As the more developed mobile markets mature and saturate, mobile network operators (MNOs) are increasingly looking to emerging markets to drive growth. Given the current turbulent world economy, exploring growth prospects in these markets might appear to be risky. However, MNOs should not worry, because improved telecoms regulation is opening up opportunities in many emerging and potentially lucrative markets. MNOs in rich countries have succeeded in increasing penetration not only because of higher incomes in these countries, but also because these countries tend to have better regulation This article considers the changes that operators should be aware of in two important regions – Latin America, and the Middle East and North Africa (MENA).
Income and regulatory quality are highly correlated
The recent news of Cuba liberalising its mobile market reminds us of the importance of regulation in removing impediments to potential subscribers’ access to the market and making sure the market is competitive. Less extreme examples showing the effect of competition are far more common. In Latin America, some countries, such as Paraguay, have significantly higher mobile penetration than may initially be expected. This is due to longstanding competition in the market. Many other emerging markets have licensed second and third MNOs only relatively recently. It is not by chance that it is mainly wealthy countries that are regulated best – regulation is part of the institutional framework that has been a key factor in making them wealthy. This has given the impression that high income is necessary for a high level of mobile penetration. However, this is misleading; wealthy countries have mature markets partly because they are relatively well regulated. The direct effect of income and the effect of good regulation can be analysed statistically, giving results as shown in Figure 1.
Figure 1: Effects of GDP per capita and regulation on mobile penetration, 1996–2006 [Source: Analysys Mason, 2008]
Increasing liberalisation presents big opportunities in emerging markets
With increasing trends towards liberalisation, opportunities in emerging markets are growing. MNOs should not undervalue these opportunities by overestimating the effect of income. It is clear that improving subscriber numbers more than compensates for ARPU dilution. Figure 2 shows how competition in the MENA region has increased penetration as well as total revenue. By comparing growth in subscriber numbers to reductions in ARPU, it can be seen which has had the greater effect on total revenue. All values above the curve in Figure 2 represent increasing revenue over time. All countries analysed have had subscriber growth that is revenue enhancing, as corresponding ARPU decreases have not been large enough to cause total revenue to fall.
Figure 2: ARPU and subscriber growth in the MENA region, 2001–2006 [Source: Analysys Mason, 2008]
Many opportunities are expected in 2008
Licence awards are expected in some of the region’s less penetrated markets in 2008, such as Panama and Honduras. Mexico is launching the auction process for both 3G and WiMAX spectrum in May 2008. Meanwhile, in Costa Rica, a law passed in April 2008 looks set to bring to an end the current monopoly on mobile services enjoyed by state-owned incumbent I.C.E.. New licences across the region will reduce the influence of Telefónica and América Móvil, who jointly control 55% of the Latin American mobile market.
New MNOs are also expected in the MENA region. Kuwait-based Zain is expected to launch as the third MNO in Saudi Arabia in the coming months. Meanwhile, Saudi Telecom won the auction for a 20% stake in the third Kuwaiti MNO (yet to launch) in November 2007. Each of these incumbents is joining the other’s market, and this will no doubt lead to an interesting situation where neither of the new entrants will wish to be too aggressive for fear of reprisals in their home market. Further opportunities will present themselves in the next few months. New licences or privatisations are expected in a number of markets, including Algeria, Bahrain, Lebanon and Oman.
MNOs must track emerging markets
MNOs should carefully watch changes in the market dynamics in emerging markets. Recently, Vodafone Group acquired Qatar’s second mobile licence, increased its stake in Vodafone Egypt and made acquisitions in Turkey and India, demonstrating the MNO’s interest in emerging markets. Vodafone has had positive results in emerging markets, leading to the expectation that 60% of revenue growth from 2006 to 2010 would come from emerging markets.
