When the gloves are off

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The past few years has seen a sea change in the way the telecommunications sector operates in Middle East markets, with most countries in the region opening the sector up to competition.

With various competitive models being deployed in the region, Victor Font, managing partner at Delta Partners, a management consulting and investing firm focused on telecommunications in emerging markets, assesses the level competition in the market, and how effective it is likely to be.

How do you view the level of competition in Middle East telecom markets?

When you are looking at the sector you need to clearly differentiate between the fixed line or broadband markets and the mobile markets, in the sense that in the Middle East region competition has mainly been driven through mobile licenses and in an area where there are differences between markets, quality of infrastructure lags behind some of the more advanced markets.

Governments have seen the business model and profitability attached to the business model itself.

They have seen its potential and that is why you have seen some of the licences being issued by competitive bids and auctions in order to maximise the price being paid.

When looking at competition we see several markets where competitors have done well and where incumbents have somehow either struggled or have had a hard time against newcomers, although at the end of the day you can probably differentiate between the large incumbents that probably hold a licence and assets, versus those that only compete in the mobile space.

Which incumbents have done well, in your opinion?

The large incumbents that have integrated offers, fixed and mobile, have been able to defend their positions in a better way than the operators that only hold mobile assets, and therefore you have the cases of Etisalat, Qtel, STC - those players have a strong position in the market even though competition has been put in place, especially on the mobile side of the business, they are able to defend their position in a quite solid way.

Those that have done this in a better way have has an advantage with certain segments of the market that require not only mobile voice services but also data and fixed line as a whole, and they managed to retain customers and reduce the number that jump to a competitor.

On the other side of the fence, what are the key factors that have allowed some new competitors to succeed in winning business from incumbents? Key sources of sustainable differentiation come on the products and services front.

New products and services offered by new companies are typically very similar and in this industry it is difficult to achieve differentiation though services because you can be the first one to introduce a given service to a new market, but your competitor will be able to do the same quite rapidly.

Therefore, sources of sustainable differentiation are typically sales and distribution being able to deploy a successful sales and distribution network with an extensive and differentiated retail network.

Branding is also important, because the traditional incumbents have typically been associated with technology related brands, quite old fashioned and we see new competitors coming in especially in some markets with a more consumer type of approach.

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