While acquisitions will continue to play a significant part in their operations, major Gulf telecommunication firms are seen focusing more on increasing the average revenue per unit (ARPU) within their existing portfolio, according to an industry analyst.
“The past years have seen marked increase in M&A (mergers and acquisition) activities where companies such as Saudi Telecom, Q-Tel and Etisalat have either purchased companies or applied for licences in other countries. The trend that will be more at play in 2010, however, is implementing growth strategies in these acquired assets,” observes Philip Brazeau, senior associate at Al Tamimi & Company Advocates & Legal Consultants.
This, however, does not mean that acquisitions will be put on hold as telco operators will still look at attractive opportunities within the Middle East and North Africa (Mena) region, he clarified.
“Acquisitions, I think, will be considered at greater length as the emphasis shifts to growing what they already have,” he said.
The Gulf telecom sector has been capitalising on the region’s growing population, estimated by the CIA World Factbook to be over 41 million as of July 2009, but expected by research firm Economist Intelligence Unit (EIU) to increase to 53 million by 2020.
Young and tech-savvy consumers have likewise fuelled a trend in multiple mobile phone/SIM card ownership.
A report published by Gartner in December 2009 indicated that mobile handheld unit sales in the Middle East are projected to reach 140 million by 2010, up by 7.86 per cent from the 129 million units sold last year.
Investments in the GCC’s information and communication technology (ICT) will likely reach about $180 billion (Dh662bn) between 2010 and 2012 as noted by the Kuwait Financial Centre (Markaz) in a recent report.
Liberalised market promotes competition
Regulatory agencies in the GCC have gradually opened the telecommunications sector to competition, breaking years-long monopoly of established firms and allowing additional players in the field.
Saudi is currently the most competitive market with four telecom operators (Saudi Telecom Company, Mobily, Zain and Bravo), followed by Bahrain (Batelco, Zain and Viva) and Kuwait (Zain, Wataniya and Viva).
The remaining Gulf states each has two telecom service providers: Oman (Omantel and Nawras) Qatar (Q-Tel and Vodafone Qatar) and the UAE (Etisalat and du).
“Countries in the Gulf have liberalised differently. In the UAE, for instance, regulators have introduced everything that is conducive to competition such as inter-connection arrangements, infrastructure sharing and local number portability,” says Brazeau.
The real advantages of competition, however, become more apparent in a market that has gone beyond duopoly.
“What we’ve seen as a phenomenon is the moment a third player is introduced, the true benefits of competition comes forward. The competition becomes more vigorous and customers get significant decreases in rates,” he said.
Brazeau, whose firm has been involved in a number of consolidation and privatisation consultations involving the telecom industry in the region, said liberalisation creates a healthy telecom industry as competing companies become more innovative.
“Competition makes traditional players more efficient and customer-focused because they’re being challenged by new entrants and they want to maintain as much market share as they can. When a market is not liberalised, companies are slow to [update] their technologies, reduce their rates or offer new services,” he explained.
Outlook for regional telco firms
Brazeau believes that the Big Three (Saudi Telecom, Q-Tel and Etisalat) in regional telecommunications will continue to look at markets that they have yet to penetrate such as Syria, Libya and Lebanon.
“If Saudi Telecom decides to be aggressive in the M&A, I think they’re going to be a powerhouse. They certainly have the cash and skill set of their senior team to really entrench themselves,” he said.
He added that recent media reports regarding Zain should not be mistaken as a negative reflection on its operations. The Kuwaiti firm last month approved a $10.7bn sale of its African assets to India’s Bharti Airtel.
“We need to be very careful that we don’t confuse Zain’s business performance with problems concerning its shareholders. As a corporate conglomerate, Zain is doing very well. It does have some fairly substantial shareholders, who would like to cash in by disposing their stakes,” he said.
Etisalat, he commented, has “less cumbersome matters” with its shareholders and is well postured to push through with its expansion plans. In February, the UAE telecom firm announced that it will pursue plans to expand in six countries in the Mena region by obtaining licences or acquiring new deals.
Brazeau also said that broadband growth will be the next important focus of the region’s telecommunications industry.
“Next generation network are critical and there’s going to be an enormous investment by all the players in technology. That’s going to mark 2010 as telcos aim to bring their networks to be next level,” he said.
Consider also reading:
Etisalat plans six Mena acquisitions, licences
Zain approves $10.7bn Bharti bid for African assets
Saudi orders telcos to end free roaming service
Dubai telco du to invest $600m in network
Batelco remains interested in African M&A
Omantel doubles Q4 net profit to $50m
Etisalat interested in Algerian market: chairman
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