Easing regulation

Brad Taylor, managing director of telecom consultancy firm Workz, talks to CommsMEA about competition in the Middle East's telecom sector, and what he thinks can be done to increase liberalisation of the industry.

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By  Administrator Published  October 29, 2008

Brad Taylor, managing director of telecom consultancy firm Workz, talks to CommsMEA about competition in the Middle East's telecom sector, and what he thinks can be done to increase liberalisation of the industry.

How do you see the competitive landscape in the Middle East's telecom sector?

In recent years we have seen a marked increase in the ‘opening' up of the Middle East telecoms industry through the extension of new licenses. Whilst most markets were predominantly monopolies or duopolies, these are now fewer and even countries with relatively small populations have multiple players competing in the same sector and space.

In the last five years we have seen second, third and even fourth entrants into the GCC countries, despite their small geography and relative size of current and prospective subscribers.

Whilst the competitive landscape has changed, the primary focus on growth and acquisition has come predominantly from existing Middle East operators rather than those from outside of the region.

Given the lack of outside investment, it begs the question: are we are seeing ‘real' positive competition from a consumer perspective or simply ‘board-gaming' and empire building by those already here?

Of course this should be negated by the fact that these territorial expansions are still built on significant investment and ultimately shareholder objectives and returns do need to be considered and realised.

A further facet adding to these considerations will also come from the emergence of MVNO and WiMAX operations, providing alternate models and technologies to fuel the competitive landscape.

Although the commercial success of these models still needs to be proven in a market dominated by core fixed-line and wireless operators, they will undoubtedly grab attention and some degree of market share.

Which countries lead the way and which are lagging behind in terms of competition?

Perhaps surprisingly, we see Jordan as being one of the most competitive in terms of lower pricing and with more open tariffs, despite having one of the highest subscriber acquisition costs in the region.

Although Jordan is a relatively small country, it has one of the most liberalised telecom environments in the Middle East; with a population of less than 7 million, Jordan already boasts four mobile operators, several MVNO's and a WiMAX operator.

Other Middle East and particularly GCC countries have, up until now, had more restrictive regulating authorities thereby limiting the regional investment along with other activities that protect the huge capital investments of existing fixed line and mobile operators.

What do you think is the best way for a country to go about liberalising its telecom sector? What are the different types of model that can be adopted by governments or regulators?

The best way is to have a more open and less restrictive bid process for new licenses. It's a fallacy that monopolies or even duopolies generate investment and growth - it is greater competition that does that.

Therefore, reduction in regulatory constrains will assist in the creation of broader competition and bring about more innovative thinking and action into the market place. At this time there are too many constrains in the current tender processes across the majority of ME countries.

Despite the overall low subscriber and penetration rates in the region, greater competition with a more mature focus on technology, innovation and creativity will ultimately drive growth and consumer attention.

What are the forces holding back liberalisation in those countries with the least liberal policies? Is it because governments do not want to lose revenue from state-run operations?

I believe this is a key contributing factor, however as most regulators levy their funding through subscriber numbers, why would this change?

In fact, penetration levels generally increase in a more open market. As can be seen with highly competitive markets such as Jordan, profits on voice may be reduced as operators compete on price, however profits on non-voice revenues should increase through technological and more innovative business models to replace and bolster the shortfalls.

A further consideration is the possibility that third or fourth licenses could be issued to foreign companies or investors, thereby diluting cash rich Middle East governments and companies own economical dominance.

Opening up markets through foreign operators has long been seen as a major stumbling block, possibly as a factor of local mentality and traditional protection than pure economic reasoning.

Economic research, as well as evidence from more mature markets has shown that the introduction of liberalised telecoms policies helps markets grow, thereby providing increased economic growth and a positive impact on GDP.

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