According to Value Partners, a leading management consultancy, consumer spending on telecom products and services in the Middle East has remained fairly resilient during the challenging economic period over the past two years. However, Value Partners have identified new challenges for operators in the coming years as a result of increased pressure for Average Revenue per User (ARPU) and the mobile Value Added Services (VAS) ecosystem.
"Due to the commoditisation of basic voice services in the Middle East, Mobile Network Operators (MNOs) are being forced to re-think conventional business models and are looking for new revenue streams for ARPU," explained Gareth Pereira, Manager, Value Partners Dubai. The mobile VAS ecosystem has recently undergone a transformation following Apple's launch of an application store. Online players are strengthening their ability to target mobile users directly by launching application platforms, while, companies such as Apple, Google and Nokia are creating full ecosystems around their operating systems and consequently gaining a larger share of the profit pool.
"Large multinational - and even regional Middle Eastern operators - are likely to struggle to pursue an innovation mandate comparable to the high-tech giants who have a larger capacity. These developments are likely to impact an operator's ownership of the consumer as the role of the operator in service delivery gradually diminishes," continued Pereira.
According to Value Partners, other challenges include funding constraints which lead regional operators to deploy "CAPEX light" infrastructure models while incumbents are looking to optimize the returns on their network assets. Increased competition in the home market means it is imperative for incumbent operators to consider selective mergers and acquisitions while global operators are also reviewing their portfolio of assets and exiting unprofitable geographies.
Value Partners have identified some of the adaptive responses by regional MNOs, these include: making structural adjustments to the business, aimed at long-term health and sustainability; organisational changes in order to ensure greater flexibility and responsiveness to the changing business environment; and recognizing that network coverage no longer represents a source of differentiation.
"MNOs are increasingly recognising the importance of defending their position in the content area of the value chain. Larger operators like Vodafone (UK), AT&T (USA) and even Airtel (India) have launched their own proprietary app stores. However, global handset manufacturers such as Apple, Nokia and RIM hold the edge over even the largest operators in terms of scale. The recent entry of high-tech giants like Google and Microsoft further heightens the competition," said Pereira.
The following positioning strategies of MNOs as identified by value partners are: Open network access where the MNO offers network access but has a limited role to play in either content development or in provisioning/billing of external applications; Tied network access, MNOs offer multi-tier access plans, based on the customer usage profile; Owned platforms - which represents a hybrid approach. Operators not only forge partnerships with third-party content developers, but also offer their own portals to consumers.
While effective outsourcing has already been practised for several years in the telecom sector with regard to IT services, another area in which Value Partners predict an increasing presence of third-party service providers is the handset distribution value chain; MNOs are rigorously evaluating their CAPEX and OPEX decisions and deploying cost-effective operational models.
Value Partners has also identified that operators with strong balance sheets are leveraging their cash flow position to make selective investments in emerging markets. Faced with a highly saturated home market or increasing price competition, resulting in eroding ARPU, operators have looked increasingly outside their home turf.
Value Partners recognized that another strategy being adopted by operators in the Middle East is to look at new business models at the convergence between the banking sector and telecommunications. "In markets where the penetration of mobile services has already surpassed that of banking services, operators are leveraging this distinct advantage to offer mobile payment services as a cost-effective means to carry out peer-to-peer fund transfers and generate additional revenue streams. In fact, a robust M-payment offering is emerging as a key success factor for MNOs in several African markets," concluded Pereira.