IN DIAL NEED
By Ehtesham Shahid • Apr 30th, 2009There are also problems with access, or a lack thereof, to the capital markets, another byproduct of the financial crisis. As with consumers, the network operators need access to credit, which has become difficult and costly. According to Delta Partners’ Alvarez, this constrains further investments in operations and in network roll-out, causing a “ripple effect in their network vendors, who are suffering the most,” he says.
While operators with huge war chests, such as Saudi Arabia’s STC and the UAE’s Etisalat, may not be overly troubled by this phenomenon, the impact is hitting vendors in some cases. Alvarez says it is not easy to continue financing expansionary plans, network roll-outs and upgrades without putting pressure on vendors. “So [some operators] are now telling vendors about the need for better financing conditions, and more importantly the delay in payments to next year,” Alvarez says.
According to him, traditional vendors such as Motorola, Nokia Siemens and Ericsson are already under pressure in the Gulf from Chinese vendors such as Huawei and ZTE. So they have no alternative but to accept the conditions being imposed on them by the region’s operators. “I think the only vendor making money in the last quarter was Ericsson,” Alvarez says, “and once they publish figures at the end of first quarter I doubt that even they would be making money.”
Taking stock. The downturn has pushed Gulf telcos into a new strategic phase. Having completed their expansions and acquisitions, they’re taking a step back to review their assets, resources and capabilities to maximize their revenue-making potential. This is backed up by empirical evidence from across the industry that overseas expansion isn’t an automatic key to success, and growth for growth’s sake is no longer the name of the game. “Only 29 percent of telecommunication groups realize an increase in aggregate profitability when integrating acquisitions, raising urgency to focus on extracting value and synergies from acquisitions,” says Karl Deutsch, head of Middle East telecom practice at A.T. Kearney, the strategic-management consulting firm.
