What do MENA telcos want to be when they grow up?

This is the first article of two about telecom companies in MENA and how they should be adapting.

In the opening sequence of 2017’s Step conference, Du’s CEO, Osman Sultan, talked about future-proof ambitions for the the sector, in a speech aptly titled “dreams of yesterday – reality of today”.

What followed next was an anticlimactic reality check. In a panel on telco operators’ transformation into digital enablers, moderator Tariq Qureishy, CEO and founder of Mad Talks, asked, by a show of hands, how many of the attendees thought telco operators were agile enough to move fast. Two people raised their hands.

In the MENA region, telco operators are yet to feel the revenue pinch experienced by their global counterparts – partly due to low-competition markets often governed by state-controlled duopolies and oligopolies. A recent report by think tank Research & Markets predicted the telecommunications market to grow at a compound annual rate of 3.7 percent between 2016 and 2021 in the UAE, on the back of expanding 4G network coverage and growing content consumption.

Globally, telco conglomerates are democratizing their business models to keep pace with growing consumer expectations for free data and ubiquitous connectivity; the most recent example being Comcastrolling out an unlimited data offer on Verizon’s network to its internet and TV customers, and Netflix boss Reed Hastings’ ambitious prediction that mobile carriers would be offering users unlimited video streaming data plans in the near future.

Regional telco operators, however, have been reluctant to relinquish control over their networks.

Analysts have been sounding the alarm on MENA operators blocking VoIP (voice calling over IP) services despite being licensed to offer the service. And aside from their tight grip on VoIP, regional telco operators’ role as digital enablers is also compromised by their push and pull cooperation with OTT (over-the-top) players and content providers (these would be any businesses that distribute content over the internet that isn’t a traditional channel like radio or TV, so your Hulus and Netflix’s) – an exception being the successful collaboration of regional music streaming platform Anghami with several MENA operators. “Telcos by design are not really nimble. They are not fast. They are large enterprises. Us, as a startups, we’re designed to be fast. So we complement each other. That’s the beauty of the collaboration,” said Anghami’s CEO and cofounder Eddy Maroun.

What’s in it for me in OTT?

Consultancy Arthur D. Little attributed MENA telcos’ slow pace of transformation to “non-disruptive competition” and “limited erosion of traditional messaging and voice revenues”.

According to Arthur D Little, MENA telco operators are split
between offensive, defensive and
cooperative approaches to OTT partnerships.

There is also warning that some markets have already incurred losses of 30 to 50 percent on total messaging revenues, and 4 to 11 percent on voice revenues. And in parallel, regulatory changes are shifting market dynamics toward fiercer competition.

Moreover, a younger digitally native population in key markets like the KSA and the UAE is expecting an entirely different suite of products and services from telco operators. “Traditional operators today need between 5 to 14 days to launch a new service, whereas Amazon can launch a new service [every minute],” said Hashem Hamidaddin, GM, national proposition at Mobily. “Traditional services offered by telco companies today are becoming boring for the new generation. Every operator in the world and in the region is learning to diversify the revenue coming from data. Offering just data is [no longer] an end in itself.”

Adjacent revenue streams from ICT, OTT and smart connectivity would mark their foray into this diversification. A step further would be minority or majority stake acquisition in OTT players – a far-fetched option with the current fragmented OTT landscape, says Arthur D. Little.

But the onus is also on smaller agile players to know when to court telcos. Carlos Domingo, chief new business and innovation officer at Du, said on the panel that if you’re an early stage startup don’t approach a telco today, for two reasons. “One, you’re not going to have enough muscle and cash buffer to be able to hold through the process of making a partnership and launching the product. And two, because telcos are mass market companies,” he said – they want products that can be scaled across their entire customer base.

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