Industry experts connected in Abu Dhabi this week to evaluate the state of telecoms in the Middle East. An appropriate time to look at telecoms in the developing markets as a whole at a time of global economic difficulty. Michael Schwartz writes.
At a time when other industries are struggling to stay afloat, the telecoms sector appears to be getting connected. Telecoms' most prominent profiles will convene in Abu Dhabi in the next few days to chart the future of the region's evolving telecoms landscape as part of an exclusive CxO summit and roundtable. Telecoms Leaders 2009 is the name of the event, and IIR is the organiser.
IIR is very keen to point out in its publicity for Telecoms Leaders 2009 that there is a resilience to the MENA market, a market that is "rapidly reinventing itself as a mature, more secure player and one in a prime position to capitalise on operational opportunities."
IIR is also keen to publicise the region's individual successes. As an example: "With KSA's Mobily recently reporting a first-quarter net profit rise of almost 50%, and with growth in revenues and profits at Etisalat now topping US$593 million, it's clear that there's still plenty of scope for entrepreneurial action."
It is clear that IIR has a very good case when publicising successes from the developing markets. All too often reports about developed markets state that thousands of staff are made compulsorily redundant by the established world's key players, eg, Ericsson or Nokia. This tactic of laying off staff, very often junior staff, appears to be standard.
One wonders whether those higher up should not bear their fair share of the brunt as well. Such executives may be well-meaning but sometimes they fail absolutely. In this connection we refer readers to a certain company called Nortel (read the latter's story below - with a tranquiliser).
Annemarie Franssen, the Director of Telecoms Leaders 2009, expresses the hope that company executives will be more accepting of their personal responsibility: "experts are also keen to exercise caution and want to cultivate a culture of culpability as well as planning ahead to cater to the challenges that are synonymous with a burgeoning business."
Where new markets are at an advantage
Executives in emerging markets do differ from some in the existing markets in that they are more willing to introduce new products and show greater support for shareholders and staff alike. Khalid Al Kaf, CEO of Mobily, is one such: "The message today is yes we have a challenging economic situation to confront, but no this does not mean that we shelve good ideas and stick to what we know; rather we have to be creative. It is in challenging times like this that operators have a chance to show their value to shareholders and employees, and the market."
CEO Al Kaf represents senior directors in the developing markets. He shows less of the defeatism seen in older companies. And he is certainly not backward in his approach: "A vibrant telecom industry is the driving force behind any economy. It is where the latest technologies and concepts are applied, and with them the latest in business thinking. In challenging times like this, it is crucial that business thinking is opened up, not closed."
Companies in the emerging markets are often keen to publicise their achievements. And why not? Bharti Airtel saw a final quarter in 2008 when profits rose 21% - and over 8 million subscribers signed up. A Bloomberg report dated 29 April notes that the Bharti mobile subscriber database is larger than the population of Germany! Subscribers are there to be won over in a country where only 40% of the people own phones.
Bharti recognises investment as vital; it plans to spend anything up to US$2.2 billion in investment to boost its network and protect its market position as number one mobile operator by subscriber in India.
Verification of India's success comes from one of Gartner's analysts, the Singapore-based Madhusudan Gupta. He has been looking at India's enormous potential: "That's one of the reasons you still see a lot of investments happening, not only from existing operators but also new operators." Note the use of the word still, as if growth in other markets has slowed or even reversed. India is still progressing, perhaps as a matter of surprise to the analyst in question who is based in a mature market.
But is India an exception? She is second in terms of users to China, which is itself experiencing major growth in 3G, for example (long-awaited but worth the wait). So perhaps the question is whether global recession really is affecting the new markets.
There are, of course, equipment suppliers from the new markets. They may be secretive but job losses and slimmer order books do not seem prevalent. One topical example is precisely China's embrace of 3G, which will keep many people in work as they cater for demand.
It is clear that the developing markets are at an advantage over their older counterparts, as is discussed in a few paragraphs. There is no legacy fixed line to operate. Look at Egypt where Pyramid Research (yes, the writer was also amused by the name and location) reports that mobile penetration in Egypt is set to reach 97% by year-end 2014 from 54% 2008. There will be new technologies such as WiMAX, IPTV, and VoIP. There may be affinities between manufacturer and operator in the new markets which can only create confidence.
Unthinkable though it may seem in the mature markets, we may yet witness companies from newer markets investing in plant and expertise in the developed part of the telecoms world. We may also see companies from the new markets as operators in their own right or as part-owners in the so-called saturated markets. Flexibility and commercial audacity will be key in the next two years. And Mergers & Acquisitions will resound to some new names.
And the developed world?
As mentioned, companies in existing markets do sometimes (some would say all too often) try to fight their way out of recession by cutting staff numbers. Deutsche Telekom has taken this a stage further and has restructured in a big way. It recently announced that the board had approved a new regional and integrated structure for its operations in Germany. First, T-Mobile International AG will be merged into Deutsche Telekom AG (DTAG) therefore becoming a direct subsidiary. Second, T-Home and T-Mobile Deutschland will be combined into one entity and become a wholly owned subsidiary of DTAG.
The new structure should enable greater cross-business opportunities and improve customer service. This is the opinion of DTAG. One comment (by Ovum) on DTAG's statement of intent centres on operators looking "to get the most from their core assets (largely fixed and mobile networks and services) through greater efficiencies and synergies, reducing costs and finding new revenue streams."
And then Nortel as promised. We know that this company is typical of neither the developed or the developing markets but as back ground it is worth recalling. Canadian Business magazine recently profiled the decline of Nortel, using Nortel's share price to demonstrate the company's slump into oblivion. Plotted on a graph the line showed a precipitate plunge downward for two years then a horizontal line representing the bottoming-out of the stock market value for the remaining years. The two lines made for a capital L.
When we say bottoming-out what we mean is that the vertical shaft of the L represented a fall in market value from US$1,231 per share in 2001 down to around US$40 per share in 2002. Since then - and here is the horizontal line - the share price has only rarely topped US$50 for the last seven years. The horizontal line of the L is little different from the flat-line on a hospital monitor.
Canadian Business also tells us how much 100 shares in Nortel could buy us at their height in 2000: over 40% of an average Canadian home, three nights in the world's most expensive hotel, an exclusive diamond ring, 10 kg of Beluga caviar, seven Ford Focuses. These days for a hundred shares you can buy: nine hours interest on a house, a couple of cheapo ear-rings, a lunchtime wrap from Holiday Inn, a pizza and 15 litres of petrol for the afore-mentioned Ford Focus.
You get our meaning. Looking at the efforts made by Nortel's four most senior executives over nearly ten years, all we can say about this developed world player is that the road to L is paved with good intentions.
Conclusions
The big names of the developed world have shed jobs. We must accept that this has played some part in their survival no matter how disastrous for the employees who have lost their employment. The emerging markets, however, are at an advantage in these difficult times - because these times are not necessarily difficult in the new markets.
The newer companies have their own strategies, mobile being preferred to fixed line, for example.
What this writer believes we will see is an aggressive and ambitious campaign by companies based in emerging markets ready to acquire expertise which would normally have gone to older companies, ready to invest in mature markets and even ready to acquire their assets and companies.
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