Middle East operators are seeking economies of scale

By Matthew Reed

As the Middle East’s mobile markets mature, and with the impact of the recession still raw, many of the region’s operators are becoming more cost-conscious.

Fortunately, the portfolios of international operations that the bigger players have built up over the recent few years present substantial opportunities for achieving economies of scale.

The Qatar-based Q-tel group has found that its network equipment costs have dropped by 10-15 per cent as a result of centralising procurement following its international expansion, Q-tel CEO Nasser Marafih said at the GSM>3G Middle East Telco World Summit that was put on by Informa Telecoms & Media in Dubai this month. Q-tel expects to make further similar cost savings as a result of centralizing its buying in areas such as roaming, wholesale and value-added services.

Operators that have scale are also better able to move into new service and technology areas, as Q-Tel has demonstrated with its Wi-tribe subsidiary, which specialises in WiMAX operations. Wi-tribe launched services in Jordan a year ago and in Pakistan recently. It will launch in the Philippines in 2010. Q-tel is further taking advantage of that WiMAX expertise by deploying WiMAX in Qatar to offer fixed-broadband services in areas that are not covered by its wireline network. Q-tel’s Omani subsidiary Nawras also plans to use WiMAX when it launches fixed services.

Q-tel is also planning to use managed-services unit Navlink as a platform for offering services to the enterprise market. Q-tel and AT&T each own 38 per cent of Navlink.

In addition, Q-tel is planning to introduce a single brand across its international operations in 2010. Such unified branding is in itself a form of economy of scale.

Etisalat also takes advantage of the economies of scale that come with its scale and international footprint, said Jamal Al-Jarwan, CEO of international investments at the UAE-based group, speaking at the conference. Etisalat has cut costs on the production of its airtime credit vouchers by centralizing manufacture in a single factory in the UAE. Etisalat has also centralized data-clearing and is looking at centralizing back-office functions. And some customer-service calls by Etisalat’s subscribers in the UAE are automatically re-directed to the group’s call-center in Egypt, which is cheaper to run than the one in the UAE because staff and other costs are lower.

International operators can also create roaming services that take advantage of their presence in a number of countries. Zain has perhaps done the most in this area with its One Network roaming scheme. But Etisalat says it plans to create a similar proposition across its operations in Egypt, Saudi Arabia, Sudan and the UAE.
Zain has also of course inked a series of managed services agreements, covering variously its networks in Iraq, Nigeria and most recently, East Africa. Batelco is keeping the costs down on its next deployment, the launch of services in India through its S Tel unit, by leasing all its towers in India from a local company rather than build its own, according to Ghassan Murad, Batelco’s head of mergers and acquisitions. S Tel will offer services in six of India’s rural C circles or mobile license areas, where ARPUs are very low, though mobile penetration is also low.

Vodafone has set up a unit to improve group efficiency by developing products and services centrally, or by transferring best practice between operations, according to Denise D’Elia, international services director at Vodafone Egypt. As a result, Vodafone Egypt will soon introduce a mobile-money service based on the m-Pesa scheme run by Kenya’s Safaricom, in which Vodafone has a 35 per cent stake.

The benefits of that centralization are not restricted to Vodafone-owned operators. Du, the UAE’s No. 2 operator, has a partner-market agreement with Vodafone that allows it to take advantage of the latter’s buying power and product development.

The focus is on improving efficiency but there is still interest in expansion, with Al-Jarwan having also said this month that Etisalat expects to win the third mobile license in Libya shortly. Etisalat is also interested in the planned Syrian third mobile license and in the privatization of Lebanon’s two mobile operators.

But further consolidation among the big Gulf operators is unlikely, because all are to some degree state-owned entities and are seen as national champions. “I wouldn’t see consolidation in the next five years,” said Al Jarwan.