Adapt or perish in this brave new world

The Middle East telecommunications market is a rapidly evolving landscape and operators must be bold.

Middle East telecoms markets are nearly as competitive as those in Europe and North America.
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Over the past decade, the telecommunications industry has enabled the digital transformation of entire industries, economies and societies, writes Bahjat el Darwiche, Hilal Halaoui, David Tusa and Chady Smayra.

The rapid uptake of mobile communications, the increasing access to broadband services, and, more recently, the development of smartphones and the widely popular mobile apps - all have come thanks, at least in in part, to the innovations and investments emanating from the telecoms sector.

But the industry's growth is not without its challenges. Following years of liberalisation, Middle East telecoms markets are nearly as competitive as those in Europe and North America. As a result, operator margins have started to contract.

Three key trends threaten a fundamental shift to operators' business:

Consumer ubiquity: Consumers and businesses now expect access to information, communication, and entertainment anywhere, anytime. Customers are rewarding Apple, Google and Facebook for delivering interesting applications and devices, and are staying loyal to those operators.

Technology modularity: Customers will increasingly use a range of networks to access the internet. Applications and service offerings such as on-demand movies and games will be based on systems that are independent of the networks through which they are accessed, allowing a variety of non-industry rivals to provide services directly to consumers - in many cases bypassing the owners and operators of the networks themselves.

Industry innovation: To date,operators have largely focused on growing and protecting their core business - developing and using large-scale networks - generally leaving small-scale innovation to start-ups and entrepreneurs. They now find themselves vulnerable to competition from internet players, IT companies, device manufacturers and application providers. They need to regain the competitive edge in innovation.

Each of these trends has critical implications for the future of the industry, and Middle East operators must respond. Clearly, they must move away from the vertically integrated business models of the past, in which they built and owned the network and then stacked additional services on top. We see four business models that operators can use to do so.

Model 1: Network guarantor

Network guarantors use their infrastructure to provide the fastest networks, with the highest capacity available, over the widest coverage areas. Cost efficiency and open access are the keys to success. Network guarantors will be extremely efficient in planning and operating their networks, offering quality, network reliability and high service levels.

Model 2: Business enabler

This is a "double-sided" business model: on one side, operators provide their own customers with the broadband services they need; on the other side they host and support an increasing number of specialised service and application providers, providing them with access to target customer segments with services such as wholesale broadband, managed services, transaction and billing support, and platforms such as hosting and cloud computing.

Only the most innovative fixed and mobile operators will succeed with this model. We already see Middle East operators - Etisalat in the UAE, Mobily in Saudi Arabia - starting to explore this approach, announcing key partnerships to offer cloud computing and machine-to-machine communications.

Model 3: Experience creator

Consumers' thirst for new applications and services already appears insatiable. This model requires Middle East operators to develop the capabilities to succeed in an area that has not in the past come naturally to them: the innovation and dedication to customers that are required could be difficult to develop but are critical for success as an experience creator. It will also require operators to partner effectively with others in the telecoms ecosystem. We see small, specialised operators taking this route.

Model 4: Global multimarketer

This model offers a path to becoming truly global, an ambition worthy of operators with large footprints, such as STC, Etisalat and Qtel. More than 75 per cent of telecoms subscribers in regions such as Europe and the Middle East are served by global operators.

For operators, the future is flatter and more competitive than today. Traditionally integrated, vertical technologies and operating models are giving way to new technologies, services and devices. This far more open environment will let all kinds of new competitors into the telecoms arena and will challenge operators to make bold choices.

The most successful - and enduring - operators in the Middle East will embrace new business models. But this will take time. The winners will be those operators that are first to understand the need to make this transformation, and then move fast.

Bahjat el Darwiche and Hilal Halaoui are partners and David Tusa and Chady Smayra principals at Booz & Company