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Etisalat’s expansion is a tough calling
The telco has cash reserves of $2.7 billion to help it expand overseas. But the group’s chief strategy officer says new markets pose several challenges – from the relative lack of regulation, to preventing the theft of equipment.
March 23, 2010 5:01 by Austyn Allison
Etisalat is often described as a ‘UAE’ telecoms company – but its ambitious overseas expansion plans in 2010 suggests it is anything but.
The telco claims cash reserves of $2.7 billion to prepare it for overseas expansion, and said last month there are six markets in the Middle East and North Africa – including Algeria and Libya – that it is investigating for acquisitions or new licenses. The company recently made a push to buy a majority stake in Iraq’s Korek Telecom.
Etisalat currently operates in 18 overseas countries, including India, Egypt and Saudi Arabia. And Ali al-Ahmed, the group’s Chief Strategy Officer, says revenues from overseas operations could reach as much as 30 percent by 2013.
“Our target is in three years (to generate) 25-30 percent of revenues from international operations, but I think it might be faster that that,” Ali al-Ahmed was quoted as saying by Reuters.
But despite this optimism, such rapid expansion does not come easy.
In an interview with Kipp, Ali al-Ahmed says Etisalat’s expansion drive has been met by several challenges, ranging from equipment theft in developing countries to the problem of launching enough new services to propagate growth in other markets.
Etisalat last month spent $75 million to take total control of Atlantic Telecom, itself a holding company with interests throughout West Africa. Entering these markets poses its own problems, al-Ahmed tells Kipp: “In Africa we have to make sure that our electricity generators don’t get stolen. That is one of the challenges we have,” he says.
As the telecoms industry develops in Etisalat’s African markets, which include the Ivory Coast, Benin, Niger and Burkina Faso, regulation can also be a problem.
Al-Ahmed cites price dumping as one of the headaches of emerging markets. Small players come into an open market, competing on price alone, and force margins down. Etisalat has already seen this happen in Pakistan. “[But] fortunately we’re still doing well in Pakistan,” he says. “But the margin should be good. Sometimes you need regulators to protect the market.”
In markets subject to price dumping, customers may get cheaper calls, al-Ahmed explains, but services can’t be developed with low operator margins. “It is not a matter of how cheap the customer will get [services], but is there value for our investment?”
GCC markets, with their notoriously tight telecoms regulation, don’t have to tackle the threat of competition, but Etisalat’s focus is becoming more on providing data-led services than on building up customer base.
“Some markets are mature enough to attract different kinds of services,” he says. “In the UAE, Saudi Arabia and Egypt, you are talking about very high-end services. In the UAE, for example, the penetration of mobile right now has exceeded 200 percent.”
In Saudi Arabia, says al-Ahmed, data traffic from people accessing the Internet is among the highest in the world. With a boom in BlackBerrys, iPhones and other smart handsets, data usage has risen, although data package deals mean the providers don’t necessarily benefit from increased traffic.
“A certain user pays $100 a month, who used to consume 30MB a month,” says al-Ahmed. “Now, [with a smart phone], for the same amount of money, he is consuming 200MB because most of the applications and services that come online are video-based, and that just eats up a lot of bandwidth.” Globally, he says, 70 percent of mobile data is taken up by video. The region, he guesses, is the same.
“Once a person gets an iPhone, the user changes,” says al-Ahmed. “The way he consumes data changes, the way he consumes data changes, the way he accesses it changes. That is good for us, because that stimulates demand.”
As long as demand for smartphone sevices is up and demand for generators is down, Etisalat should remain happy.