CommsMEA article with Brad Taylor, CEO, Workz Group

Easing regulation

Brad Taylor, managing director of telecom consultancy firm Workz, talks to CommsMEA about competition in the Middle East’s telecom sector, and what he thinks can be done to increase liberalisation of the industry.

 

How do you see the competitive landscape in the Middle East’s telecom sector?

In recent years we have seen a marked increase in the ‘opening’ up of the Middle East telecoms industry through the extension of new licenses. Whilst most markets were predominantly monopolies or duopolies, these are now fewer and even countries with relatively small populations have multiple players competing in the same sector and space. In the last five years we have seen second, third and even fourth entrants into the GCC countries, despite their small geography and relative size of current and prospective subscribers. Whilst the competitive landscape has changed, the primary focus on growth and acquisition has come predominantly from existing Middle East operators rather than those from outside of the region.

Given the lack of outside investment, it begs the question: are we are seeing ‘real’ positive competition from a consumer perspective or simply ‘board-gaming’ and empire building by those already here? Of course this should be negated by the fact that these territorial expansions are still built on significant investment and ultimately shareholder objectives and returns do need to be considered and realised.

A further facet adding to these considerations will also come from the emergence of MVNO and WiMAX operations, providing alternate models and technologies to fuel the competitive landscape. Although the commercial success of these models still needs to be proven in a market dominated by core fixed-line and wireless operators, they will undoubtedly grab attention and some degree of market share.

 

How can telcos and telco vendors maximise ROI in such a scenario?

Agility of technology is the way to go.  Over the next two years, operators should learn to use technology to better serve their subscribers. They should look to deliver services where the MNO is the hub of activities. However, initially, to get more out of their current business model, operators are using optimisation to become more efficient through better purchasing, planning of resources, and processes. This includes enhanced supply chain optimisation, meticulous demand planning, BI services, and the virtualisation of services to online SaaS systems to deliver customised solutions quicker, easier, and more efficiently.  Soon, MNOs and manufacturers will start providing disruptive services in several areas. The mind-set should be positive and entrepreneurial with the focus on new partnerships and long-term opportunities rather than short-term tactics.

 

Which countries lead the way and which are lagging behind in terms of competition?

Perhaps surprisingly, we see Jordan as being one of the most competitive in terms of lower pricing and with more open tariffs, despite having one of the highest subscriber acquisition costs in the region. Although Jordan is a relatively small country, it has one of the most liberalised telecom environments in the Middle East; with a population of less than 7 million, Jordan already boasts four mobile operators, several MVNO’s and a WiMAX operator.

Other Middle East and particularly GCC countries have, up until now, had more restrictive regulating authorities thereby limiting the regional investment along with other activities that protect the huge capital investments of existing fixed line and mobile operators.

 

How do you see the IoT and M2M market shaping up in this region?

Digital transformations are leveraged by the combination of mobility, cloud storage and applications, social networks and big data/ telemetry. The increasing role of mobile devices in our lives as well as, the residual data trail presents profound opportunities for those able to capture this critical information about customers and their activities. MNOs are part of these opportunities because much of the information sent by customers originated from their mobile phones or the mobile internet.

Organisations, like those in banking, utility and transportation are looking at various ways of monetising this valuable information with the use of IoT solutions.  In this transitionary stage, MNOs are most likely looking to transform their role from the pipes transporting data to the hubs supporting IoT activity. Countries like Saudi Arabia and the UAE are well positioned to offer the first smart cities in the region. These regional governments recognise the importance of this market and see it as an essential path to economic development.  As such their visions reflect the desire to make their respective countries the most advanced in the world.

Initial reports appear to indicate manufacturing, transportation, utilities, and government are the sectors driving IoT investment in the region. Here in the UAE, which was one of the first countries in the region to embrace IoT and M2M, the industry is estimated to grow from $10 billion to $35 billion by 2019. The Dubai government has committed to launching 1,000 smart city initiatives by next year in its drive to be the world’s smartest city. UAE operators are very much involved with these smart city initiatives too. Etisalat launched the first IoT application in the MENA region in 2015, and Du launched its Smart Dubai Platform earlier this year.

 

What do you think is the best way for a country to go about liberalising its telecom sector? What are the different types of model that can be adopted by governments or regulators?

The best way is to have a more open and less restrictive bid process for new licenses. It’s a fallacy that monopolies or even duopolies generate investment and growth – it is greater competition that does that. Therefore, reduction in regulatory constraints will assist in the creation of broader competition and bring about more innovative thinking and action into the market place. At this time there are too many constraints in the current tender processes across the majority of ME countries.

Despite the overall low subscriber and penetration rates in the region, greater competition with a more mature focus on technology, innovation and creativity will ultimately drive growth and consumer attention.

 

What are the forces holding back liberalisation in those countries with the least liberal policies? Is it because governments do not want to lose revenue from state-run operations?

I believe this is a key contributing factor, however as most regulators levy their funding through subscriber numbers, why would this change? In fact, penetration levels generally increase in a more open market. As can be seen with highly competitive markets such as Jordan, profits on voice may be reduced as operators compete on price, however profits on non-voice revenues should increase through technological and more innovative business models to replace and bolster the shortfalls.

A further consideration is the possibility that third or fourth licenses could be issued to foreign companies or investors, thereby diluting cash rich Middle East governments and companies own economical dominance. Opening up markets through foreign operators has long been seen as a major stumbling block, possibly as a factor of local mentality and traditional protection than pure economic reasoning. Economic research, as well as evidence from more mature markets has shown that the introduction of liberalised telecoms policies helps markets grow, thereby providing increased economic growth and a positive impact on GDP.

 

Read the full CommsMEA interview re-published on Arabian Business here.