Shifting business model from minutes to bytes key priority for MENA Telco growth: Ernst & Young
Dubai, 14 April 2012: Questions over new business models, levels of capital expenditure and regulatory uncertainty represent the biggest threats and opportunities in a rapidly transforming telecommunications sector, according to Ernst & Young’s Top 10 Risks in Telecommunications 2012 report.
Top 10 risks in telecommunications 2012 report, the latest in a series of annual reports based on the insights of Ernst & Young’s sector practitioners, shows that, for the first time, failure to control costs is no longer in the top ten risks. While robust defensive positioning reinforced by strong cash flows has helped operators contend with economic uncertainties, new business models are required to unlock growth.
Mobile broadband is a major growth area for MENA but revenue numbers don’t add up.
“Though data services have grown exponentially, actual revenue does not match up to the rate or percentage growth of the sector. Telecom operators need to get the right business model in place and update their systems and infrastructure to benefit from the changing trends in customer communications,” said Wasim Khan, MENA Telecoms Leader, Ernst & Young.
Regulatory pressure to continue to increase
Regulatory pressures remain a key concern in the sector. Though the sector has become highly regulated, more is expected going forward. Regulations have become more stringent to factor in the growing number of players entering the market. This trend is expected to continue in the foreseeable future.
Data privacy and confidentiality from an individual or an enterprise perspective continues to be a key issue. Security mechanisms have not caught up or are not adequately developed to meet the challenges that the rapid growth in new technologies and products pose.
Need for flexible organizational structure
With the changing competitive landscape, there is a need for operators to develop more agile organizations that can execute their new strategies. The report states that telecom operators need to decide where and what the business model needs to be geared to in terms of product segments such as internet and mobile, and on their customer segments such as enterprise and individual. Inflexibility in the organizational structure can affect competitiveness and pose long term risks to their growth as well as survival.
Tie ups not just ‘nice to have’
Regional telcos are keen on international expansion but are not reaping the returns that they had expected from earlier acquisitions/ alliances. This is evident from the fact that a majority share of their revenues still comes from home markets. As operators widen their range of services, partnerships are no longer just 'nice to have.’ Strong industry ecosystems are required to support new propositions, internationally and in home markets. At the same time, new business metrics are needed to more effectively communicate financial and operational performance to the investor community.
“Given that the region is highly brand conscious, telecom operators should focus on brand protection and investment in their public image. Strategic tie ups could help in strengthening this as well,” concluded Wasim Khan.
The 2012 top global business risks for the telecoms sector are:
- Failure to shift the business model from minutes to bytes
- Disengagement from the changing customer mindsetLack of confidence in return on investment
- Insufficient information to turn demand into value
- Lack of regulatory certainty on new market structures
- Failure to capitalize on new types of connectivit
- Poorly formulated M&A and partnership strateg
- Failure to define new business metric
- Privacy, security and resilienc
- Lack of organizational flexibility