Navigating change

New business models are essential for telcos to adapt in a rapidly changing telecoms industry, says Booz & Co.

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Navigating change Operators need a sense of direction to navigate the challenges ahead.
By  Booz & Co Published  January 23, 2011

Over the past decade, the telecom industry has enabled the digital transformation of entire industries, economies, and societies.

The rapid uptake of mobile communications, the increasing access to broadband services, and more recently, the development of smartphones and popular mobile apps - all came thanks, in whole or in part, to the innovations and investments emanating from the telecom sector.

But the industry’s growth is not without its challenges. Demand for high-speed services is so strong that operators must continue to invest to meet the demand and take advantage of the ongoing digitisation of virtually every industry sector, be it healthcare, financial services, or media.

Doing so requires massive investments, especially in fibre-based infrastructure, as well as ongoing efforts to innovate and acquire new capabilities. At the same time, however, operators’ traditional sources of revenues are becoming more and more commoditised.

Revenue growth for telcos in the Middle East is slowing down towards single digit figures in many markets, as mobile voice – once a growth catalyst – nears saturation levels. Following years of liberalisation, Middle East telecom markets are nearly as competitive as those in Europe and North America.  As a result, operator margins have started to contract, given intensified price competition and higher costs of acquisition and retention.

At the same time, three key trends threaten a fundamental shift to the operators’ business:

• Consumer ubiquity: Consumers and businesses now expect access to information, communication, and entertainment anywhere, anytime. Customers are rewarding Apple, Google, and Facebook for delivering interesting applications and devices, and are staying loyal to those operators that can deliver coverage and speed. Operators that fail to stay relevant to users’ needs find themselves left by the wayside.

• Technology modularity: Customers will increasingly use a range of different networks to access the internet. Applications and service offerings like on-demand movies and games will be based on systems that are independent of the networks through which they are accessed, letting a variety of non-industry rivals provide services directly to consumers – in many cases bypassing the owners and operators of the networks themselves.

• Industry innovation: To date, operators have largely focused on growing and protecting their core business – developing and using large-scale networks – generally leaving small-scale innovation to start-ups and entrepreneurs. They now find themselves vulnerable to competition from internet players, IT companies, device manufacturers, application providers and others, and need to rapidly regain the competitive edge in innovation.

Each of these trends has critical implications for the future of the industry, and Middle East operators must respond by selecting, designing, and building new business models and accompanying capabilities.

Clearly, they must move away from the vertically integrated business models of the past, in which they built and owned the network and then stacked additional services on top. Given the complexity of the competitive landscape, they must focus on the strategy that best complements their strengths. We see four business models that operators can use to do so.

Model 1: Network guarantor:

Network guarantors use their infrastructure to provide the fastest networks, with the highest capacity available, over the widest coverage areas. Cost-efficiency and open access are the keys to success; network guarantors’ primary customers are those companies that offer advanced services to their own customers. Network guarantors will be extremely efficient in planning and operating their networks, offering quality, network reliability, and high service levels.

The network guarantor model is particularly suited to incumbent operators or well established challengers that already run large-scale infrastructures, where their technological experience gives them a competitive advantage. Incumbents like STC, Etisalat, Telecom Egypt, Qtel, Omantel, and Batelco have already made great strides in developing the required network capabilities, with sizeable investments in next generation networks, fibre-based infrastructure, international bandwidth and connectivity.

Model 2: Business enablers:

This is a “double-sided” business model: On one side, operators provide their own customers with the broadband services they need; on the other side they host and support an increasing number of specialised service and application providers, providing them with access to target customer segments with services such as wholesale broadband, managed services, transaction and billing support, and platforms such as hosting and cloud computing.

To make this model work, operators must build the right partnerships, offer open platforms and highly flexible service customisation, and help aggregate access to their customer bases and service providers. This is a complex, demanding business model that will challenge the skills of many regional operators; only the most innovative fixed and mobile operators will succeed with this model. We already see Middle East operators – Etisalat in the UAE, Mobily in Saudi Arabia - starting to explore this approach, announcing key partnerships to offer cloud computing and machine-to-machine (M2M) communications.

Model 3: Experience creator:

Consumer thirst for new applications and services already appears insatiable, while companies are looking for support in their efforts to digitise their businesses and bring the benefits of ICT to their own customers. Experience creators will deliver ubiquitous connectivity, relevant applications, and fresh content - all packaged as a distinctive, appealing experience.

This model requires Middle East operators to develop the capabilities to succeed in an area that has not in the past come naturally to them: The culture of innovation and the dedication to customers that are required could be difficult to develop but are absolutely critical for success as an experience creator. It will also require operators to partner more effectively with other member of the telecom ecosystem.  We see small, specialised operators following this route: Operators such as Du in the UAE, Mobily in Saudi Arabia, Orange Jordan, and Syriatel may be able to stay distinctive in this demanding, segment-specific business model.

Some already offer attractive mobile content services and applications for both consumers and businesses, with plans to move further up the value chain delivering innovative new media platforms and customised industry-specific applications.

Model 4: Global multimarketer:

Each of the three business models discussed above offers operators a way to compete in increasingly fragmented telecom markets. The fourth model requires operators to create two or three of the above business models in a modular fashion and then deploy them as necessary for diverse customer segments in markets around the world. This model offers a path to become truly global entities, an ambition worthy of operators with large operating footprints, such as STC, Etisalat and Qtel. Thanks to their inherent strengths in branding, efficiencies, and reach, global operators are proving stronger than their local rivals: Already, more than 75% of telecom subscribers in regions such as Europe and the Middle East are owned by global operators.


For operators, the future is flatter and more competitive than today. Traditional integrated, vertical technologies and operating models are giving way to new technologies, services, and devices. This far more open environment will let all kinds of new competitors into the telecom arena, and will challenge today’s operators to make bold choices about their future business models.

The most successful – and enduring – operators in the Middle East will embrace new business models and build the capabilities they need in this new world. But building those capabilities and business models will take time. The winners will be those operators that are first to understand the need to make this transformation, and then move fast.

Authors: Bahjat El-Darwiche, Partner, Hilal Halaoui, Partner, David Tusa, Principal and Chady Smayra, Principal (Booz & Co.)

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