GCC telecom firms yet to shine abroad

Dubai: Five years of working overtime to raise their overseas profile and spending billions of dollars to do so, the Gulf's telecom operators have little to show for it. In fact, domestic operations continue to be the pre-dominant revenue earner for them.

At etisalat, its network and portfolio of services in the UAE contributed 86 per cent of total revenues last year, according to numbers released by the company just the other day. The operator is represented in 18 overseas territories and has the widest international presence among all the Gulf telcos.

Saudi Telecom sourced 73 per cent of its top-line numbers from within the kingdom during the first nine months of 2009, and at Batelco the home market made up 69 per cent. Oman's Omantel with 91 per cent remains the exception principally because it has not invested heavily in overseas expansion.

In comparison, the share of domestic services at the likes of France Telecom and Deutsche Telecom are only 46 and 43 per cent respectively. For the UK's Vodafone, it's a marginal 12 per cent.

This certainly does not sound as if the Gulf telcos have been getting good value on their overseas commitments, estimated at a quite substantial $33 billion (Dh121.1 million) between 2004 and 2009. Again, during this period, these operators built up a presence in as many as 78 markets.

No reason for concern

But look beyond the starkness of these numbers and chances are the situation is far from reaching a stage where alarm bells need to be sounded.

"There is no reason for concern," states Mohammad Mourad, principal at the global consultancy Booz & Company which has just brought out a report on the GCC telecom space titled From the Middle East to the World: Building a Global Telecom Operator.

"Many factors contribute to these results, including some home markets are very large [such as Saudi Arabia] making it difficult to build significant growth upon due to the large base."

Then again, "Some operators do not consolidate revenues of certain international operations, making the economic value of these investments disproportionately higher than the ‘accounting' revenue growth [such as Etisalat]," he adds.

"Some operators invested in countries that are still in their early stages of growth, hence revenue impact is yet to be fully reflected [such as Etisalat in Africa and Saudi Telecom in India and Indonesia]."

Any which way one looks at it, GCC telcos which made the decision to venture out were certainly on to a good thing. Within their home markets, there was limited space left to eke out the strong double-digit growth rates of the part, and most certainly in the fixed-line and mobile telephony services.

This being the case, it was imperative they had to reach out and opportunities were many. "Many emerging markets, including the Middle East, passed through an intensive liberalisation phase, creating a limited window of opportunity for GCC operators to acquire new licences in other countries," says Mourad.

"Realising telecom is a scale game — i.e., larger operators create higher economies of scale which results in sustainable competitive advantage cash-rich GCC operators were left with no choice but to grab these international expansion opportunities. Those who did not, on the other hand, ran the risk of becoming subscale. In the longer term, single country operators in the GCC will find it difficult to sustain their business in the face of the new emerging giants."

Challenges

According to the Booz & Company study, GCC operators who have switched to new markets must now work out a way to address challenges in five areas — governance models, organisational models, management processes, values and culture, and talent management.

But more than anything else, they suddenly found themselves having to cope on their own in winning market share in the new territories. For those so inured to being mollycoddled in their own home markets, this was to be one steep learning curve.

The Booz & Compnay report notes that the subsidiaries of GCC operators are frequently structured as separate legal entities, each with its own board, working independently and lacking adequate representation in headquarters.

Despite what their financials say just yet they seem to have got the organisational and operational side of things right in the new markets. There are the obvious success stories Etisalat in Egypt and Saudi Arabia, Saudi Telecom in Kuwait and Bahrain, Batelco in Jordan and Yemen, Kuwait's Zain in Nigeria, and Qtel in Indonesia.

"GCC operators have in fact sufficiently taken into account cultural sensitivities in their new markets," Mourad adds. "They have done quite well in leveraging local market talent in their international operations, and they have adapted their market positioning to suit local consumer needs."

"However, the opportunity for these operators remain in their ability to transition into truly global companies by transforming the way they manage their business across borders. They must instill an integrated management approach that views the various operations as a group rather than as island investments running independently."

Whether they are quite prepared to make the leap of faith this requires just yet is what remains to be seen.

Global growth

"There is no single organisational model that is best for GCC operators seeking global growth. Models based on geography, product lines, or corporate functions have all proven effective in various cases. As operators go global, however, inefficiencies that currently exist with their organisational structures will be magnified."

— Excerpt from Booz & Co's recent report, From the Middle East to the World: Building a Global Telecom Operator'.