Adel Belcaid, principal, Booz & Company. (click on image to see second photo) Adel Belcaid, principal, Booz & Company. (click on image to see second photo)

As regional telecom operators start to progress through 2012, it is worthwhile to reflect on the events of 2011— the year that the telecom industry, globally and regionally, finally managed to come to terms with two major global shocks.

The first, of course, was the global economic downturn that continues to adversely affect the performance of operators around the world. Growth naturally slowed, abetted by constrained credit markets, and thus accelerated the commoditization of traditional telecom services, while reducing the valuations of operators large and small. As a result, operators focused on cutting costs and increasing operational efficiency to protect their profitability. This has led to an increase in network sharing agreements, such as the agreement between Saudi Telecom and Mobily earlier this year.

The second shock has been the disruption caused by mass digitisation. Customers—both consumers and businesses—have become more demanding, expecting always-on service everywhere thanks to ever-more capable smartphones and tablets, and forcing operators to boost network capacity and connectivity. The number of broadband lines, primarily mobile lines, in the MENA region is expected to reach more than 150 million by 2015 to meet this demand. In parallel, the market for mobile applications continues to grow rapidly, creating yet another disruptive force that operators must use to their advantage. On the enterprise side, all manner of industries are becoming increasingly digitized and demanding a variety of new services such as mobile payment platforms and cloud computing.

In the wake of these changes, operators must realise that the integrated technology value chain on which they have long depended—including proprietary networks, critical applications, and billing platforms—is growing more modular and open and thus beyond their control. As a result, the telecom ecosystem is becoming much more competitive: New entrants from adjacent industries will exploit customers’ expectations and technological innovation to seriously challenge telecom operators in their walled-no-more backyards.

In 2012, we expect that all of these trends will be exacerbated. For operators that have not done so already, and there are many, this will be the year to make the strategic choices that will determine their future direction in the radically changed competitive landscape. These decisions should depend both on whether operators can effectively leverage the capabilities they already have and on careful consideration of their ability to build new ones—either organically or through strategic partnerships.

In addition, the regional telecom industry will see increased spending on infrastructure, as the 4G technology wave crosses the chasm past early adopters and goes progressively mainstream. After the first-mover LTE deployments of Saudi Telecom and Etisalat, there is more pressure on other regional players, incumbents and challengers alike, to go beyond trials and launch their own commercial LTE services. However, we don’t see commercial LTE offerings as becoming ubiquitous, at least initially. Instead, they will be limited to select metropolitan areas and data-hungry market segments for much of 2012 and probably 2013. LTE-capable handsets will also take some time to materialize, and will be preceded by mobile internet dongles at relatively high price points. In the meantime, HSPA+ services will continue to be deployed as the closest alternative to LTE; some operators are already advertising HSPA+ as 4G with the full blessing of regulators.

All in all, we expect 2012 to be an interesting year for the regional telecom industry, with a heightened and multifaceted competitive landscape that will see telecom operators, handset manufacturers, search engines, and content providers all competing for the same customers. With the ensuing and unprecedented choice of services and devices, end users will emerge as the biggest winners of the ongoing remaking of the industry.

David Tusa, Partner, and Adel Belcaid, Principal, Booz & Company