Emerging telecom markets lure operators

While regional telecom operators continue to push into new markets in and around the region, there appears to be a growing disparity between the potential of markets in much of Middle East, and those in Africa and other emerging markets.

Operators with expansion plans focused on emerging markets and countries with relatively low penetration rates appear to be reaping dividends. UAE incumbent Etisalat is one case in point.

The company was recently recognised as the world's fastest growing mobile operator in a report from Informa Telecoms & Media. The study, published in July, ranked operator groups on the total number of mobile subscriptions based on their percentage ownership of mobile operators.

Etisalat achieved an increase of some 106% in 1Q08 compared with the previous quarter, achieving a mobile subscriber base at 24.2 million across its 16 markets in the Middle East, Africa and Asia.

The report added that operators with a heavy focus on emerging markets continue to reap the benefits of high growth rates with SingTel, Telecom Malaysia, Telekom Austria, MTN and Vodafone, which moved into the top 10 in 2008, experiencing annual growth rates of more 40% in their proportionate bases in 1Q08.Zain, which emerged as the second fastest growing operator in the report, also looks set to reap the rewards of a strategy that embraces markets with low mobile penetration rates. Zain Nigeria is targeting a subscriber base of 30 million within the next three years, according to reports in the Nigerian press.

But the desire of regional operators, including Zain and Saudi Arabia’s STC to gain a presence in already saturated markets, could weigh more heavily on company balance sheets.

Zain, which paid US$6.1 billion for the third Saudi Arabian mobile phone licence last year, has invested more than $1.5 billion on its Saudi Arabian operation to date, and some analysts think it is unlikely to see a significant return on its investment until 2009.

Furthermore, the rate of growth in KSA’s mobile sector is expected to slow significantly in the next couple of years, as the country’s penetration rates soar, a recent report predicts. EFH Hermes expects there to be about 6.4 million mobile additions in Saudi Arabia in 2008, which is lower than the 7.4 million added in 2007.

Saudi Arabia’s STC similarly raised eyebrows when it paid US$900 million for a 26% stake in Kuwait’s third mobile licence, valuing the licence at around US$3.5 billion.

Some industry insiders view such bids as simply too expensive. “We believe the licence prices in the region have gone overboard and by analysing the last few bids I don't think that that it will be financially feasible to break even in a reasonable time,” Dr. Sultan Bahabri, chairman of Hits Telecom, told CommsMEA in a recent interview.

While the likes of Zain and STC are able to absorb the high costs of these licences, and may eventually make a profit in those highly penetrated markets, it is clear that there is a far better business case for a carefully planned entry into emerging markets with low mobile penetration rates.

Roger Field is the editor of Communications Middle East & Africa.