Region's telecoms miss out on $2bn a year

Telecoms companies across the Middle East could save $2 billion a year according to a new report by a global consultancy.

The largest Middle East telecommunications operators are losing US$2 billion (Dh7.34bn) a year due to inefficiencies in their operating practices, a report says.

About half of the Middle East operators surveyed have also suffered a reduction in profitability as they expanded overseas, said the report, which was released yesterday.

The study by the business advisory company AlixPartners, based in the US, found the top 13 operators in the wider emerging Europe, Middle East and Africa (EEMEA) region could make annual savings of up to $8bn if they implemented better procurement of goods and services.

"If you just look at the operators … in the Middle East, you'd be talking closer to a $2bn figure," said Nnenna Ilomechina, a director at AlixPartners in Dubai.

The report pointed towards possible cost savings in the procurement of handsets and SIM cards, and services such as distribution and marketing and in roaming fees.

It also highlighted a "one-off" saving of up to $3bn in cashflows within the top EEMEA telecoms companies, mainly through more efficient collection of money due.

While profits of the EEMEA telecoms companies are high compared with their western counterparts, the report said profits faced downward pressure as markets opened up to competition and consumer data demands increased, forcing further investments in infrastructure.

Expansion in other markets has led to further inefficiencies for Middle East telecoms operators. Local executives cited cultural differences and the weak structure of overseas entities as the reasons behind the lower profits overseas, the report said.

"You've got [telecoms companies] laying out footprints in quite large, multiple jurisdictions. And … in doing that, the profitability of the overall entity - except in one case - is actually going down," said Eric Benedict, the managing director of AlixPartners in Dubai.

"As seen from a shareholder standpoint, it has yet to be proven that those are actually delivering shareholder value returns."

The AlixPartners 2010 Global Telecommunications Outlook analysed 155 global telecoms service providers, with revenues totalling $1.65 trillion.

The EEMEA part of the study analysed the top 13 operators in the region, which had total revenues of $83bn and 1 billion subscribers between them.

AlixPartners did not name specific operators in its initial findings.

Etisalat and du, the two UAE telecoms companies, did not immediately respond to a request for comment.

AlixPartners, which specialises in restructuring, was last year hired by the Dubai Government-owned conglomerate Dubai World to help it restructure operations.

A separate report issued in September found GCC telecoms operators could achieve cost savings of up to 30 per cent if they improved efficiencies and outsourced certain services.

The Boston Consulting Group study cited inefficiencies including overproduction, high inventories and the overuse of resources.