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In dial need, Part I

In dial need, Part I

The telecom industry may have weathered the financial storm better than most, but regional players may need to reinvent themselves to stay competitive, Part I.

April 19, 2009 7:35 by

It may have been called too early. The Gulf’s telecommunications industry, which was euphorically deemed untouched by the global financial crisis, is realizing that 2009 will be a tougher year than it expected.

Some operators in the Gulf region that are undertaking ambitious overseas expansions may face rough weather as growth in those foreign countries wanes. The projected decline in the Gulf’s population, on the back of an expatriate exodus, is sure to pose problems as well. On top of that, telecom operators will face challenges synergizing acquisitions and minimizing expenditure.

Since funding continues to be a problem both within and outside the industry, innovative solutions such as network sharing, are likely to get more attention as a way to reduce costs and generate new sources of revenue. Their focus is also likely to shift towards boosting the efficiency of business operations. All that should be music to the ears of end-users in the region who, for the first time, are beginning to look at the prospects of reduced tariffs and more value add-ons.

Mobile call charges in the Gulf region may drop by as much as 20 percent this year, mainly due to increasing competition. Customers may also benefit from technological innovation and declining project costs, says Booz & Company. If operators and vendors cling to their already fat purse, those at the receiving end of their products and services ought to benefit as well. Whether that will actually happen and when, however, still remains to be seen.

The crisis curse. As the aftershocks of the financial crisis continue to unfold, so do the vulnerabilities associated with it. An EFG-Hermes report on MENA economies says the expected population decline in some Gulf countries will affect the performance of a number of sectors, including telecommunications.

Kunal Bajaj, an analyst with HSBC Bank Middle East, says the impact of the crisis on Gulf telecom operators will be mainly on the number of subscribers, rather than usage rates. “Telco spend in consumer basket in Middle East is between 1-3 percent. However, because the region has a large number of expatriates, and should expatriates start to leave (which is starting to happen through job cuts), it will have negative impact on subscriber addition,” he says. “However, we don’t expect usage to go down.”

Even if the subscriber numbers may shrink, the average revenue per user (ARPU, the industry measurement scale of profitability), is what matters to the telcos. These figures are rising, challenging those in mature telecoms markets elsewhere. Two examples are Zain and Qtel, both of which have now ranked in the top 20 global operators, with ARPUs exceeding $50, according to figures released at GSM Arab World.

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