Road ahead

Frost & Sullivan offers its predictions for the telecoms sector in 2011.

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Road ahead McDonald predicts the emergence of more Arabic content in 2011.
By  Lindsay McDonald Published  January 17, 2011

The year 2010 will be remembered as one of significant M&A activities in the MENA region telecoms market. The most notable of these was the acquisition of most of Zain’s African assets by India’s Bharti Airtel.

In one move, the African continent has been introduced to a new operator that is likely to provide new impetus for competition. Zain has also been the target of increased acquisition interest from the UAE’s Etisalat and it is expected that if all conditions are met, this deal should go through by January 2011.

With activities such as this in the market, it is clear that there is a significant interest in the potential of the MENA telecommunications sector. This interest is not restricted to the region’s mobile services, but extends to the fixed line market, as well.

Managed services came to the fore as a key value proposition to clients that are becoming increasingly cost conscious. This is true both from a service provider perspective – offering services into primarily the enterprise space, and also from a vendor perspective – with telecommunications operators throughout the region showing an increased interest in this model. A number of announcements have indicated greater vendor involvement in the operational aspects of telcos’ business.

The delivery of services through the cloud has proven to be particularly compelling to the Small Medium and Micro Enterprise (SMME) sector in the region, which was historically under serviced. Two companies (one in Egypt and another in the UAE) announced the launch of cloud computing and hosted services specifically aimed at the SMME sector. This is a refreshing trend and is also a sign that this market is now viewed as the next area for growth by operators, vendors, and service providers alike. Frost & Sullivan expects an even greater focus on this area in 2011.

This year can also be recognised as the year of the application in the MENA region, with a host of local companies and individuals developing apps for mobile and gaming platforms. The successful launch of the iPhone 4 and the proliferation of tablets in the region contributed towards a growing demand for apps. All members in the telecommunications value chain were seen to ride this wave with operators and vendors launching application portals.

Industry stakeholders encouraged people to consume, create, and share through these portals. An emphasis on the “Arabization” of content has seen an increase in interest in these apps as well as the creation of employment as a result of the skills required to achieve this objective.

The MENA region saw specific countries come to the fore in terms of telecommunications developments. Not least of these was Jordan; the increased interest vendors and industry players showed in the country came as a result of an increased push by various Jordanian governmental agencies to encourage technology investment in the country. These efforts resulted in the establishment of innovation and R&D centres in the country. Perhaps a less likely example of industry development is Iraq, but the country is certainly no less compelling, and with operators such as France Telecom showing an interest in this market, it is clear there is potential here.

CEO’s perspective

Technology Impact: The greatest amount of hype in the telecommunications space was seen in the area of Fibre to the home (FTTH) and talk of Long Term Evolution (LTE) and 4G trials taking place in the region. Saudi Arabia was most often at the centre of these stories with Saudi Telecom (STC) eager to trial the latest technology. WiMAX operators also came to the fore with the likes of MENA Telecom in Bahrain and various other regional participants showing an increased interest in exploiting the potential of their WIMAX licenses.

Frost & Sullivan expects this technology to be a key element in the strategies of Tier II operators targeting the lucrative enterprise market in the region. While there is a lot of hype around 4G services, Frost & Sullivan does not expect extensive investment in these technologies during the coming year, as there is still sufficient demand and requirement for the rollout of 3G services. In some countries such as Tunisia and Sudan, these are only newly launched and the market is simply not ready for 4G services as yet.

Global Opportunities: The rising prominence of Middle East operators such as Etisalat, Qtel, and Batelco has propelled these players to the global stage and there is now greater potential for their expansion into other markets. There is also potential for greater inflows of foreign telecommunications investment into the region with European and Pan African operators expected to show greater interest in the MENA region. The region represents a strategically and geographically accessible opportunity for these operators to grow, either through acquisition, or in limited cases, through the issuance of new licenses.

End User Perspective: Consumers in the MENA region enjoyed greater benefits this year, as pressures of increased competition obliged operators to review their pricing strategies and compelled them to differentiate through service offerings. The net result was a greater variety of services offered in various cost effective bundles.This trend could continue apace as greater attention to customer segmentation results in more distinctive features.

Frost & Sullivan expects to see continued M&A activity in the MENA telecommunications region during 2011. The source of this activity is expected from three types of players: regional operators seeking to gain a greater geographic footprint in the region; operators concentrated in adjacent markets (such as Europe and Africa) looking to invest in emerging markets, and investments on the part of holding companies looking for a solid return on investment.

It is important to note that the third option is only likely to be attractive if there is a solid case of ROI and this is likely to be in operations aimed at the enterprise market and less likely to be mass market operators, which are faced with increased pressure on their operating margins. Content generation is likely to be another area of increased activity in 2011 on all sorts of media platforms.

There are already initiatives to promote activity in this segment and Frost & Sullivan expects these to bear their first fruit in the coming year. The development of mobile and web applications is likely to be the greatest area of focus in this regard. Activities such as content generation and the provision of managed services can be viewed as results of the trend towards greater convergence of IP and the use of one platform to develop new services.

The trend of convergence not only results in new services, but is also expected to result in a review of business practices and models by operators. This is testimony to the fact that operators have moved from being viewed as simply utility providers to a far more complex role as content generator, provider, and aggregator, as well as the range of services associated with this.

The historic growth levels of the MENA mobile market are unlikely to continue as most countries in the region are nearing maturity, but the region’s fixed-line market is expected to show high levels of growth as operators make increased investments in fibre and FTTH. The introduction of the latest submarine cable to connect the region to India and Europe has brought increased bandwidth and new opportunity for telecommunications services to the region.

Frost & Sullivan believes that in order for this growth potential to be fully realised, it is imperative that market liberalisation efforts are continued. While there has been significant progress in this regard – such as the launch of triple play licenses in Egypt and the UAE issuing VOIP licenses, there are still instances in which improvements have to be made. Most notable in this regard is the example of Lebanon, one of the few countries in the world in which there is absolutely no privatisation of telecommunications services.

With economic growth seemingly back on track, 2011 should be a year in which organisations involved in the MENA telecommunications sector can build on the foundations for growth established during 2010. Frost & Sullivan expects the market to continue to feature as one of the world’s most dynamic and promising telecommunications sectors.

Lindsay McDonald is a consultant at the ICT practice of Frost & Sullivan in the MENA region.

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