Investment opportunities in Telecom in the Middle East

16 Aug 2015

The telecom sector in the MENA region has witnessed tremendous growth over the past three years. In fact, some of the markets, especially in the GCC countries, reached near saturation due to the rapid increase in subscribers and mobile penetration rates. The Middle East is one of the world’s fastest‐growing regions in terms of IT expenditure and significant growth is predicted in Saudi Arabia and Qatar in the coming years. . The capacity to provide telecommunications services in the region has improved significantly over the past decades with the creation of new infrastructure and fully digital systems.

Three key factors are fuelling that optimism. First, consumer spending on telecom services as exhibited strong resilience despite the economic crisis, as customers has shown they are reluctant to curb spending on communications services. Second, telecom operators are recognizing the potential of convergence between telecom and other industries, such as financial services, media, healthcare, and education. Third, the current economic crisis has created opportunities for strong players to acquire distressed operators at attractive prices. The increase in investments into this space is best explained by Google’s Sarkis, who says, “Telcos are realising that their consumers are on digital platforms. Internet penetration in the Gulf, also smartphone penetration in some countries is high. The popularity of social platforms, like YouTube, in the region is very relevant too.”

The telecom industry is at the cusp of another critical phase of its evolution. However, companies will need to carefully relook and evaluate their plans in order to participate in this growth. Many MENA telecom operators, such as Zain, Etisalat, Qtel, Batelco, Saudi Telecom, and Orascom, have relied on cross-border M&A to fuel growth. Capital has become increasingly expensive and access to financing has become more difficult. The problem in the region remains that, since telecommunications is a utility and subject to government control, those companies with contracts in this area are confronted with administrative red tape. International giants like Google are investing into this space aggressively. Product development, communication, sales and customer care are the areas that Google covers for operators in the MENA region. Google partners with telecom companies to co-launch digital base products. One example is carrier billing, a service that the company is currently developing with many operators in the region.

According to industry stalwarts, innovation, customer care, and value for money will be critical to sustaining and improving growth. The introduction of innovative products, reengineering of processes and competitive pricing will help reduce customer churn, which is a key concern in a price‐sensitive and competitive market.

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