Gaining momentum in the ME telecom sector

Telecom players must capitalise on emerging trends to capture end consumers, says Booz & Company.

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By  John Parnell Published  August 15, 2008

Telecom players must capitalise on emerging trends to capture end consumers, says Booz & Company.

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, according to 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.

High growth levels will become increasingly difficult to sustain by relying only on traditional expansion, so cross border consolidation [will] become increasingly common in the region.

"Because competition in the sector is further intensifying, operators are seeking new sources of growth to capitalise on their share of the market," says 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 explains.

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 says.

Geographic expansion

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," Hasbani says.

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