Telco operators across the globe constantly face challenges on how to incubate growth, but with those challenges come great opportunities. In established markets, there is a decline in subscriber growth and pressure on revenues from voice services, meaning telecommunications companies realize they need to pursue a strategy of investing in new markets with the aim of increasing revenues and profitability. Emerging markets in the Middle East, Africa, Asia and central Europe have been the focus of these investments as governments deregulated their networks and offered spectrum licenses to the highest bidder.
Telcos have always needed to assess whether they will be able to benefit from economies of scale and scope through international investments and choose which vehicle would suit market-entry - whether Merger & Acquisition (M&A), Joint Venture (JV) or partnership.
With that in mind, there are always three major factors to consider in any investment decision; what is the investment and what is the return for investors? How will this investment help market growth and the economy? Will it add value to the customer and help in the transformation of communities?
Etisalat Group's current strategy focuses on its consolidation and diversification, allowing it to maximise liquidity and invest wisely for sustainable growth that creates value for subscribers, shareholders and the Group. This involves expanding and growing its international presence in operating markets: looking into investing in new technologies that add value to shareholders and communities, introducing innovative solutions and creating strategic alliances. Etisalat Group focus remains on long term sustainability, maintaining healthy CAPEX that will focus on enhancing coverage and deployment of Next Generation Networks.
"International expansion and the explosion of digital services mean that telecommunications companies like Etisalat Group are assessing the value and the opportunity of the assets they have acquired, while simultaneously investing in innovation. This is an era of consolidation and diversification," says Ahmad Abdulkarim Julfar, chief executive officer of Etisalat Group.
Realizing Value
The question remains of how to realize value from assets in a rapidly changing operating landscape. Investment in emerging markets comes at a price with high infrastructure costs and the unavoidable expenditure associated with introducing new technology and services to a new base of customers. For some operators, consolidation is one path that can improve their cost base - achieved through economies of scale; cost-savings from shared critical business functions such as management structure, administration systems and marketing departments; and, access to valuable assets such as network infrastructure and spectrum licenses.
Etisalat success is in determining the right investment model to adopt to jointly develop business opportunities, license products and share knowledge across a range of services. Etisalat Group also collaborates to develop business opportunities in M2M, financial services, device procurement, cloud computing, video services, digital advertising, eHealth and over-the-top communications.
The current economic climate has meant decisions on investing in new markets have become increasingly reliant on new sources of revenue. One of these sources is data, which is expanding globally at a rapid pace. According to UMTS Forum figures, total worldwide mobile traffic will reach more than 127 Exabyte by 2020, representing a 33 times increase compared with the 2010 figure. The majority of this traffic will be data meaning there are opportunities for telcos to invest in symbiotic relationships to develop innovative data products and solutions.
According to Mr. Julfar, creating value from these investments requires a holistic approach that considers the long-term impact on communities as a whole; "We can extract more value by delivering innovative solutions to improve the quality of life for individuals, make businesses more efficient and to help governments provide a greater range of services with greater ease. Look at our world leading developments in mCommerce in Nigeria and mHealth in Tanzania."
Opportunities
Etisalat Group knows that the telco industry is changing rapidly. Informa Telecoms & Media estimates that the global mobile data services market, including mobile advertising, was worth U.S. $224 billion in 2010 and is set to increase to U.S. $340 billion in 2014. In emerging markets mobile revenue growth is increasing rapidly presenting a number of opportunities. Informa predicts the annual mobile data revenues in Africa will reach $18.5 billion by 2016.
This offers operators a broader portfolio of potential growth options, serving communities with new technologies such as M2M, cloud services, mCommerce and mHealth. Future technologies will allow Etisalat Group to transform into a telemedia provider. Telemedia is the creation of a new ecosystem of inter-connected business models that involves telcos and operators with content providers and third parties. This increases availability, content and broadband uptake.
Mr. Julfar reiterates that value is a vital component to successful investment; "Our focus is on providing value-added services to our customers using our Next-Generation-Networks, as well as developing the level of service and meeting the expectations and demands of our customers in the UAE and our key markets, as well as broadband services. We are committed to building the right partnerships with key players to deliver applied services that will improve our customers' lives for the better."
Market developments can also lead telcos to lower or divest their shares in some markets. Etisalat Group recently sold 775 million shares in its Indonesian operator, PT XL Axiata. The shares represented about 9.1% of XL's issued share capital and were sold at a sizable gain in what was characterized by the market as a 'well-timed exit', capitalizing on a stock price rally of XL Axiata. The sale was part of the Group's overall strategy of consolidating Etisalat's businesses to rationalize and optimize costs and realise economies of scale by driving down operational costs and CAPEX. The strategy also calls for Etisalat Group to diversify its sources of revenue, which is where our FTTH and LTE investments in countries such as Egypt and KSA and the introduction of 3G in countries like Nigeria, Afghanistan and the Ivory Coast begin to factor.
Over the last few years, telcos may have slowed down their M&A activity due to the global financial and economic situation. This doesn't mean that growth is slowing down. Telcos that are financially stable, like Etisalat, are using their cash position to uncover new opportunities for investment. Depending on the market and the opportunity, these can be in the form of M&A, JV or partnership but will always consider where untapped value exists and how the new entity creates potential alliances that can help with the development of new technologies.
Mr. Julfar concludes that changes to the industry are being driven by external players and their influence must be embraced; "The traditional telco model is rapidly changing driven by consumer demand, technological innovation and increasing competition from non-traditional content providers. The industry leaders of tomorrow will be the organizations that: build solid partnerships; invest in robust incumbents; deliver applied services that change people's lives for better; improve the efficiency of government; and, give businesses a competitive edge."
© Telecom Review 2013
