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By Ahmed Lotfy
he GCC telecom sector, once praised for outgrowing Western counterparts, is facing an inevitable challenge that might transform its course and culture. The sector’s 2010 first-half results asserted this fact, showing that several incumbents round the region suffered profit decline between 15 and 30%. Even worse, the possibilities of future profit-making will be under very high pressure in a semi-saturated environment and a market ridden by price wars and mounting competition. A fresh study by Boston Consulting Group ((BCG), however, claims to have the keys to restoring growth. ‘Lean Advantage in Telcos: Reducing Complexity and Transforming Culture’ points out that regional telcos can achieve full potential via innovative cost/waste cutting arrangements. Qatar Today spoke to Joerg Hildebrandt, Partner and Managing Director, BCG Middle East for further insights.
How different are the Middle East telecom markets from other parts of the world?
Over the last five years, the Middle East telecom markets have clearly outgrown western counterparts, ie the US and Europe. Saudi Arabia and Egypt, for instance, experienced drastic changes with the entry of second and third players. Mobile penetration growth skyrocketed, fueled by new offers and fierce price competition. 28
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However, following a global trend, GCC markets are nearing saturation. As a result, regional telcos need to get accustomed to slower growth rates, adapt their business model and apply rigorous efficiency management. On the growth side, another similarity exists: the remaining resort of growth will be mobile and fixed broadband including Value Added Services (VAS). All operators round the world including GCC telcos have to fully embrace the VAS opportunity and make the management of VAS part of their DNA.
Is the telecom operatior’s inefficiency a regional or global phenomenon?
The telecom business is a utility business, which can be characterised by investment-intense assets, complex and employee-heavy processes. Due to shrinking margins and commoditisation of voice, operators around the globe find themselves in comparable situations: they need to significantly increase the efficiency in their business set-up. But the underlying reasons are different. In the Middle East, operators can hardly keep up with the growth compromising the efficiency of processes. Now after decades of growth and constant addition of complexity to business, it is time for Mideast telco players to change the fundamental and underlying
Joerg Hildebrandt, Partner and Managing Director, BCG Middle East.
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teLco coMPLexity inDex The study shows that complexity is the key driver of cost inefficiencies in the regionÕ s telecom processes and business models. GCC telecom operators have been in Ô growth modeÕ over years, not being able to catch up with customer demand. Complexity has exponentially increased through new products, partnerships, and various service levels to customers. Complexity is greater in typical operators than in a lean, fully optimised provider, the study maintains and suggests four frameworks or Ô lensesÕ to reduce complexity. The Strategic Lens Setting overall objectives for transformation using this lens involves identifying and managing the strategic tradeoffs that drive a companyÕ s operating model.
processes, of course via automation. On the contrary, operators in the West started to increase automation in their business design earlier on. However, Middle East telecoms can unlock considerable efficiency potential when merging fixed and mobile operations. This is quite common in the region, e.g. for the incumbents in Qatar, UAE and KSA.
Do you think waste cutting is the only way out for incumbents in semi-saturated markets?
It will basically be a combination of three levers Growth in broadband and value added services, Reducing cost and more focus on a cost-conscious culture, and Reducing complexity and waste in business processes and organi sation.
Ò Due to shrinking margins and commoditisation of voice, operators around the globe need to significantly increase the efficiency of their business set-upÓ The report maintains that traditional ways of cost cutting will fall short of achieving full potential. What other measures do you advise?
In the short-term, operators should scrutinise all different cost categories; insurance costs, maintenance costs ...etc. The biggest saving potential, however, still resides in the optimisation of capital expenditure, e.g. purchase of network elements. In the mid-term, operators need to change the way of operations by introducing a much more lean set up n
The Operations Lens Analysing a company using this lens helps it prioritise available methods, or levers, for achieving excellence in its processes and systems. The People Engagement Lens Involving employees and receiving their full cooperation are often the missing links in improvement efforts. The Performance Governance Lens Viewing an organisation through this lens helps a company measure-and maintainchange by choosing the correct structures and measurement systems.
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