Emerging Markets: The View from the Middle East

By Monica Zlotogorski, Editor of TM Forum’s Inside Latin America and Vice Chair of TM Forum’s Latin America Advisory Board

As TM Forum prepares for its Regional Spotlight in Cairo, Egypt next month (following the success of the Sao Paulo, Brazil and Buenos Aires, Argentinaevents), I’m reminded of an article I co-authored about the region lastyear and thought it would be interesting to see what has changed sincethen. (See article, “Swimming with the Sharks,” which appears on p. 63.)

Wewrote the article before the global financial crisis, and the mostapparent difference is clearly in terms of the decline of GDP growththis year. According to Bank of America Merrill Lynch Research, if weconsider the rich economies of the Gulf Cooperation Council (GCC) (*),the GDP decline has been significant. In 2009, the six economies thatare part of the GCC have show the following decline compared to theprevious year: Saudi Arabia declined from 4.2 percent to -0.2 percent;United Arab Emirates went down from 6.8 percent to -1.0 percent; Kuwaitfrom 5.6 percent to -1.9 percent; Qatar from 16.4 percent to 5.7percent; Oman from 6.4 percent to 1.5 percent; and Bahrain from 5.4percent to 1.8 percent.

The GCCeconomies are forecasted to grow in 2010, but we will not see the typeof increase from previous years. (Saudi Arabia 3.1 percent, United ArabEmirates 2.0 percent, Kuwait 2.0 percent, Qatar 8.1 percent, Oman 2.3percent and Bahrain 2.4 percent). According to The Economist, Egypt is expected to grow 4.4 percent in 2009 and 4.0 percent next year.

In our article “Swimming with the Sharks”, we indicated that: “…far from being homogenous, the $50 billion telecom market in the MiddleEast – one of the fastest growing in the world, with an annual revenuegrowth of approximately 12 percent per year, according to Delta CapitalBSC – is as diverse as the individual countries within this broad area.Some markets are more open than others, but overall, the telecom sectorhere, which was once dominated by state-controlled monopolies, isgrowing due to conditions that increase and allow competition amongregional and international service providers. Advances in technologyare also expected to open up opportunities within telecom and relatedindustries. This is especially true in the mobile sector.”

Whilethe current global economic environment is affecting other industrysectors in the region, the communications market has stayed fairlyshielded. Across the whole region, Informa Telecoms & Mediapredicted that penetration will reach 77.05 percent by 2012 (a numberof countries will have penetration rates well in excess of 100 percentby 2012, such as UAE, Bahrain and Qatar).

Growthrates will fluctuate widely between the advanced GCC economies (most ofwhich are mature mobile markets) and other less developed economieswith lower mobile penetration (where growth will be stronger). Clearly,there isn’t just one Middle East.

Inmore mature markets, such as the GCC economies, we are observing apredisposition to bundle services and offer single bills as a classicearly tactic to help retain customers, particularly in the mobilesector, where organic growth is quite challenging, due to highpenetration rates.

Opportunities Abound
A lot of interesting news has come out of the communications sector inthe region and we’ll continue to hear about some interestingdevelopments, I’m sure. Most recently, the Chinese equipmentmanufacturer ZTE recently expressed that they want the Middle East to “play a bigger role in the firm’s fortunes” and provide 30 percent of revenue,as the company expects to take advantage of the region’s 3Ginfrastructure projects (ZTE will deliver the largest WiMAX networkdeployed to date in Saudi Arabia).

Etisalat from the UAE, the fastest-growing mobile operator in the world right now,and Zain, the second fastest-growing operator in the Middle East, haveboth combined different network operations through a series ofacquisitions of smaller providers, which has added a mix operational complexity.The wave of mergers and acquisitions will continue to go on in theregion, creating a clear need for cost reductions from an operationalperspective, which will create several interesting opportunities forOSS/BSS suppliers.

Despite the global financial crisis, I stand behind my analysis on the Middle East from last year:“As change takes place at such rapid pace, the logical next step is tofocus on fixing issues related to high cost in delivering services,time to provision and service quality and reliability, in order for theregion to achieve further expansion. We are seeing today that regionalservice providers are focusing on perfecting their business models,products and services to sustain their profitable businesses in theup-and-coming future of an all-IP era.”

If you are doing business in the Middle East, don’t miss the Regional Spotlight in Cairo, Egypt on October 12.

(*) TheGulf Cooperation Council seeks to strengthen cooperation (in areas suchas agriculture, industry, investment, security and trade) among its sixmembers: Bahrain, Kuwait, Qatar, Oman, Saudi Arabia and the United ArabEmirates.