In a growth market such as the Middle East and Africa, what is happening in the competitive world of the specialist telco software business? How are the smaller, specialist companies competing with the hardware vendor giants?
The last 2-3 years has seen significant changes in the OSS/BSS space, particularly when one looks at M&A activity. Ericsson has bought LHS, Telcordia, and Redback, while Huawei has acquired the telecoms part of the ITS (International Turnkey Systems) business.
It seems that the leading network infrastructure vendors are looking for their slice of the software pie and who can blame them? Margins have shrunk in the hardware market – Node Bs and BTSs are a lot cheaper than they used to be and operators are investing heavily in the latest OSS/BSS, in VAS software. But how can the smaller organisations compete? There is certainly an argument on both sides.
Firstly, larger organisations need to understand the importance of the brands that they are buying into – many of which have been successful due to their flexible approach; being able to change their business model to suit their customers without lengthy approval processes. These smaller, more nimble software companies may sometimes leave the competition standing simply because they can adapt more quickly to what the customer is asking for. A one size fits all approach might be perfect for group operators but not necessarily for individual telcos and new market entrants.
Also, people buy into people. This is much more important in this region than in other parts of the world. In the Middle East and Africa the business community is much more personal, built on trust and long term relationships. If the acquisitions are to be a success it is essential that the best talent is retained within these larger organisations.
Kerry Koutsikos from Tecnotree sums this up perfectly: “Tecnotree has recently expanded its’ operations by more than double in the MEA region recently due to its success . We put it down to people. Most of our talent comes from operators originally; these individuals understand the problems and how to solve them. Getting the right people is very difficult; firstly we identify the right strategy for each part of the region, before recruiting the right people.”
Some employees feel much more at home in blue chip companies whereas others prefer to be in a much smaller environment, in which they feel that their talents are more closely recognised and rewarded.
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One area where the bigger players may have competitive edge, in some cases, is pricing. For instance, if an equipment vendor can sell and deliver a 2G, 3G or LTE network and offer managed services with a decent margin, they can probably afford to offer an upgrade on their existing billing system for free – particularly if they own the company that installed it in the first place.
Having hardware, software and services business lines all under the same roof is a one-stop-shop for operators and puts the vendor in a position of strength. This approach is being taken one step further when huge investment is put into the SI/technology services business. This high margin industry is an attractive additional revenue stream to vendors and one which positions them to upsell their product lines – providing that they can convince the customer they’re able to offer a service as impartial as an external consulting firm or system integrator.
The smaller software business will argue that as a specialist provider of key products and services, they are in a much stronger position to provide the best software offering – because that is all they focus on. There is no hidden agenda to push for other business, which is a fairly strong argument. Again, if a customer feels comfortable going to a long-term provider of a particular product or service they may what to keep it that way. Not everyone wants to rely on one company to provide everything.
There is certainly room for new entrants to the Middle East, but they need to be patient, particularly if they do not have solid references in this part of the world as the lead time on many of the larger scale projects is 2-3 years. A billing system is not replaced overnight. However, with a strong product, the right talent and solid financial backing there is no reason why these businesses cannot compete with the bigger players.
As rumours fly around the market about which businesses are being bought and sold, it will be interesting to see what 2012 will bring. One thing for sure is that there is plenty of scope for changes in the telco software business. which means more M&A activities and more new entrants to the market, particularly in niche areas.
John Armstrong is the owner and general manager of JCA Associates, a UAE-based recruitment business specialising in IT, telecommunications and engineering recruitment.