Networking

Full steam ahead

NWME: What are the key trends driving the regional telecom sector?

The regional telecom landscape is expected to consolidate further through mergers and acquisitions, which are expected to revive after the recession in 2008-2009. In 2010, we have started to see signs of such revival with the closure of the $ 10.7 bn deal between Bharti and Zain, as well as the announcement of a potential large scale transaction between MTN and Orascom. Should the latter deal conclude, the value of M&A transactions would approach that of the record year 2007, which stood at about $ 20 billion. Consolidation is driven partly by operators seeking economies of scale and cross-border synergies on one hand, while on the other hand seeking long term sustainable growth, which is likely to come from emerging markets such as Africa and Asia.

The region is also going through an unprecedented growth in broadband, both in terms of subscribers as well as in bandwidth consumption. Growth is equally witnessed in wireline (DSL, Fiber) and wireless (3G) broadband services. Notwithstanding, broadband penetration remains very low in the region at 2.4% of population by end 2009, leaving significant room for further growth. Such growth is driven to a large extent from the supply side, as operators make such technologies more available, and from the demand side as more and more people want to jump on the internet bandwagon to take part in experiencing the new phenomena on the internet, such as social networking.

As competition intensifies and prices of traditional services continue to decline, operators are becoming more cost conscious and are looking for ways to manage their costs beyond the traditional methods. They are revisiting their business models in very pragmatic ways more than ever before. Regional operators nowadays are more open to restructure their cost structure through outsourcing non-core activities.

NWME: For emerging operators, how does the business model balance between commodity services and value-added offerings?

Commodity services such as Voice and SMS still represent the largest share of operators revenues, not only regionally, but globally. This is not expected to change soon, however, value added services play the role of increasing customer stickiness and help in customer acquisition, with just incremental positive impact on average revenue per user (ARPU). Overall, innovation through development and offering of value added services is an essential means to sustain competitiveness in the market and to pre-empt threat from new comers to the mobile market with disruptive business models such as Skype, Google, etc.

NWME: What are the biggest business challenges facing the telecom operators?

Increasing competition is the single most important challenge in the region’s markets. This is happening both at the intra-market and inter-market levels.

With most markets in the region being fully liberalized, price competition has been very prevalent, hence driving prices down to unprecedented levels. Cross border competition also became very fierce with “one-network” type products being launched in many markets promising attractive international calling and roaming rates to users like never before in the region.

Unlike other emerging markets, such as India and African countries, network deployment and coverage has not been a major burden to operators, especially in markets with small geographies. This left little room for operators to differentiate their offerings in ways other than lower tariffs. This is not sustainable, hence the need for innovation. Operators must strive to innovate going forward in developing new products and services, finding non-traditional distribution channels and creating excellent user experiences and customer service as the means to sustain advantage in the market.

Previous ArticleNext Article

Leave a Reply

GET TAHAWUL TECH IN YOUR INBOX

The free newsletter covering the top industry headlines

Send this to a friend