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Wed 26 Sep 2012 06:13 PM

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MidEast telcos mull alliance to fight Facebook

Telecom companies discuss idea of creating Pan-Arab online platform, says du chief

MidEast telcos mull alliance to fight Facebook
MidEast telcos mull alliance to fight Facebook
Osman Sultan, chief executive of du.

Middle East telecommunications firms are discussing the idea of creating a pan-Arab online platform that would earn them more revenue from their networks by challenging Facebook and other internet behemoths of the West.

The ambitious project faces technical and financial obstacles and may never be implemented on a large scale. But proponents argue the common language and culture shared by the world's more than 350 mi l lion Arabic speakers, plus the webs of affiliated companies which Gulf operators own across the Middle East and North Africa, could make the project viable.

"A single operator, even one in multiple geographies and with tens of millions of subscribers, can't create this platform on its own," said Osman Sultan, chief executive of du, the second biggest operator in the UAE.

"It would be restricted to the customers of this operator and wouldn't have sufficient scale to succeed. But a unified platform spanning the Arab world would," he told Reuters.

Sultan said he had proposed the idea to all major operators in the Arab world over the past 12 months.

Behind the proposal is a frustration shared by telecommunications firms globally: as they spend heavily to build networks, data traffic on the networks is increasing rapidly, but the firms essentially only make money from charging for access to their networks - a low-margin business.

The lion's share of new revenue from traffic is being taken by so-called "over-the-top" (OTT) Internet companies such as Facebook, Google, Apple and Twitter. The telecommunications firms have unsuccessfully pressed them for bigger contributions to the cost of building the networks.

"OTT players...we can't share their gain and they won't share our pain," said Sultan. "Network traffic doubles every eight to nine months, but revenue is heading to a plateau, so we need to claim part of the new revenues alongside OTT players."

The proposed Arab online platform would feature social media and online shopping for goods and services, including digital content such as music, video and applications, Sultan said.

He declined to give details, saying parts of the talks were confidential, and most other Arab telecommunications operators contacted by Reuters declined to comment or did not respond to requests for comment

But Sheikh Mohamed Al Khalifa, chief executive of Bahrain Telecommunications Co, welcomed the idea.

"Telcos are beginning to look to the deployment of OTT services such as streamed TV and video-on-demand," he said. "Such diversification (into) adjacent industries has become necessary. There are gains to be made by collaborating within our industry in the Middle East."

Sceptics point to the fact that efforts by telecommunications firms elsewhere in the world to set up online ventures have often failed when faced with the technical savvy and marketing muscle of the established Internet giants.

"Fundamentally, it's very difficult to complete against OTT players - operators lack the agility and the core competencies as well as the brand appeal," said Guillermo Escofet, a senior analyst at Informa Telecom and Media in London.

"They're used to running networks, not being media companies. Also, operators instinctively try to differentiate themselves from each other - it's against their DNA to work together."

London-listed Vodafone is one of a number of operators that have had difficulty creating Internet services. The Vodafone 360 service, based on customers' phone address books, was launched in Europe in 2009, letting customers import contacts from social networks and use an online application store. In 2011, Vodafone said it was winding down the service.

"Operators have failed miserably every time they have tried to move up the value chain, except for in certain business-to-business services," said Pedro Oliveira, a partner at global management consultants Oliver Wyman. "Some have tried to move into content and applications, but the war is lost already."

The big Western Internet firms are already popular around the Middle East. Facebook, which offers an Arabic interface, had 45.2 million users in the Arab world as of June 30, up more than 50 percent from a year earlier, according to the Arab Social Media Report, produced by the Dubai School of Government.

Despite pockets of innovation in the region, such as video game industries in Saudi Arabia and Jordan, and ventures developing applications for smart phones in Egypt, the Middle East has so far not come close to developing online products to rival the top Western Internet companies.

However, proponents of the telecommunications firms' online plan argue it is more feasible in the Arab world than elsewhere.

