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In dial need, Part II

In dial need, Part II

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

April 20, 2009 7:16 by

Balancing act. The consulting firm says that, like KPN and other international telecommunications groups in the past, regional telecom groups have recently expanded and are facing challenges in determining the right level of group control and management in order to reach the best possible results. AT Kearney released a statement saying that, “Options range from pure financial control on key performance indicators … to a strong group management divided into several regions with multiple centralized functions – Vodafone, Orange and France Telecom, for example.”

But one question remains unanswered. Although major players have looked to create efficiencies internally, what happened to the mergers that were so vehemently prophesied last year? Surely consolidation would have equipped the industry to face the downturn better? Analysts say that didn’t happen because the valuations of the region’s telcos have been high compared to valuations in other parts of the world. This shifted the focus towards Southeast Asia, Africa and India. For firms such as Batelco (which is mainly based out of Bahrain even though it is expanding its footprint in Saudi Arabia, Jordan and India), these markets are relatively saturated.

“Growth prospects in the Gulf countries are much lower than growth prospects in Africa and in India. So in terms of potential return on investments, one dollar invested in India or in Africa will probably yield higher return than those invested in the Gulf,” Alvarez says. Since access to capital markets is not easy, all-equity acquisition is the only option, which isn’t as good from a returns perspective. “Don’t forget that there are government interests in some of these companies, which makes the whole acquisition game much more complicated,” Alvarez says.

The industry is indeed feeling the pinch of the global downturn, but is well placed to wriggle out of it. For that to happen, Gulf telcos must achieve synergies, pool their organizational structure and enhance the efficiency of their operations. This is sure to be a year of looking inward.

First seen in Trends magazine.

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