Executives at the recent Telecoms World event in Dubai discussed strategies and new models to address the changing telecoms landscape.
Bahjat El-Darwiche, Partner, Booze & Co (moderator)
Ross Cormack, CEO, Nawras
Daniel Ritz, chief strategy officer, Etisalat Group
Osman Sultan, CEO, Du
Hatem Dowidar, CEO, Vodafone Egypt
Rashid Abdulla, CEO, Batelco Bahrain
Hisham Akbar, deputy CEO and COO, Zain Group
Stefan Sieber, VP, MEA, Orga Systems
Moderator: With the commoditisation of traditional telco revenues and a shift in value to OTT players, how do operators fit into the equation?
Hatem Dowidar: The biggest change is to create value especially in our region. As we move from voice services to data, the challenge is to get the people to use these services together, to get them to pay for them. There has to be the right content, and then the way to deliver it.
If we look at the emerging Arab world, still we see a huge increase in smart phone penetration. Smartphone penetration in Egypt is now over 15% - it almost doubled in a year - and we find people looking for applications. We are seeing some of the apps that are relevant go through the roof. If anyone has been in Cairo recently, they will know traffic is the biggest challenge. A user-generated traffic warnings app has 200,000 people using it on their smartphones. In addition they have taken the content of this app into USSD (unstructured supplementary service data), so people can request traffic warnings wherever they are.
Rashid Abdulla: I think we know which way the wind is blowing. We agree strategic options open to us are really not clear. Do we go with the wind and be blown with OTTs […] do we have a choice, these are hard questions. The days of 40% EBITDA are gone. We cannot convince shareholders in the region that we can compete with OTTs and claim significant EBITDAs. I think it is not going to be that much.
The challenge for us will be how we can slow down the decline in our financial performance. How shall we really convince our shareholders that if we don’t ride with the wind in terms of taking on the OTTs that our financial performance could be a lot worse. With OTT on one side and smart device manufacturers on the other side, we have to coordinate better and yes the investment in mobile broadband infrastructure is a must if we want to survive, and investing in fibre is a must. We know that this is going to take time to get return on, hoping that the machine-to-machine and smart TV services will pick up.
Daniel Ritz: If you look at the collective cash flow generation of the OTTs, quite frankly, I’d rather be a telecom operator than an OTT. They come and they go. Telecom operators are at the heart of enabling digital economies with broadband infrastructure, whether that is fibre, LTE, or 3G. It is here to stay until it is superseded.
There are not too many players out there who can deploy, and here I beg to differ on the question of broadband access as a human right. This is way too dynamic for governments really to be investing in. They don’t have the money to invest continually and I don’t believe governments stepping in is the answer.
On the OTT space, my view is that this is important to us as operators but mainly to be relevant to our customers and to reduce churn. Let’s be optimistic because we have great assets and we have natural demand for our services.
Ross Cormack: At the moment we have huge EBITDA and low valuation. Valuation is as much as anything else based on innovation, progress, on action in markets, so working with OTTs can possibly give the best outcome for everyone. We heard fantastic set of visions this morning and I really believe those visions as well, and if we work collaboratively with the OTT businesses we have the opportunity to do the best for everyone concerned.
Customers are the people who should and do drive our industry and that has already been said this morning. But customers want all the services and many more. If we can work effectively with OTTs, partnering and providing optimal access to our services where they are operating, and for others a more general service, we will start to deliver services that they absolutely want.
It is an exciting time, a point of inflection and it will be a win-win if we can actually just work out how to tie up. I think a lot of it is about taking the blocks out. A lot of us are afraid and our shareholders are afraid. We are just at the threshold of a new generation of fantastic services.
Hisham Akbar: We are still pushing what we believe we should push to customers as a technology rather than what the customer wants. I believe in the next phase we will concentrate more and more on what the customer wants. That will be the great differentiator and we have, evolving from companies led by technology groups into people who are purely marketers.
Stefan Sieber: The drive to data is important, it is a question of making it profitable. The penetration of smartphones in the UAE is nearly up to 60%, it’s amazing. Now from the general internet users, about 30% would give up their PC for a tablet or smartphone. About 70% of internet users use mobile internet several times a day in the UAE. So what does this tell us? It is about data, mobile, and being connected anytime. The model must change to focus on customer centric behaviour. It is extremely important to take an individual approach to detail…so the customer can choose their service. Flat rates for data are probably history. In terms of how to monetise data, we have to go for individual services, focused, customer centric services.
Moderator: Profit per subscriber has gone down between 20-30% in every market in the region since 2011. What does this mean for operators and how should you react?
Osman Sultan: When I spoke about infrastructure earlier, I said governments will have to step in, I didn’t say they would have to invest. That is very important. For me, when governments force MVNOs or infrastructure sharing, they are stepping in, and this has happened in the fixed and then the mobile. I see this trend going more and more. We have seen that governments are investing, and we have seen governments more and more when it comes to the fibre. Yes they are leading the discussions to follow the economics, true, but they are forcing the sharing of certain parts of the infrastructure. Governments are forced to act because of the demand and impact of new services.
When you enable this digital space you have an economic impact that governments cannot neglect. I could not agree more that if we consider the cash flow that was generated by telco, if we consider the margin we are doing…it is a question of sustainability of the economic model. I personally believe that having the defensive stand will not pay. I see here that the sustainability of this model is something we need to question. We saw the fixed business - we had this type of margin before VoIP came. I think there are irreversible trends as much as I fully agree we have a lot of assets. I want to use our assets to try to move in a rational and non-capital intensive way to a new conclusion.
But I want to use the existing assets because we built for it. We have to go through operational efficiency. If you look at it historically, all the operators, all of them had to go through a painful transformation in terms of operational efficiency. It is not easy or obvious. I don’t think that in 2015 any CEO of a telco can afford to have the luxury of not having efficiency at the top of the agenda.