As the sector emerges relatively unscathed from the global financial crisis, telecommunications operators are set to take advantage of substantial cash holdings in devising strategies to satisfy shareholder demand for higher revenues and lower costs.
Operators such as Qtel in Qatar, Etisalat in the UAE and Zain in Kuwait had taken a global view as regulators in their home markets issued new mobile licences to introduce competition.
Since 2006, Middle Eastern telecoms operators have spent almost US$21 billion (Dh77.13bn) on assets and licences, mainly in the Middle East, India, South East Asia and Africa.
"We've realised from the beginning that we have to go beyond our home market to continue with the growth that we will like," says Nasser Marafih, the chief executive of Qtel.
Qtel now plans to continue to expand in Asia after its purchase of a 65 per cent stake in the Indonesian operator IndoSat yielded significant dividends, providing about 25 per cent of its revenues, he says. Mr Marafih expects Qtel's international revenue to grow from 74 per cent of its total to as much as 90 per cent in the next five years.
"I think that is what's going to happen. It will still contribute a large part of the profits and that will increase."
Etisalat, with operations in 18 countries, appears to be well prepared for a major international expansion. A recent report by the US bank JP Morgan estimated that Etisalat has more than $16.4bn in financial headroom for mergers and acquisitions. That calculation assumed that it can secure debt at 2.5 times its estimated earnings before interest, taxes, depreciation and amortisation for next year, and use cash reserves of about $2.9bn. That financial might is the largest among operators based in the Middle East.
The company's growth plans are too premature to announce just yet, says Jamal al Jarwan, the head of international investments for Etisalat. "We are waiting for privatisation in Lebanon and would like to take a majority stake in one of the existing two operators there," Mr al Jarwan says.
The operator continues to keep close tabs on markets in Morocco, Syria, Iraq and throughout Africa. "In Africa, penetration is low and growth is there," Mr al Jarwan said. "We believe we will have more market share and can build synergies with them. It's financially attractive to us."
Already on the agenda is the launch next March of mobile services in India, one of the world's fastest-growing markets.
But with so many networks and operators out there, consolidating infrastructure seems to be a top priority of a number of telecoms executives as they look ahead. Telecoms towers have sprouted up to satisfy subscriber demand. The problem is that building these towers is expensive, and when your competitor has the same equipment and infrastructure only metres away in many cases, it makes sense to put rivalries aside and share hardware.
Operators in Europe and North America have formed partnerships to reduce capital costs while ensuring that their customers have a reliable network. T-Mobile International, a subsidiary of Deutsche Telekom, recently reported that telecoms hardware accounts for between 55 and 60 per cent of a network's operational costs.
"In order to get the biggest bang for your money, we're going to see increasing joint ventures between established telcos in the next coming years," says Kim Larsen, the head of network economics for T-Mobile International. "Although it is a very complex journey, it does give you a lot of advantages in terms of scale and efficiency."
This year, two joint ventures indicate how effective this sharing could be. In the UK, a £700 million (Dh4.18bn) joint venture was announced between T-Mobile and Orange to consolidate network and core operations; the savings from the venture are forecast to be more than £3.5bn over several years. In Canada, Bell Canada and Telus completed an advanced 3G network that cost C$1bn (Dh3.46bn) and they expect to save up to twice that amount over several years.
"The goal, ultimately, is to free up cash and resources for further investment in strategic assets, such as new services, new technologies and new business models that will truly differentiate players from their competitors," says the consultancy Booz & Co in a recent report. "This will become an increasingly critical capability as telecom companies look to move up the value chain."
In the Middle East, where mobile penetration exceeds 100 per cent, network consolidation is still in its early stages.
In the UAE, du and Etisalat signed a groundbreaking accord on sharing mobile networks, but their fixed-line businesses, much like their GCC peers, remain independent.
Mohammed al Ghanim, the director general of the Telecommunications Regulatory Authority, said in October that an agreement on broadband sharing would be drawn up, but there has been no update on when the two companies will be able to share each other's infrastructure.
"We are working and defining the framework agreement between us and Etisalat for telecoms sharing," says Hatem Bamatraf, the senior vice president of technology for du. "There's no time lines yet, there's very high level time lines given by the government and there's lot of political pressure and interest to finalise this ASAP."
Meanwhile, there is a game changer on the horizon for the telecoms sector. While next year undoubtedly holds the promise of a new wave of mobile devices - think of even more capable smartphones being added to the iPhone, BlackBerry and Android product lines - the technology that is generating a significant amount of buzz is Long Term Evolution (LTE). LTE is not only designed to upgrade the capabilities of 3G networks, but to replace every standard used in the mobile telecoms industry. As the demand for fast, reliable mobile networks increases, so too will the investment in LTE. Although Wimax, a competing next-generation network technology, has been commercially installed in several countries, about 85 per cent of operators have already expressed their commitment to LTE.
Its popularity can be easily explained by its flexibility to operate at a variety of speeds - up to 176 megabits per second (Mbps) compared with Wimax which can hit about 20Mbps - and frequencies.
The equipment manufacturers Huawei, Motorola, Nokia Siemens Networks and Ericsson have each made large strides in developing the technology and it is expected to be available in the Middle East within four years.
Earlier this month, the Scandinavian operator TeliaSonera staked its claim as the first company to offer LTE to its users while regionally, Zain and Etisalat have both said they plan to deploy LTE next year.
The problem, something that most industry observers will be quick to highlight, is that there are not nearly enough mobile devices available with the necessary chipsets capable of latching on to this super-fast network. So, it may not be a true game changer next year, but when you read a similar article next December expect LTE to be on everyone's minds.
dgeorgecosh@thenational.ae
