Talking with telco giants

The telecoms industry across the Middle East and Africa (MEA) region is at a turning point, according to Kristoff Puelinckx, managing partner of Delta Partners.

"More competition is coming in, new services, new players, but still in a high growth environment, which is why this region is getting a lot of attention from international investors and operators," he says. As part of a series of white papers entitled Trends in Telecoms, Delta Partners - a combined advisory and investment company - is advising some of the biggest regional players in the Middle East and Africa, on a range of topics from expansion to commercial and business strategies. It has also put together a research paper discussing the emergence of global industry titans and implications for emerging market players.

"What's happening today is that the global brands in their local markets, mainly in Europe and the US, have matured, and growth has flattened off, but they still have shareholders who continue to expect high growth, and still see the telecom industry as a dynamic sector. Because of this they are increasingly forced to look for new growth drivers," says Puelinckx.

A case in point is Vodafone. The European operator - that exited Japan after its venture into the market proved premature - decided recently to move into Turkey and India. "Vodafone clearly shifted its strategy from consolidating its position in mature markets to moving into emerging markets, and pushing for higher growth there," Puelinckx explains.

Delta's paper divides global telecom players into three main categories: Global titans, European players, and Emerging challengers. Global titans are limited to four or five European-based companies that have expanded beyond their regions and that are growing increasingly global. These include the likes of Vodafone, France Telecom, Deutsche Telecom, and Telecom Italia. The forecast predicts that these titans will continue to grow and expand with even bigger deals on the horizon. The total cash available to these global titans in the next two years is estimated at over US$170bn. Puelinckx says titans are the "potential consolidators" of some of the local and regional players especially the MEA region, parts of Asia, and the former Soviet and Eastern European countries. Latin America is also a highly-targeted growth market.

"Markets like the Middle East and Africa have become the centre of the industry, where people are looking, because they are some of the future growth engines," he says, adding: "If you look at the subscriber division right now, two thirds of it is in mature markets, one third is in emerging markets.

"If you look at where the growth is going to come from new subscribers in the next three to four years, 60% to 65% will come from emerging markets and the rest from mature markets," he continues.

When it comes to regional players, Delta's research points to five major regional companies including MTC, MTN, Etisalat, Orascom, and Q-Tel. According to the report, the tremendous growth witnessed in the MEA region has been driven by the "understanding of the potential of the region when no one foresaw the explosive growth to come."

The report adds that highly committed boards and aggressive shareholders are driving the expansion, in addition to highly ambitious CEOs and management teams. The telcos will have further room to grow and enter new countries in their regions.

Currently, leading players in MEA have a presence in only 20 out of 70 countries, covering a maximum of 30% to 40% of the population. Puelinckx says it will be interesting to see what materialises in Africa in the next year, and which one of the regional five will dominate in that space. Before that happens, however, regional market leaders need to find growth and invest in growth markets, he explains.

"If you look at the cash they have available, cash sitting in the bank but also access to further debt, you'll find that a lot of these players will have US$30bn to US$50bn, which is above the market capital of some of the regional players," he says. Puelinckx also believes this capital could be put into the acquisition of some of the region's smaller players.

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