Delta Partners White Paper Reveals Strategic Insight into Challenges and Opportunities for Telecom Operators in the Middle East & Africa

Published March 31st, 2008 - 09:25 GMT

Market Dynamics, Service Provider Strategies and New Technologies will all impact growth opportunities in 2008

Delta Partners, the Middle East and Africa’s leading and largest specialized telecoms advisory and investment firm, today released its first white paper for 2008 entitled “Identifying today’s key industry dynamics in the Middle East and Africa.”

Since 2000, the Middle East and Africa region was one of the few remaining monopolistic telecom markets around the world, with commensurately low penetration rates for mobile and fixed line services. Since then, the telecom market has seen phenomenal changes through market liberalization, through the generation of astonishing revenues for the sector and dramatic increases in the adoption of mobile services.

“Drawing from knowledge and experience among our experts in the field, Delta Partners takes an insightful look at key market dynamics, service provider strategies, and new trends that will emerge in 2008 as a result of the ongoing industry consolidation and phenomenal growth in mobile, as well as, fixedline liberalization” said Javier Álvarez, Partner at Delta Partners.

“As telecom players look to the future, there are several opportunities and challenges that they would need to address in order to stay ahead of competition,” added Álvarez. “In this report, we have focused on six key areas that we believe are important in order to sustain business growth and more importantly stay ahead of the competition.”

Delta Partners six predications in terms of telecom market developments include:

1. The race to become pan-regional titans - With the wave of telco consolidation that occurred in the MEA region, it becomes ever more so critical for pan-regional titans that have emerged to assess their situation. This year, newly established pan-regional players will need to watch out for global players and competition from other emerging markets such as China, Russia and India, who are becoming more aggressive with their bids within the emerging markets in the Middle East & Africa region.

This year, Delta Partners also foresees that the consolidation landscape will be characterized by:

a) Pan-regional players seeking controlling stakes in single country operators across the region
b) Pan-regional titans beginning to make small stakes in larger players in other adjacent regions such as South and Eastern Europe and Southeast and Central Asia
c) With stiff competition coming from European operators, Pan-regional players will be looking into stepping up on their game to compete with European player’s strong operational and managerial experience, innovative R&D, globally recognizable brands.

2. Extracting value from merged entities - The wave of industry mergers and acquisitions completed among the region’s top players in 2006 and 2007 (17 of the largest regional M&A deals in the mobile sector in the MEA had a total deal value of US$23 billion) will require regional titans to prove the value that their acquiring company is bringing to the acquisition target. Delta Partners believes that this year will see these regional titans start dealing with the challenges of driving the cost synergies, while identifying ways of realizing more revenue synergies. As regional players do so, it will be crucial for them to focus their efforts on synergies achievable along three major axis:
a) Strategic: Cohesive group vision, including branding
b) Organizational: Ensuring the right corporate governance and leadership model are in place, and
c) Operational: Establishing synergies from a cost and revenue perspective.

3. Opportunities upstream in the telecom value chain - Delta Partners believes that the next wave of outsourcing opportunities will be around the up-stream part of the value chain. As network operators continue to realize the need to focus on their core functions, while ensuring desired service levels at competitive prices and business profitability, outsourcing several areas of the business to third party vendors will become critical this year. Some emerging outsourcing opportunities that the industry needs to watch out for in 2008 include; network operations outsourcing and managed services, including tower management, and outsourcing transmission to wholesale operators.

4. Shifting to a value share focus – as markets mature and new network operators enter the industry, existing operators will need to shift away from acquisition (market share) towards customer retention (value share) in order to protect their customer base from being stolen by new challengers. In order to do so, it will be vital for such incumbent operators to implement successful customer management programs by re-enforcing their newly created customer-centric organization structure, investing time and effort in improving customer analytics, and launching a series of segmented and targeted customer retention and development initiatives focused on their high-value customers, including the delivery of a consistent brand experience across all customer touch-points.

5. Altering business models to profitably serve the below US$5 ARPU customer – To profitably serve customers with daily income of US$2, operators especially in sub-Saharan markets, need to rethink their business models in the search of maximum efficiency without sacrificing service levels and profit margins. The primary challenge is to encourage such customers to adopt the service. As such, reducing the barriers to entry and the total cost of ownership by the customers are essential. This would essentially mean that operators will need to look into reducing handset costs, rethink their pricing structure and price levels, as well as, leverage the advantages that new technologies, such as cost-effective wireless access technologies, electronic recharge methods, or alternative energy sources.

6. Riding the wave of growth through broadband connectivity – The broadband opportunity will be approached in different manners by different players in the region according to the various stages of market development. In Sub-Saharan Africa (excluding South Africa) for example, operators are lagging behind due to underdeveloped fixed line infrastructure and low PC penetration levels. It is for this reason that mobile operators and fixed wireless access providers have now entered into broadband service provisioning space, leveraging wireless access technologies, such as CDMA EVDO, WiMAX, UMTS or HSPA - the only ways in which to develop the broadband opportunity in such markets.

In more developed broadband markets in MEA, the main challenge for broadband players would be create a compelling value proposition that will enable the previously unconnected to jump on the broadband bandwagon immediately, bypassing dial-up all together. For the Internet savvy and higher spending customers, the opportunity lies in providing higher access bandwidths (up to 4Mbps), bundled offerings that combine Internet access, voice telephony, and video (IPTV or video on demand). As a result, incumbent operators in such markets are revamping their broadband value propositions for previously unconnected customers and Internet savvy customers.

To obtain a full copy of the “Delta Partners Perspective: Identifying today’s key industry dynamics in the Middle East and Africa.” please visit www.deltapartnersgroup.com.