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Riding the telecom wave

By John Butcher
February 2012
The use of social media in fermenting unrest during the Arab Spring drew global attention to the growth of the MENA region's telecoms market. While in Western markets the telecoms sector has undergone several decades of development and reached a stage of relative maturity, in developing nations, including the MENA region, telecoms remains at an early stage in the development curve but is developing rapidly.

According to Dr. Paul Gelderloos, head of investment management, MENA Telecom Infrastructure Fund, it is at a point where broadband development offers strong investment opportunities for managers who know their stuff.

"As we see in more developed markets, data is taking over the voice industry completely, with the need for broadband capacity rising exponentially," he says. "The MENA region is just at the beginning of this curve, making it a great area for investment. There are exceptions like the UAE, which have become world leaders in density of fiber to the home, but for the region as a whole it is just at the beginning."

Western markets have taken five to seven years to move from voice to data. In order to maintain strong and constant economic growth, and keep pace with Western countries, the MENA region will need to upgrade networks rapidly to high-capacity broadband, according to Gelderloos.

"Because the route is known now and the technology has become very sophisticated, this same growth will take place here in the coming three years," he says. "This offers very interesting investment metrics."

Larger countries in the region with young populations are of particular interest, especially if their regulatory environment is geared towards encouraging competition, according to Gelderloos.

"We love Saudi Arabia. There are great opportunities there," he says. "But also all North African countries offer great opportunities for telecom businesses. Since the penetration of fixed lines is relatively low, it offers great challenges for hi-speed Internet. Quite a lot of capacity can be gained via Wimax and the like, but at some point companies will need enhanced capacity via fixed networks, preferably fiber."

The MENA Telecom Infrastructure Fund aims to capitalise on what Gelderloos describes as a "dream scenario" for telecom and data investment. There are a significant number of emerging and runner-up companies in the region offering the latest technology that if properly financed and equipped could develop substantially in the coming years, he believes. The fund invests in public and private equities, which fit this model, offer a high quality service and are Shariah compliant.

In total 40 percent of the fund is invested in public telecom equities, 30 percent in private equity, and 30 percent in other securities for hedging purposes.

One example of the fund's activity is its recent acquisition of a first class access provider in Saudi Arabia. The investment team's plan, which is currently being executed, is to combine with other operators and network providers.

After data, the next wave of telecom development in the MENA region will be the converging of fixed and mobile, voice and data, and telecom and media, according to Gelderloos, with expanding broadband infrastructure the basis of it. Broadband will also become the platform for security, health services, and a wide range of other personalized programs across the region, he believes.

"The MENA region is truly poised for an enormous jump in broadband and the MENA Telecom Infrastructure Fund is just focussed on that," he says.

Of course political risks remain but Gelderloos says the "sheer and growing necessity of the communications industry will supersede the region's instability," while the further opening up of countries such as Libya and Iraq, will have a positive impact on the number of telecom investment opportunities in the region.

The team behind the MENA Telecom Infrastructure Fund comprises a group of seasoned telecom professionals who have experienced all the various stages of growth from a monopolized voice-only environment to a fully liberalized, highly sophisticated and dynamic multi-media environment. The founder of the fund, Dr. Paul Gelderloos, was the first alternate telecom operator in mainland Europe and grew it into a fully-fledged, infrastructure-based convergent telecom company. They have executed twenty-five mergers and acquisitions and have been active in the Middle East and other emerging markets since six years.

© MENA Fund Review 2012

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