CommsMEA: Models for growth

The event, which was held in Dubai by Arab Advisors Group, attracted some heavyweight speakers, including Paul Doany, former CEO of Oger Telecom, Nayla Khawam, CEO of Orange Jordan, and Osman Sultan, CEO of Du.

But while the speakers agreed on the need for increased operational efficiency, there was far less clarity on exactly how telcos should tackle the threat posed by over-the-top players such as Google and Apple. Indeed, while most of the operator CEOs present agreed on the need to create new business models to take on the challenge posed by OTT players such as Google, there was less indication of exactly how operators would be able to achieve this aim.

Nayla Khawam pointed out that increased access to the internet via smartphones has brought the advantage of “increasing the cake” for the industry, including telcos. “The main point in our industry is to increase the cake and today with the disruptive introduction of smartphones the cake is increasing hugely. All our history is adaptation to new technologies, which are very often disruptive,” she said. However, she added that given the pace of change presented by smartphones, operators must take a “long term view”. Within a few years, LTE is likely to be a necessity, according to Khawam.

“People spend more time on social networking than the other applications on the internet and the impact of this is booming capacity usage. For the operator it is increasing the cake. Even as prices are dropping, it is also an opportunity. I think in a few years time LTE will be needed.”

Du’s Osman Sultan offered a more sombre appraisal of the landscape that operators have found themselves in, and disagreed with the view that operators had managed to “increase the cake”. He said that operators had “tried a lot of applications” such as mobile payments, which failed to become significant revenue drivers. However, he agreed with Khawan that the main driver that is increasing the cake is online applications such as social networking. To illustrate the challenge that operators face from OTT players, Sultan offered an interesting analogy, comparing operators to pipes, handsets to showerheads, and data to water.

“Is the tap more important than the pipeline that brings the water, or the water? This is the ecosystem. Now new taps exist that make it more fun, so you need to get more water in the pipe and people are inventing new ways of treating the water. It’s a whole ecosystem and it will continue so let’s get beyond the matter of are we friends or not. It is one unique ecosystem where everyone will participate,” Sultan said. Sultan was clear that operators should avoid trying to expand into areas such as launching their own apps stores. However, he also suggested that operators do need to create new revenue streams.

“From the telecom point of view related to these smart handhelds, what is the business model, the revenue model that we can build?” Sultan asked. He added that the answer is not yet clear. “Today we have built our entire revenue model from the access. This is the traditional view of what telecom operators do, they build for access.”

While this access business has served operators well and remains profitable, it is also under pressure, and operators must address this fact. In a grim warning to all operators, Sultan questiioned whether the access model will still be profitable in five years time.

Indeed, as broadband access increasingly becomes perceived as a basic right, the more operators are likely to see profits from access eroded, according to Sultan. To counter declining access revenues, operators in the region need to “invent and create” and cooperate with each other to “play in the zoological territory of the over the top players”, Sultan said.

Operators must come together to create the necessary scale to tap into markets that allow them to take some of the advertising generated revenues that are currently being dominated by the OTT players. “We are unable to monetise this [access] through advertising because each operator alone will never do it.

“I strongly believe that in the Arab World there is a need to have aggregation – telecom operators and aggregators that come together and play in the zoological territory of the OTT players,” he said. He added that Du was already working on an “initiative” and was discussing it with other operators.

Abdul Malik Al Jaber, founder and chairman of MENA Apps, and former CEO of Zain Jordan, offered a more specific vision of how operators should take on the threat posed by OTT players.

Al Jaber insisted that there is a niche for mobile apps in the MENA region that has not been addressed by the OTT players. He believes that the region’s operators should collaborate to address this niche. “I don’t say that access is a bad model,” Al Jaber said. “We make money out of it but we have to understand the changes that are happening, and we have to realise what will happen if we remain stuck with the business model of access, and if we close our eyes to what happens globally with Google doing MVNOs and with Microsoft buying Skype.”

