Convergent strategies

Telecom operators risk being squeezed out of some high-growth sectors

Tags: Apple appsJordanUnited Arab Emirates
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Convergent strategies Innovations such as the Apple store have left operators trailing behind in the mobile apps sector. (Getty Images)
By  Roger Field Published  June 29, 2010

Out of all of the region's telecom events, few have the ability to make CEOs speak the hard truth more than the Arab Advisors' Media and Telecommunications Convergence Conference, and thankfully, this year's edition was no exception.

As the first day played out, it became ever more apparent that the core theme of the event - media and telecoms convergence - had taken on a greater level of significance for the telcos.

And it was a perhaps a few simple charts from Capgemini Consulting that said the most about the current position of telecom operators in a world where revenues are rapidly moving to various forms of online advertising, app stores and other online applications.

One chart showed the effect that Apple's app store has had on the mobile applications market, which Capgemini estimates will reach some $9.1 billion in value by 2014.

Before the launch of the Apple store in July 2008, telecom operators commanded a 50% share of application revenues, according to the chart. But the frightening part is the second bar which shows the apps revenue share enjoyed by operators after the launch of the Apple store. Indeed, operators do not even feature on it - having been largely frozen out of a fast growing source of revenue that has come to be dominated by the apps developers (69% revenue share), publishers (30%) and porting service providers (1%).

Of course, mobile applications are just one small component of the telecoms sector, and operators have plenty of other issues to consider, but the fast growing apps sector is a reminder of how changing consumer habits have caught most telcos off guard.

Reassuringly, CEOs from some of the region's leading telcos made it clear that they were well aware of the need to diversify their operations and take a share of the revenues that are currently being taken by companies such as Google, Yahoo, Facebook and Apple.

Certainly, many of the region's telecom operators have started to address the situation in the past couple of years, by forming various partnerships with media and content companies.

For example, Saudi Arabia's STC formed a joint venture with Saudi Research and Marketing Group and All Asia Networks to produce media content back in 2008, and the operator's international CEO, Ghassan Hasbani, was one of the speakers to strike a more optimistic tone on the subject of convergence. He pointed out that new types of content and applications in fact offer telcos a huge opportunity to develop new revenue streams.

But profiting from these new potential sources of income is another issue. Most of the delegates agreed that partnerships - whether collaborative agreements or even M&A deals - between telcos and content companies would be the most likely way for operators to profit from convergence.

Such a model works well by giving both parties access to expertise they don't have. Operators gain the expertise of companies that are used to handling data the way end users want it, and the content players gain access to a mobile and online audience.

While it remains difficult to second-guess where the sector is heading next, it is clear that collaboration will be key to the success of operators.


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