The Arab Advisors’ Convergence Summit has never been an event where delegates hold their tongue, and this year was no exception. Indeed, the CEOs who took part in the main panel discussion spoke candidly about the challenges they are facing as operators. And it was evident that these challenges have the potential to completely alter the dynamic of the telecom sector.
One of the key points that begged resolution was the massive growth of mobile data and broadband. There were billions of bytes of data being transferred through devices connecting people all around the region. No longer was it simple mobile handsets and feature phones, but smartphones, tablets, laptops and ultrabooks too. Data had grown from the meagre 160-character SMSs, to emails, images, music, and now even high quality video.
Hakam Kanafani, CEO, Turk Telecom Group, said that he had some bad news to share with everyone. He also added that bad news gives inspiration, and separates the contenders from the pretenders. “We are facing survival questions. When your data grows that much and the revenue is stagnant, then you have to be in survival mode. Something is wrong with the way we are doing things. Today telecom companies are subsidising Apple products, worth $50 billion a year. We are creating their network of distribution, their infrastructure. No one denies customers love them, but we have to change our business models. Today we are going through tremendous price wars amongst ourselves. The regulator is only regulating the telco industry.”
He continued by saying it is very important that telcos look after their own self interest, and warned that if telcos tread the same path with LTE that they did with 3G, they will be “finished”.
The reality looming overhead was that the extreme demand for data is soon outstripping the ability of operators to supply quality data streams to their customers. No doubt, technology is advancing, especially evident with the rampant adoption of 3G, HSPA+ and LTE, but in the rush to have the best infrastructure, operators are at risk of investing without a guarantee of a fair return on investment.. Moreover flat rate pricing and blanket caps on data have further worsened the circumstances operators are finding themselves faced with.
But Kanafani was not just critical of OTT players. He also said that regulators in many countries are damaging the telecom sector with taxes and cumbersome regulation.: “Do you know how many employees work in YouTube? Only 650. Google generates a lot of money, but doesn’t necessarily pay as much taxes as we do. We as telcos pay some of the highest taxes in the region, and yet who does the regulator regulate? It regulates us. We cannot continue to grow in 3G as we did in LTE. Today, if we continue to do this and not charge, we are going to lose all the value. I think in 5-6 years we are going to lose 50-60% of the value.”
Kanafani said it was key to speak to regulators, governments and other telcos to address these issues, and he questioned whether lowering prices was a sustainable option.
In research conducted regarding the use of mobile broadband, it was clear that a small amount of users represented a large proportion of data being consumed on a particular operator’s network. Furthermore, as smartphones and tablets equipped with 3G and 4G become more affordable and accessible, the number of consumers using mobile broadband will draw bandwidth from the same operator network. This will only give rise to a monstrous demand for data, which can only be quelled by rationing the data available to each individual user. In other words, the customer will have to begin to be charged in tiers of usage that become more expensive as the data cap increases.
Against this growth in data, Kannafani questioned whether operators can continue to invest in separate networks. “We cannot invest three or four networks in each country. It is a waste of money, effort and is making other people richer,” he said.“We must think of a way where we can have one LTE network which we can all utilise. There has to be a change, internally, we need to limit the way we subsidise handsets. We have to think of other ways, other than lowering prices, we have to expand in different verticals. Health, education, WebTV.
“Last year we raised our prices at Turk Telecom twice. When I face analysts they say to me that I’ve raised prices, it’s as if it’s an allegation. The coffee you are drinking, the tie on my neck, the watch you are wearing have one thing in common. They will be more expensive next year, whereas telco prices which I know will be lower next year. We have to make some radical changes to save our industry.”
Nayla Khawam, CEO, Orange Jordan, agreed with Kanafani. However, she said that the trend appears inevitable and it would be very difficult to go against it.
She said that Middle East telecom operators were caught off guard by over-the-top players and remain unprepared to take on the challenge that they present. “No-one was ready for the surge” in OTT players. “Even though regional business is still not as highly affected as Europe and North America, it changed the way business is done,” she said.
“On one side we have smartphones. In Jordan around two or three years ago, very few subscribers used smartphones, now they are significantly present in the market. Next came OTT which completely changed our business. We are not very ready to deal with OTT today. Even though it hasn’t affected us as much as in Europe and America, it still made its presence felt,” Khawam added.
She said that technology has accelerated and morphed into different form-factors, and telcos lack the “agility” to cope. “As things progressed smartphones came in, and now suddenly you had three years of the spread and prominence of social networks. This acceleration shows that all our approaches were not very compliant with agility, but this is something we have to deal with. This is the future. In Europe it’s worse than what’s happening regionally. No telco is
Khawam also advised that content is constantly evolving and that operators must prepare themselves for new trends in the market. “We say there is no room for voice, the main thing is we have a social network boom here in the region and everywhere in the world it’s a big thing. Three years ago, we all said that content will be the future, but what we are seeing of the content now was very different from what we expected. The important thing is to keep moving forward and prepare ourselves for the next big thing.”
Ross Cormack, CEO, Nawras agreed with Khawam. He said that “if you can’t beat the OTT players, why not join hands with them”. He believes operators can also learn from the onslaught of OTT players, and may even be able to benefit from them in some ways.
Cormack said: “You can’t slow down markets. It’s really challenging to go back to actually controlling the customer, owning the customer. We decided at Nawras, let’s use all this investment that the OTT industry has put into a ‘CRM’ called Facebook or Twitter and all the others, so that’s how we’re starting to build our relationships with our customers. One of the interesting things is that people actually put much more accurate information into Facebook and other social media systems, than they actually give us for our registration purposes. I think you have to recognise you can’t stop the tide coming in.”
Desperate for change
For Ihan Hinnawi, CEO of Umniah, an operator in Jordan, it is vital that operators boost their efficiency in order to cope with the multiple threats that they face. “Data usage will increase 26 times in the next five years while the revenue will increase only twice. The operator has to become efficient and practice cost optimisation and efficiency,” he said.
He added that operators should learn from past experience and realize that they cannot control aspects of the industry such as content and applications. “We thought we control the content, applications and so on. This is not true anymore. We feel it, and our attitude has started to change. We are looking to see decreasing ARPUs, and the global ARPU is dropping by a good 30% and the MENA ARPU will drop in the coming years too,” he said.
“Competition is increasing rapidly, with penetration reaching saturation and challenging profitability and EBITDA.”