Long term view to success

Regional telecom operators eye under-priced assets as the credit crunch dents global markets.

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By  Roger Field Published  November 19, 2008

Telecoms headlines during the past couple of months have made grim reading for telecom professionals who are more accustomed to reading about growth rather than contraction.

But with the credit crunch having spread to the wider economy, the telecoms sector is feeling the pinch as cash-strapped consumers decide to hang on to their old handsets rather than upgrade and investors move their cash elsewhere.

The effects of the widening recession on the global telecoms sector are now obvious. Handset vendors, led by Nokia, have already experienced a reduction in demand for their devices while other companies are bracing themselves for a slowdown in demand.

Operators are also adapting to an increasingly bleak landscape. UK operator BT recently announced that it will cut 10,000 jobs from its global operation, while Vodafone’s CEO, Vittorio Collao said his company will make cuts worth about US$1.5 billion owing to, in Collao’s words, a “clearly more difficult macro economic environment.”

The economic crisis also led to a more downbeat atmosphere at the recent Telecom’s World event in Dubai, which saw telecom experts discuss how the Middle East and Africa is likely to be affected by the downturn. One view was that doubts about how far stocks in the region might fall could in turn lead to delays in investments across all industries, including telecoms.

But for many analysts, concerns about investing in the region’s telecoms sector are most likely unwarranted, particularly when a more long term view is taken. Telecommunications is indispensable for businesses and individuals, and huge population growth in the region also points to a continued healthy market. Furthermore, cash-rich telecom operators in the Middle East may be able to go bargain hunting for under-valued assets, particularly in Africa.

Speaking to CommsMEA on the sidelines of Telcoms World, Stuart Deacon, Ernst & Young telecoms leader for Europe, said operators who take a longer term “Warren Buffet approach” are likely to make some sound investments, even if the market fall further before picking up.

Roger Field is the editor of Communications Middle East & Africa.

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