Taking stock

Despite plummeting business and consumer confidence in the region, telecom operators that make the right moves stand to emerge stronger from the downturn.

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By  Roger Field Published  February 3, 2009

Despite plummeting business and consumer confidence in the region, telecom operators that make the right moves stand to emerge stronger from the downturn.

The effects of the global economic downturn on telecom vendors has been brutal, with some of the world's major equipment makers, such as Motorola and Ericsson, shedding thousands of jobs in a bid to cut costs and avert a similar fate to that of Canadian telecom equipment maker Nortel, which filed for bankruptcy in January.

But while job losses among vendors may have grabbed the headlines and heightened concerns about the effects of the credit crisis on the wider telecoms sector, most telecom operators in the Middle East and Africa remain optimistic about the sector, despite signs that the global economic downturn is increasing its grip in the region.

Indeed, most operators and telecom analysts are convinced that telecom operators in the region have a certain level of immunity to recession and that growth will continue, if slightly slower than in previous years.

Most analysts agree that demand for telecom services will remain strong, mainly because people need to talk, and would rather cut back spending on areas other than telecoms. "Ultimately consumers aren't going to be changing their behaviour significantly," says Ghassan Hasbani, a partner with analysts Booze & Co.

"They might cut down on eating out, holidays and property, but telecom is essential. In fact at times like these when they cut down on other things they tend to spend more on telecoms. Even on the enterprise side, when business people travel less, they tend to spend more time on conference calls and video calls."

But Hasbani admits that the financial crisis could affect the behaviour of telecom operators, whose boards are likely to exercise greater caution in their expenditure and expansion plans.

"There may be a slowdown in capital expenditure...it's like a ‘wait and see' period, but this kind of slowdown is not really justified. It's a predominantly psychological caution," he adds.

 But whatever their financial position, regional operators should use the downturn to take a step back and evaluate their current position, as a slowing economy affords companies space to take stock of their operations, according to Hasbani.

This is particularly important for the fast growing operators in the region, such as Etisalat, Zain, and Qtel which are on the cusp of becoming global operations.

Hasbani says that these regional operators - which he views as being at an earlier stage of development compared with some of their truly multinational Western counterparts - can turn the slowdown to their advantage by using it as "breathing space" to look at internal processes such as management structures, and systems to share best practice throughout their organisations.

This is particularly important for regional operators that have undergone rapid expansion in the past few years, not least because they may have neglected to implement important internal checks and procedures, partly because they were so focused on growth.

Some regional operators that have bought assets around the world need to ensure that they operate as global organisations rather than what Hasbani terms "clusters of assets".

And while operators with the financial clout should continue to invest in their networks and operations, Hasbani says that this is the ideal time to focus on maximising efficiencies and developing best practice across the group.

"It is the right time now to work on the synergies, the global network, and the global services and bring the international organisation together,' he says.

"This is a golden opportunity now for them, since M&A activity is slowing down. It is a good opportunity to consolidate the portfolio globally and make sure it is working well as one organisation."

While Hasbani stresses that companies don't necessarily need to centralise everything, he says that they can ensure they operate as one entity in coordination with their customers, vendors, and also internally with human capital. "They can make sure they have one global management group, one talent group that can be shared across the operation."

"This crisis gives operators a chance to slow down a bit and take stock of their position locally and globally. The winners are going to be those who will do this exercise and not shy away from investing networks and services."

Operator perspective

Qtel is just one regional heavyweight that intends to make use of the slowdown to focus on developing best practice across its rapidly expanding group. "Our strategic focus for the coming year will be consolidation and building synergies between the different national operations within our business," Dr Nasser Marafih, CEO, Qtel, told CommsMEA.

"We have made some very important acquisitions in recent months - including our investment in Indosat - which offer tremendous potential for value creation, particularly if we can drive operational efficiencies. In addition, there are shared synergies and learnings that we can transfer across the group to make us more competitive and ultimately more profitable."

Kuwait-based operator Zain is taking a similar approach. The company's CEO, Dr Saad Al-Barrak has already put together a "task team" that has multifunctional representation and is charged with boosting efficiency throughout the group, according to Ibrahim Adel, group communications chief at Zain Group.

"[The task group] is going through the operations one by one, with the biggest markets getting the first look. They are trying to find ways to extract synergies, to introduce more efficiency. That is normal for us. It is something we have anticipated doing and we are doing it now," Adel says.

Adel also confirms that Zain is refusing to cut back on important internal investments, such as implementing corporate social responsibility programmes.

"Sometimes organisations have a tendency to cut back on corporate responsibility type projects. We are not cutting back on anything. It was confirmed when we had our budget review that we will fulfill all of the programmes and continue with them because we believe that is an excellent long term investment.

Furthermore, despite the problems affecting some operators in the West, such as the UK's BT Group - which made its second profit warning in less than three months in January owing to difficulties at its Global Services division - most of the Middle East's bigger operators remain bullish about 2009.

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