2011: Year ahead
2011 looks set to be a pivotal year for the region’s telecoms sector.
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If 2010 is viewed as the year that the region’s telecom sector recovered from the financial crisis, then the coming year appears to offer the industry a return to form, with most industry insiders optimistic that 2011 will bring more investment, some healthy returns on investments already made, and continued strong demand for broadband services.
However, as competition continues to increase in the region, the industry can also expect to experience further consolidation and outsourcing as telcos look to create synergies across operations, reduce costs and re-assess their portfolios.
Many of these trends have already been seen in 2010, with Bharti Airtel’s acquisition of most of Zain’s African assets putting M&A firmly back on the agenda, and numerous operators deciding to sell and outsource their cell towers to companies such as Eaton and American Tower Corp, which specialise in the management and operation of mobile network infrastructure.
These types of events – and particularly the entry of Bharti Airtel into the region – look set to increase competition, and help create an even greater need for other telcos to expand their reach and boost efficiency to survive.
Ghassan Hasbani, CEO of international operations at STC, Saudi Arabia’s incumbent telecom operator, says that he sees 2011 as “the turning point in the industry” for various reasons, but particularly in terms of operators reaping the rewards from recent broadband infrastructure investments.
“The industry goes through cycles, every 30 or 40 years there is a new thing happening. 2011 is that turning point, particularly for the region,” he says.
“We have come out of the financial crisis to a large extent and there are many factors influencing the telecom sector. One is the change in technology and the shift towards broadband, with less voice and user generated content.”
Sallaba agrees that leading operators which face fierce competition in their home markets are likely to seek to grow and diversify their revenues.
However, he adds that new business models are also likely to emerge in areas including content and machine-to-machine communication. He thinks operators and content providers could negotiate revenue and cost sharing agreements to provide “increasingly tailored and exclusive content rich experiences” to smart phone and tablet owners. This could even include new types of content such as augmented reality based applications, he says.
“Machine to machine communication is also set to move into the mainstream a bit more with several commercial applications such as smart (electricity) grid controls being a concrete example,” Sallaba adds.
Ross Cormack, CEO of Omani operator, Nawras, agrees that broadband will continue to be a key driver in 2011. He points to a “huge pent-up demand” in Oman and also around the region.
“There is no doubt that access to broadband is almost a birthright – it should be there and our own government has a vision to provide access for at least 90% of the population over the next few years, and we would like to serve as much of that potential market as possible,” he says.
He adds that broadband penetration remains low in the region, affording operators significant growth potential. “We had something like 10% fixed broadband penetration in the region, according to BMI at the half year in Saudi and that compares with 2% in Oman according to their figures.
“If you look at some Asian countries such as Korea, and some European markets, notably the Nordic markets, you can see that the penetration in fixed broadband is 50%, 60%, even 80% in some of those countries, so we think there is a huge opportunity in this region and it is one of our growth pillars for Nawras going forward, especially now we have got the fixed network.”
While broadband investment appears to be a given in 2011, Hasbani also points to the need for operators to invest in “growth of scale” to be able to make cost savings and create efficiencies.
“We will also see a lot of cost savings coming from global synergies. Multiple market operators are on the increase and we will see that the number of subscribers in our part of the world served by a single operator is decreasing,” Hasbani says.
“More than 70% of subscribers in the region are now served by telecom companies that have operations in more than one market, so effectively we are also seeing a new avenue for making or executing cost savings coming from scale and synergy across multiple markets and multiple networks,” he adds.
Moves in this direction have been evident in a recent upsurge in M&A activity and plans from telcos in recent months, including Etisalat’s planned acquisition of Zain, and Wataniya’s recent decision to acquire the remaining 50% of Tunisiana that it did not already own, from Orascom.
The entry of Indian mobile giant into Africa in June 2010, and its prompt introduction of a self-proclaimed “ultra-low” mobile tariff will also serve to increase pressure on other operators in Africa.
Bharti Airtel also outsourced key components of its customer services in Africa to IBM, Tech Mahindra and Spanco, and forged a separate deal with IBM to manage its computing technology and services in Q4 2010. These moves, which mirrors Bharti Airtel’s low-cost model in India, looks set to increase the pressure on other telcos in the continent to lower costs.