He added that operators must start to consider options for alternative business models. And it is mobile applications that Al Jaber believes represents a major opportunity for operators in the region. “I believe in a third party – or more than one third party app store – focused on the MENA region,” he said.

Al Jaber stressed that he does not intend operators to compete with Google or Apple, but to offer something that the region currently lacks – an apps platform that is focused on the MENA region, serving those who live in the region or are invested in the region. “It doesn’t have to be in Arabic, it could be in whatever languages that can be offered,” Al Jaber said. “Operator have the best interest to support and cooperate with such a business model because they will make money.”

But while most of the speakers taking part in the panel discussion argued the case for operators to become involved in projects outside of the traditional access domain, there was one dissenting voice.

Dr Paul Doany, chairman of Timar Ventures and former CEO of Oger Telecom, said that telecom operators have “only one option going forward”, which is to focus heavily on improving their operational efficiency. This is particularly the case for mobile operators that experienced “phenomenal growth” in the past few years but are now seeing their growth rate plateau. “The cost of that growth was hidden so people didn’t look at the cost of growth, and today they have to become more like fixed operators. They have to look at their costs,” Doany said.

Doany, whose company specialises in venture capital investment for early-to-expansion stage companies, said that operators should focus on operational efficiency as their “number-one priority”.

“Operators compete in a single market with each other and what is left is price competition, which drives margins down. That is why efficiency is so critical. “If I hear an operator tell me that he is going to create innovation and platforms and is going to compete with Apple, I wouldn’t invest a penny in that company,” he said.

“It is about using your strength. If you know how to use your strength, you will be a very successful operator. If you try to play in somebody else’s space, which is not your space, and you are not equipped to handle it, you actually lose the value of your strength.”

However, Doany also stressed that operators should consider launching different types of products and services, but only if they are sure they can generate a profit from them.

“I did a lot of things that were not directly linked to telecoms to the business [as CEO of Oger]. It is about knowing whether that will make money or not,” he said.

“What is so critical and important is when companies design their future is to build on their strength as opposed to getting excited by the sexiness of somebody else’s success. Obviously if you can do it, please do it. But in most cases you cannot do it.”

But Dr Bassam Hanoun, CEO of Wataniya Palestine, warned against operators focusing on operational efficiency to the exclusion of seeking new revenue streams.
“The successful operator for the future is not necessarily just one that masters operational efficiency and cost optimisation,” he said.

“There is another element needed which is the management and protection and increase of revenue. Revenue generation is the prime success factor. Another factor is a successful mobile operator in the future is one that takes the fragmented value chain today and integrates it. That comes from a knowledge of customers needs in each market.”

He added that operators must also address operational and efficiency concerns, including network congestion. Operators must stop subsidising data and introduce more sustainable pricing policies.

“We have to be smarter in pricing. We have to move from the model of all you can eat, to eat what you can, or pay for what you need,” Hannoun said.
He added that telecom operators could also look to adopt new technology such as packet inspection software and applications that help manage data.

Infrastructure sharing

Paul Doany found more common ground with the other panelists on the subject of how telcos can drive operational efficiency. He pointed to infrastructure sharing as a key strategy for operators to reduce their costs.

“Network sharing will be driving value for operators, because if you think that every operator is going to be able to build all those future generation networks you will discover there is more consolidation in the market and there is more network sharing,” he said.

Du’s Sultan believes that operators will progress beyond tower sharing and could start to share wired infrastructure as well. “On the collaborative models, one of the best examples going in that way…beyond competition is infrastructure sharing.”

Sultan said tower sharing will increasingly occur between multiple operators who work with a tower company, and added that operators are also likely to start sharing wired infrastructure. “We cannot continue to believe that everyone is digging and putting ducts when 60% of the total cost of wired infrastructure is only civil work. This is why I say you can have operators beyond global competition that work on the basic business model,” he said.