by Lucia Dore and Peter Donnelly in Dubai and Claire Landon in London
More cautious after regional geopolitical tensions, Middle Eastern telecom operators are shifting their growth strategy from geographic expansion to adjacent industries in an effort to drive regional growth, industry and advisory sources said. Partnerships and acquisitions in these areas will boost demand for higher speed connectivity while creating new revenue streams, they said.
The top new business areas for regional telecom leaders — Qatar’s Ooredoo [ORDS:DSM], Kuwait’s Zain, Bahrain’s Batelco, the UAE’s Etisalat [UH:Etisalat] and Saudi Telecom (STC) — are m-health, media, automotive connectivity, m-education, and mobile payments, they noted.
“It is unlikely that we will see a traditional telco acquisition by a Middle Eastern operator in the near future, so the priority now is to consolidate existing businesses and selectively invest in adjacent value-adding businesses,” said Ghassan Hasbani, former CEO of STC and current CEO of Lebanon-based management consultancy Graycoats.
This move away from larger M&A is “driven by the global economic crisis and the slowdown in infrastructure business growth due to increased competition, lower margins and market saturation”.
While STC, for example, is exiting Indonesia and has openly mentioned retrenching from selected international investments, Ooredoo has decided to make big investments in Morocco and Myanmar, noted Geoffrey Fink, managing partner and head of investments at Delta Partners, a UAE-headquartered TMT advisory and investment firm.
“Given that most relevant markets in the Middle East are reaching maturity and slowing down from their double-digit growth rates, the question on the CEO agenda is not so much whether they should focus on regionally adjacent markets, but more on how to find growth in adjacent industries,” he continued.
Increased partnerships and M&A between telcos and ICT players benefit both sides, said Riad Hartani, co-founder of global ICT advisory firm Xona Partners. For ICT firms solidifying their relationships with telcos – most of them primarily government-controlled – ensures a strong platform for future growth.
For their part, telcos, which are focused on launching broadband services in the hope that growth will come from high-speed connectivity, will use these relationships to differentiate their connectivity services and maximize their margins,” said Hasbani.
For example, Etisalat announced last month a collaboration with NASDAQ-listed Polycom [NASDAQ:PLCM], to deliver video and voice collaboration solutions. The UAE telco is also collaborating with British Telecom [LON:BT.A] to provide healthcare ICT services in the public and private sectors. Batelco is one of two companies tipped to bid for a 41% stake – worth a reported KWD 40m (USD 141.9m) – in Kuwaiti ISP Qualitynet, in which it already owns 44%. Additionally, telecom operators are expected to look at the 20% stake in Saudi digital communications provider OTS, as reported.
Telcos are also set to eye investments of USD 25m to USD 50m in value added resellers (VARs), big data centres and cloud computing technologies, said Fink, adding that those based in Saudi Arabia, where large IT services projects are under way, may be especially attractive. One such project up for tender is for the operation and maintenance of an ICT programme for a Saudi health authority, according to Saudi.tenders.com
Eric Chan, co-founder of Xona Partners, said he expected regional telecom players to move into media and content, data centres, and cloud services, as well as m-health and automotive finance. To enter the growing areas of apps and social networking, telcos are forming partnerships with over-the-top content providers (OTTs) while also developing their own in-house OTT solutions, he said.
Content providers seeking investors
Many small Arabic and English language content providers in areas including news, reviews, and video could become targets for telcos, according to an industry source. Possible targets include tech-wd.com (Arabic content) and mediame.com (English content), both are which are increasing their user base, the source said.
A template for mobile app deals is Easy Taxi, the source continued, adding that the company recently raised USD 7m from venture capital firm iMENA. In conjunction with Rocket Internet, the German online startup incubator, the app was rolled out in Saudi Arabia and will now expand across the MENA region.
Other content providers seeking investors include the portfolio companies of Oasis500, a Jordan-headquartered early-stage and seed investment firm. Among them are: Abjjad.com, an online social network for readers with book reviews and reading lists; Feesheh.com, a musical instruments ecommerce site; and Aqarestate.com, an online directory for renting and selling real estate, as reported by this news service.
ICT attractive as means to boost demand for connectivity
Telcos should offer service provider partners a high profit margin, recommended Hasbani: “This would generate more valuable demand for higher speed connectivity.”
Furthermore, acquiring connectivity services makes sense for telcos because, as the only entities able to combine all services together in bundles, ownership puts them in a better position to subsidise costs, he said.
But so far, regional telcos are still viewing these transactions from a financial investor perspective on a standalone basis, without considering their potential to impact their core connectivity businesses, said Hasbani.
