December 6, 2009

Stage One Complete - What’s Next for MENA Regulators?

To trigger the next phase of growth, regulators must shift focus to six emerging priorities including broadband policies, regional harmonization and increased transparency.

In recent years, the Middle East and North Africa (MENA) region’s policymakers and regulators have succeeded in creating vibrant and dynamic telecommunications sectors. However, new avenues for growth are emerging, driven by convergence, the need for broadband services, and industry regionalization. To maintain forward momentum in this changing environment, a structured plan to revise policy and regulations is required, finds a new report by Booz & Company.


The Evolving Telecom Sector

The MENA telecommunications sector has matured significantly in a few short years: operators and regulators have advanced into institutionalized entities, liberalization is well underway, and markets have expanded rapidly. A variety of factors, including maturing stakeholders, evolving sector needs and market development, are now necessitating the review of legacy policies and regulations.

For one, regulators and operators need to leverage their expertise and work together to bring about an evolution in regulatory policy that will support emerging industry challenges. “It is more crucial than ever for policymakers, regulators, and operators to collaborate in order to foster an environment that encourages long-term sustainable growth,” noted Bahjat El-Darwiche, a principal at Booz & Company.

In addition, the MENA telecommunications sector must recognize that the need to liberalize the industry has, with a few exceptions, largely been met. However, newly emerging industry trends warrant regulatory attention. These include new business models, new technologies, and the wider integration of information and communications technology into the economy. Policymakers and regulators need to accommodate emerging industry trends while also introducing holistic sector-development initiatives.

Finally, and given that telecommunications markets in the MENA region have grown at such an astounding rate, legacy service offerings are rapidly reaching maturity. “In other regions, comparable levels of market maturity and growth have often led to value erosion as operators have resorted to cut-price offers,” commented Louay Abou Chanab, Senior Associate at Booz & Company. “To avoid this scenario, MENA regulators need dexterity and vigilance to strike the right balance between sustaining value and encouraging competition.”


Six Priorities to Foster a New Era of Sustainable Growth

Over the next two to three years, telecommunications policymakers and regulators will need to respond to their changing industry by focusing on six key priorities: broadband policies, convergent offerings, the integration of regulators, regional harmonization, infrastructure rationalization and increased transparency.

“Industry stakeholders, including operators, must bring about a fundamental shift in policy and regulatory priorities, rather than taking incremental steps,” noted El-Darwiche. “By taking advantage of this watershed moment, the industry can create an environment that will enable the next wave of growth and allow the telecommunications sector to make the most of its role as a catalyst for the economy as a whole.”

1. Broadband Policies
Top-level commitments are imperative to ensure that next-generation telecom infrastructure is built in a timely fashion and that stakeholders have sufficiently stimulated broadband demand. Over the last decade, liberalization has generated growth and innovation across the mobile telephony value chain. Most regional markets now have two or three operators, and some have population penetration levels in excess of 120 percent.

Today, however, heavy Internet use and bandwidth-hungry online applications require a change of focus. Many developed and developing nations are utilizing new broadband road maps to reap the benefits of digital societies, and the MENA region must follow the same path. Such policies must be formulated and implemented in a timely fashion.

“Delays in new broadband policies could affect long-term economic growth, particularly for enterprises like virtual laboratories and utility computing grids that rely on bandwidth-hungry applications,” explained Abou Chanab. “Delays could also have a negative impact on countries’ long-term competitiveness if they miss out on foreign investments and lose talented individuals to neighbouring jurisdictions with more sophisticated digital infrastructure.”

2. Convergent Offerings
The industry is increasingly looking to develop convergent propositions involving fixed and mobile services, voice and data services, and combinations thereof. Although this advance in operator offerings is another testament to innovative and dynamic markets, it requires regulators to re-examine a number of ways to optimize the development of such services.

“Some regulators are still uneasy about the potential abuse of vertical integration when incumbents introduce convergent bundles, yet they rarely resort to enablers that would resolve these issues—including equivalence of inputs or other wholesale regulations. The end result is often a delay in market development,” explained El-Darwiche.

To avoid such delays, regulators can consider appropriate wholesale regulations enabloing bundles and convergent service offerings. Overseeing such offerings can be complex, yet, the expected outcome in maturing markets may overweigh the challenges.

3. Integrated Regulators
The convergence of media, telecommunications, and information technology is reshaping the current market landscape. Services such as IPTV or mobile TV are quickly becoming mainstream retail offerings. The shift away from traditional media delivery networks means that media and telecommunications are increasingly relying on common networks and competing to control areas of each others’ value chains. 

A common, integrated regulatory body for media, telecommunications, and information technology—essentially, a regulatory one-stop shop with an understanding of industry interrelationships and a unified regulatory approach—would yield more coordinated growth and innovation. Migrating to such an integrated regulatory model will require thorough planning and stakeholders’ alignment.

4. Regional Harmonization
Major MENA operators have expanded their footprints across the region and into neighbouring countries. The resulting emergence of regional operators has sparked a wave of cross-border retail offers, most noticeably on mobile phone service roaming. The regional economic benefit of increased roaming is uncontested. In some cases, however, roaming offers are transferring value and market power from one country to another.

Regional regulatory harmonization, with the creation of a centralized body overseeing the main regulations and ensuring alignment, would address such transfers of value. It could also serve to harmonize frequency usage, encourage cross-border connectivity, develop Arabic content, foster resilient regional networks, and reinforce consumer rights. The Arab Regulators’ Network could act as a centralized body in the MENA region if it had enforcement powers such as the E.U. enjoys.

“Regional regulatory synchronization may be the most complex regulatory initiative to implement in the coming years,” noted Abou Chanab. “But if the region is to develop as an integrated economic power, such harmonization will be essential.”

5. Infrastructure Rationalization
The proliferation of facilities-based licenses in the MENA region triggered considerable new infrastructure, especially in the mobile industry. Although some of these networks are needed to bridge gaps, many are redundant. Infrastructure rationalization, as reinforced by multiple voluntary infrastructure-sharing agreements, would free essential capital to either serve international expansion strategies or focus on commercially differentiating themselves from competitors.

Proactive network separation on the part of operators, in which they spin off their networks into separate companies or functions that provide infrastructure access to the entire sector, also underscores the fact that rationalizing networks will be a key driver of growth: “Regulators should consider incentives for infrastructure sharing or separation to attract service-based operators and refocus industry efforts on innovation and sector development, rather than effort-intensive network rollout,” commented El-Darwiche.

6. Increased Transparency
Best-practice regulatory principles that accelerate investment and sector development are crucial to the industry’s advancement. Transparent decision making is a crucial part of this evolution. Public consultations are one way to promote transparency, yet regulators can conduct and publish economic impact assessments of regulatory decisions, synthesize public consultation responses and provide enough rationale to final decisions.

Overall, to drive sustainable future growth and unlock the potential of regionalization, broadband, and convergence in the medium to long term, all six priorities must be addressed in the next two to three years, concludes the Booz & Company report. “The MENA telecommunications policies and regulations of the future should enable the development of a new world where technology is at the heart of daily life for people across the region.” noted Abou Chanab.