Gulf telecoms ring in new world order

Telecommunications companies from the Gulf have stormed into international markets, doing business in 78 countries today compared with just six in 2004, a report says. The expansion spree has extended the footprint of Gulf operators from Morocco to Indonesia, covering most of Africa and the subcontinent in the process, the report by the management consultancy Booz and Company said

Booz said the international reach of Gulf operators placed them in competition with long-time global giants such as the Vodafone Group of the UK and France Telecom. But to compete with the world's best, Gulf telecoms need to rapidly modernise management systems, the report said, as they remain largely tied to "legacy" management models inherited from their past as domestic monopolies. Such models incorporate excessive layers of "paternalistic" management and administrative departments that are ill-prepared to serve the needs of a global business.

The report said these management flaws were often overlooked when serving the profitable, protected markets of the Gulf. But as operators go global, "inefficiencies that currently exist with their organisational structures will be magnified". And as operators such as Etisalat, which reaches more than 100 million customers in 18 countries, continue to grow, an even more significant change is required, the report said.

The companies need to shift from being domestic players managing a portfolio of international investments to truly global businesses. The Gulf's major international operators still earn an average of almost 60 per cent of the revenues in their original domestic market. This is almost double the average of the world's largest players such as Telenor of Norway or Deutsche Telekom. Etisalat earns 80 per cent of its revenues from its 10 million domestic customers.

A dependence on highly profitable, protected local markets makes Gulf companies less inclined to integrate international subsidiaries into their management and planning systems, Booz said. This leads to the companies failing to fully realise the efficiencies, cost savings and strategic advantages of being a global business. "Although operators may meet strong internal resistance to restructuring their governance models, overcoming the governance challenges of globalisation is critical," the report said.