Only about 1 percent of the world's websites are in Arabic, according to a survey by analysts W3techs. Internet penetration lags regions such as Europe, North America and east Asia, with only about 86 million of the estimated 360 million native Arabic speakers online at end-2011, Miniwatts Marketing Group said.

Such figures may mean Western Internet firms are not yet so entrenched in the Middle East that they cannot be challenged. The new online platform would satisfy hunger among the region's young population for more Arabic-language content, said Sultan.

Another factor is the impressive geographical reach of Gulf telecommunications firms; if a few of them can agree on introducing the online platform, they may be able to roll it out quickly across more than a dozen countries.

Combined, Qatar Telecom, Saudi Telecom, Kuwait's Zain and the UAE's Etisalat cover 16 of the 22 Arab League countries. The other six countries are the smallest four in economic terms - Mauritania, Somalia, Djibouti and Comoros - plus war-ravaged Libya and Syria.

The Arab telecommunications operators' extensive distribution networks and point-of-sale advertising could help them win customers from OTT players.

Most Middle Eastern mobile phone subscribers are on pre-paid contracts typically topped up with scratch cards. These are sold everywhere from petrol stations to local stores, so vouchers for the online platform might easily be rolled out alongside them.

"The reach we have to consumers and the knowledge we have of consumer behavior is vast," Sultan said.

Thomas Kuruvilla, managing director of consultants Arthur D Little Middle East, said an alliance of regional telecommunications firms could form a community of social networks that was attractive to local populations.

If the firms can cooperate on content and social networks, "it will surely attract more niche advertisers and hence higher revenue potential," he said.

However, even if the region's biggest telecommunications firms succeed with the online platform, it will be hard for smaller operators to make much money from it, said Oliveira.

This could consign smaller firms to serving as nothing more than low-margin pipes for the data services of the big ones.

In the Gulf, Saudi Arabia, Bahrain and Kuwait have multiple telecommunications firms providing Internet access, and some of them may be the most vulnerable to becoming "dumb pipes". Such companies might cut access fees to their networks in an effort to win market share, Oliveira said.

"If one operator takes this approach, then others in the same market may be forced to follow as they lose revenue and market share and struggle to keep on investing in their network," he said. "It's a race to the bottom."

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Qatari 7 years ago

Enough copying, we want new ideas from this region.

Kaptain Saif 7 years ago

Telcos should first open VOIP and then talk..!! Compromise profits to make room for more profits.

Monopolists of yesterday are fighting Giants of tomorrow with no oxygen to breathe..!! Should've thought before.

Mark of Zoro 7 years ago

Very well said, Kaptain Saif.

Looks like the Telcos are now crying like small babies over spilt milk.

Omar 7 years ago

Telecom entities in the region are some of the least innovative and creative on the planet. The reason for success of the large Internet firms in the West was on part to freedom of content, innovation with new business models, technical innovation and luck. Yes the are a handful of successful firms, but there have also been millions of failures.

The idea that regional telecom providers can get together to jointly innovate and develop a site that can rival Facebook or Amazon is preposterous. This is not to discount the possilibility that a college student in the region may one day hit upon an Internet model that will be a huge success. The local telecom cos. should try firstly to get their own websites to work...so we stop getting the messages "website is busy, please try again later" or "currently under maintenance,please try again later".

Mr. Osman you need to realise that any strategy needs to be FIT (Feasible, Implementable and timely).

OTT Guy 7 years ago

My experience with Telcos in this region is that they can't get out of their own old ways. The incumbents are too arrogant and slow to deliver the type of user experience the "new media" market demands and they think just because they are large telcos that people will fall over themselves to take their OTT services, and that's assuming these dinosaurs can even get something decent launched, which remains questionable.

Mazen 7 years ago

Brothers, just because you have money doesn't mean that you should through it down an empty well hole...

realiste 7 years ago

If they are unable to compete, they should pull out and leave it to professional providers.
They exist all over the world and are just waiting to come into UAE once real competition starts.

I hope that will happen one day soon, but until then, we subscribers will just have to listen to all these excuses from them to try and justify why they are giving us bad service at an extremely high cost.

One day.....