The great divide

Despite convergence being a favourite buzzword of the ICT sector, many operators live in fear of the concept rather than viewing it as an opportunity.

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By  Administrator Published  May 6, 2008

Despite convergence being a favourite buzzword of the ICT sector, many operators live in fear of the concept rather than viewing it as an opportunity.

While many companies such as Facebook have seized the opportunity to offer numerous services such as instant messaging and VoIP, the region's more old fashioned telecom operators seem to be struggling with the idea of convergence.

With VoIP services threatening to steal valuable voice customers and new technologies such as WiMAX and HSPA dongles offering an alternative means of accessing the internet, traditional fixed-line operators are finding that some vital revenue streams are being eroded.

This divide, between potential winners and losers of convergence, was subject to debate at SAMENA Council's "Beyond Convergence" conference, which brought several high-profile senior executives together during the CEO Live session.

The fate of operators might be quite similar to the fate of infrastructure vendors 10 years down the road. - Mickael Ghossein

The panel, which reached the general consensus that convergence is happening now, largely agreed that operators are feeling the strain from cash-rich internet companies like Google, FaceBook and MySpace.

According to Karim Sabbagh, partner, Booz Allen Hamilton, these companies have a stronger worldwide brand presence than the likes of Vodafone or Orange - making them a huge threat to operators.

"Today the telecom industry is being attacked head on by new entrants to the market; disruptive technologies and disruptive business models," says Sabbagh. "Media and telecoms are converging and banking and telecoms are converging as well, providing a range of potential opportunities.

Furthermore, with web 2.0 promising advancements in interactive services, this is where the battle for revenue will be fought, says Mickael Ghossain, CEO, Jordan Telecom Group.

Beyond Connectivity is the title of this conference and it's very good to step back and look at this," he explains.

"Telecom operators are thinking about how they can protect their relationship with the consumer, based on the web 2.0 activity. Web 2.0 takes the relationship away from the telco operators and places it with the application providers.

The fate of telecom operators might be quite similar to the fate of infrastructure vendors 10 years down the road," he adds.

Dotcom companies are increasing diversifying their interests to great effect, eating into operators' revenue slices with VoIP and other value-added services (VAS).

The focus here is to go directly to the consumer and in doing so, many new entrants are changing the market dynamics, according to Ghossain. Apple is an appropriate example of this: the iPod quickly shook up the music industry, and the company looks to do the same to the handset industry with its iPhone.

Adapting to change

Osman Sultan, CEO, du, likens companies that have adapted to the converged landscape, such as Facebook and Google, as being similar to a shopping mall, in that they offer their users access to numerous retail and entertainment venues.

Just as people in a shopping mall have a wide choice of shops and activities on offer, so companies such as Facebook allow their users to communicate in many different mediums - including email, instant messaging and VoIP.

"Amazon started with books, but now it's taking it beyond. YouTube started with user-generated video and it's taking it beyond. They are constructing the mall.

Operators are not doing this because they don't come from this background. Apple is now asking to be part of our revenue model and it wants to be part of the gateway operators," he adds.

Telecom vendors are also keen benefit from the changing landscape, and are adapting better than operators, according to Sultan. "Telecom vendors are experiencing this shift much quicker than operators," he says.

"The vendors, to their credit, come and see us with new applications and they want to be part of the process and participate," Sultan says.

"Nokia Siemens Networks, Ericsson et al. are already trying to pitch themselves as solutions companies, as opposed to infrastructure providers. This is being received well by operators, and revenue-sharing models are likely to become increasingly common," he says.

However, he adds that telecom operators are failing to do the same. Despite this convergence does offer opportunities to operators that can adapt to the market, according to Sultan.

I see the standard operator will become one-part focused on infrastructure, and the more this infrastructure becomes a commodity the better it is.

The other part will be marketing and distribution channels; distribution through every "mall" that exists, through regular channels and our own channels," Sultan says.

Omantel's CEO Dr. Mohammed Ali Al-Wahaibi, meanwhile, thinks operators should not try to copy what these new entrants like Google are doing. He suggests operators should invest more in a model of revenue sharing and partnership, which will open new doors of revenue.

"Growth in revenue sharing in the past few years doesn't mean it's reducing the revenue of the operators," says Dr Wahaibi. "In fact, it has increased the revenue streams for operators through more channels and services. Operators should embrace partnership and collaboration going forward," he adds.

Opportunity knocks

But for Charlie Wade, Nortel's vice-president, enterprise product marketing, EMEA, some aspects of convergence offer significant opportunities for operators. He points to the growing demand in the Middle East for office-based converged communications technology.

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