Growth Strategies in the Middle East Telecom Landscape
Telecom players must capitalise on emerging trends to capture end consumers, says a Booz & Company presentation to the Telecom Finance Conference Middle East and Africa 2008.
Dubai, UAE, 15 July 2008 – Over the past three years, the Middle East telecom sector has been witnessing tremendous growth in terms of telecom subscribers and mobile penetration rates, especially in GCC countries, but most markets are reaching saturation levels, found a new study conducted by Booz & Company.
The sector witnessed a phenomenal compound annual growth rate (CAGR) of 44 % between 2003 and 2007, with subscribers increasing from 24 million to 103 million. This growth is also reflected in mobile penetration rates, most notably in the UAE, Qatar and Bahrain, where penetration levels have reached 178%, 129% and 124% respectively.
“Because competition in the sector is further intensifying, operators are seeking new sources of growth to capitalise on their share of the market,” explained Ghassan Hasbani Vice President, Booz & Company. The market’s competitive landscape in 2007 highlights the competition. In Jordan, there was one fixed operator in the market, with four mobile operators competing for the country’s 85% mobile penetration level, and last year in the UAE, two fixed operators and two mobile operators competed for a share of the 178% mobile penetration rate.
Future growth strategies for telecom operators fall largely under two key categories: scale and scope. “Essentially, potential growth paths for telecom operators rely on growing revenue share and growing the customer base, and most preferably a mix of the two,” Hasbani explained.
In order to grow, operators must be able to preempt competition and leverage the critical mass for competitive advantage. In terms of scope and growing revenues, operators must extend and diversify their business to include offerings that go beyond basic telecom services. “As for extending scale, operators must acquire and/ or pursue strategic alliances, either with local or international players, to create a much sought-after critical mass,” Hasbani said.
So far, operators in the MENA region have mainly relied on geographic expansion as a principal source of non-organic growth, and all of the key telecom players in the region have garnered an extensive geographical footprint. Zain International, the Kuwaiti based operator, has extended its operations to 22 countries, including seven in the MENA region, with the rest extending throughout Africa and Madagascar.
MTN, the South African operator, extends across 21 countries - stretching from Guinea Bissau in Western Africa, to Afghanistan; the UAE’s Etisalat’s footprint extends from the Côte D’Ivoire across the continent and the Middle East to Pakistan; while Egypt’s Orascom telecom stretches from Italy and Greece in Europe to parts of Africa, Pakistan and North Korea. All have plans to increase and expand their scale across even broader geographies over the coming years.
Cross Border Consolidation
“Going forward, high growth levels will become increasingly difficult to sustain by relying only on traditional expansion, so cross border consolidation is expected to become increasingly common in the region,” commented Hasbani.
Over the past four years, telecom investment activities in the MENA region have increased considerably, growing from USD $5 billion in 2004 to USD $20.6 billion in 2007. “Consolidation has therefore been a key feature of telecom operator strategies in a bid to sustain growth,” commented Hasbani. South Africa’s MTN bought a 100% share in Syria’s Investcom in 2006, paying USD $5.5 billion. And earlier this year, Saudi Arabian operator STC bought a 25% stake - worth USD $2,650 million - in Turkey’s Oger Telecom.
Capitalizing on convergence trends
For telecom operators, seeking scope is further enabled by convergence trends between telecom and other industries such as media and the financial sector.
Drivers for convergence within the Telecom industry include the drive to simplify sales and management process and fend off competition, while creating new revenue streams. In the Telecom and Finance sectors, telecom players are increasingly looking to counter declining average revenues per user (ARPU) and banks are seeking to capture some telecom revenues. Drivers of convergence in the Telecom and Media segments include telecom operators seeing their offering being commoditized, while facing increased competition on media and a drop in advertising prices.
“These drivers can eventually result in sophisticated services that will benefit each of the participating players,” commented Hasbani. In Finance, M- and E-commerce and micropayments are among the offerings; in Telecom, fixed-mobile convergence, VOIP and video conferencing are among the corollaries; and in Media; IPTV, mobile TV, video on demand, mobile content and advertising will all work to the benefit of operators.
In order to grow effectively, telecom players must get ready to take advantage of the emerging business models that aim at capturing the end consumer interface and rely on an interdependent mix of players across sectors. In an emerging business model for the telecom and related sectors, mobile; at home voice services; broadband both at home and at work; and video, TV and cable will form the basis of these diversified services.
“Having the right infrastructure in place, providing a diversified range of products and services and a unique customer interface with applications that properly address the needs of content and advertising, will therefore be the integrant factors that will enable telecom players in the Middle East to grow,” Hasbani concluded.