Resolution of
Securities Disputes, in the case filed by the Authority against 7 former members of the Board of
Directors of Etihad Etisalat Company "Mobily" "And a member is still on the board of directors, and
... fined them more than 3 million riyals
The decision to pay a member of the Board of Directors, Saleh bin Nasser Al-Ali Al-Jasser, imposed
a fine of 300,000 riyals, while the rest of the members were fined 400,000 riyals for each of them. ,
Abdul Rahman bin Abdullah bin Ahmed Al-Fuhaid, Abdul Aziz bin Hamad bin Abdulaziz Al-Jumaih,
Abdul Aziz bin Saleh bin Abdullah Al-Sagheer, and Mohammed bin Ibrahim bin Abdulaziz Al-
.Mansour
Also, there are a number of decisive measures that need to be taken quickly to
restore confidence in the results of our financial companies and in the level of
:supervision in our financial market, including the following

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1. Investigate the role of the external auditor in this scandal, and if it is proven guilty, he must

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bear with the company’s executive management all the losses incurred by the company's
shareholders as a result.

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2. The rewards obtained by the senior executives of the company must be recovered, as they are
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not due in light of the real financial performance of the company, while forcing them to resign
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or dismiss them if they do not initiate this.
3. The Capital Market Authority must cancel all trading deals that occurred on the shares of
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Mobily during the week that was previously suspended, there are strong indications that there
may be trades based on internal information, and accountability of those who are effective and
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done so whether in the executive management or in Board of Directors.

:conclusion
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What happened to Mobily is very sad, because Mobily is one of the leading companies, as it sets
the example in its professionalism and development of business in addition to achieving growth
Despite these huge and capable efforts made by the Capital Market Authority to regulate and
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increase the effectiveness of the financial market, the practice of trading and offering operations
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.has resulted in errors which led to losses for investors, as in the case of Mobily
Mobily is considered one of the leading companies, because it sets an example in professionalism
.and business development in addition to achieving growth, and what happened to Mobily is sad
Mobily helped raise the level of services provided in the telecommunications sector, which forced
Saudi Telecom to improve its services, as well as sponsoring and supporting clubs, and contributed
to various services to society, and employed many Saudi and Saudi youth. So it was a model with
.many positive aspects and many advantages, and we hope it will return stronger than before

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 References

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) ."‫ صدور قرار قطعي في قضية أعضاء مجلس إدارة "موبايلي‬..‫بالسأماء والغرامات‬

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2020). Retrieved 24 March 2020, from

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https://akhbaar24.argaam.com/article/detail/395270
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2020) .‫ صحيفة مكة‬- ‫)الصفحة الرئيسية‬. Retrieved 24 March 2020, from
https://makkahnewspaper.com/
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2020) .‫)العربية‬. Retrieved 24 March 2020, from https://www.alarabiya.net/

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