The worldwide economic slowdown may have arrived late in the Middle East and North Africa (MENA), but its effects are now being felt, making it the catalyst for much of the talk at recent conferences in the region. This article examines the topics discussed at two such events: MVNOs Growth Markets and TelecomFinance Middle East & Africa 2009.
MVNOs Growth Markets, which took place on 22–23 April in Dubai, considered the opportunities for MVNOs in the MENA region. Only days after the event, FRiENDi mobile became the first MVNO to launch commercially in the region when it commenced operations in Oman. At the conference, the consensus seemed to be that regulators are likely to make the changes required to allow MVNOs to enter MENA markets, and that opportunities will emerge for MVNOs in the region during the next two years. However, as mentioned by Analysys Mason’s Arun Dehiri in our joint presentation at the event, sub-brands and joint ventures could be the best models to follow in MENA because they allow players to access markets earlier, while they wait for regulatory changes to occur. MVNO models and strategies relevant to the region are discussed in our recently published report, MVNOs in growth markets: challenges for regulators and operators.
The financial crisis and its effects on the region, while not the focus of the event, were prominent issues at the MVNO conference, but were addressed in greater depth at TelecomFinance’s conference on the Middle East and Africa. The recession has been slow to make an impact in the Gulf in particular, but many attendees predicted that a decrease in population during the next two quarters will be one of its first effects in the region. A slowdown in the job market will drive many expatriate workers to leave Gulf Cooperation Council countries, rather than stay and face unemployment. One regional operator told us that it expected the number of foreign labourers to decline by 30% during the next six months. In this environment, operators in the Gulf will have to contend with similar challenges to those faced by their counterparts elsewhere in the world (see Analysys Mason’s report Planning for the upturn: recession strategies for telecoms operators for an in-depth review of recession strategies).
Network sharing emerged as a popular topic at TelecomFinance Middle East & Africa 2009, driven largely by operators’ increasing focus on reducing costs. Infrastructure sharing activity has been limited in MENA so far, but is likely to increase. In 2008, Vodafone signed a tower-sharing agreement with Qtel as part of its attempts to increase its coverage in Qatar, and the second and third market entrants in Morocco, Méditel and wana, agreed to a similar deal. MNOs are also sharing towers in Nigeria – Africa’s largest market by number of subscribers – according to the country’s regulator, NCC. Passive forms of network sharing (such as site or tower sharing) provide some cost savings, but active forms (such as sharing of antennas, base station equipment and maintenance, or even radio spectrum) can enable operators to achieve much greater cost reductions, although they also entail many more practical complications. Factors such as the amount of network re-planning and the geographical extent of the sharing are also key in determining the size of the potential savings.
Despite the economic climate, operators in MENA have not ruled out mergers and acquisitions as a means of achieving expansion in the region. Operators that are in a strong cashflow position, and do not need to burden themselves with debt in order to fund acquisitions, can take advantage of low valuations to further their expansion plans – and many operators in the Gulf fall into this category. Africa is a major source of growth in terms of subscriber numbers, and has been relatively unaffected by the financial crisis. As a result, many operators are looking for M&A opportunities across the continent.
The joint and heightened interest in both cost reduction and expansion may seem paradoxical, but the aim of both strategies is to increase profitability. Reducing costs in established operations during an economic slowdown makes sense regardless of the operator’s financial strength. At the same time, operators that are in a strong financial position should consider investments in areas where their money can be put to good use. Many investment opportunities are expected to emerge in Africa’s relatively unaffected markets, whether through privatisations, new licences or stake sales. At the right price, such opportunities enable MENA operators to invest while their Western counterparts are busy focusing on matters closer to home.
