Transcript Mr. Ghassan Hasbani, Partner & Vice President, Booz & Company

Booz & Company
Beirut, April 16, 2009
Conference Presentation
Growth in the Recession
Challenges and Opportunities for the Telecom Sector
This document is confidential and is intended solely for
the use and information of the client to whom it is addressed.
The world is experiencing a far-reaching recession
Comparative Growth Rates
Real GDP Change p.a. (%)
%
7
North Africa
6
Asia &
Australasia
5
Gulf
4
Eastern Europe
3
Latin America
G10
2
EU15
1
0
2005
-1
2006
2007
2008
2009
2010
2011
2012
2013
-2
-3
Note:
Gulf includes GCC countries and Yemen
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16 April 2009
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However, emerging markets, including the Middle East, continue
to promise sustained economic growth
GDP Growth Projections, 2009-2010
%
2009
Old Forecast
2010
New Forecast
Old Forecast
New Forecast
2.2
0.5
3.8
3.0
-0.3
-2.0
1.6
1.1
5.1
3.3
6.2
5.0
Africa
4.8
3.4
5.4
4.9
Central and Eastern Europe
2.2
-0.4
3.8
2.5
CIS
3.2
-0.4
4.5
2.2
Developing Asia
7.1
5.5
8.0
6.9
Middle East
5.4
3.9
5.3
4.7
Western Hemisphere
2.5
1.1
4.0
3.0
World Output
Advanced Economies
Emerging and Developing Economies
“Advanced Economies” includes US, Euro Area, Japan, UK, Canada and Other Advanced Economies
“Developing Asia” includes China, India and the five ASEAN countries
“Western Hemisphere” includes Brazil and Mexico
Source: World Economic Outlook Update, January 2009
Note:
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Telecom services growth has proven resilient in economic
downturns, especially in growing emerging markets…
Global Telecom Service Revenues
Telecom Resilience Drivers
(1997 - 2003) (USD Billion)
2001 downturn
1,126
1,039
920
Developed
Markets
968
854

Essential service for users

Relatively small percentage
of disposable income

Nascent market stage with
continued exponential growth
momentum

Coverage expansion in
under- penetrated regions
767
712
Emerging
Markets
1997
1998
1999
2000
2001
2002
2003
Source: ITU
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… as telecom services are becoming essential for consumers
Expected Cut in Consumer Spending during
an Economic Downturn
(2008) (%)
Rationale and Evidence
Luxury goods
56.0%
Travel
50.0%
Entertainment
39.0%
27.0%
Electronics
Household goods
23.0%
15.0%
Clothing
Essential Basics
 Voice remains an essential service
 Broadband access is increasingly
becoming important for consumers
– E.g. European Commission is
considering a universal service
obligation (USO) on broadband
access
 Telecommunications services
become more critical during a
recessions; e.g.:
– Less travel and face-to-face
meetings
– Less social activities leading to
more calls and home
entertainment (IPTV, internet
browsing, etc.)
6.0%
Source: Business Week, Booz & Company Survey 2008, Booz & Company analysis
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Telecom plays a key role in enabling other sectors and is thus
important for driving overall GDP growth during this recession
Telecom Industry Enabling Role
Contributions to GDP Growth
Average Annual Growth in %, 1985-2006
Sector
Applications - Examples
Labor Input
%
Healthcare
 Telemedicine
 Health services research
 Online monitoring
Non-ICT Capital
3,0
Multi-Factor Productivity
 e-Public services
 National backbone ICT
infrastructure
2,5
1,5
Aviation
 Ticketing systems
 Routing systems
 Aerospace research
Logistics
 RFID and NFC apps
 Broadcasting
 Logistics IT applications
Education
 e-Learning
 Virtual university
 Content management
Defense
 Simulation systems
 Remote intel gathering
 GPS
Government
ICT Capital
3,5
2,0
1,0
0,5
0,0
-0,5
Germany Australia Canada
Japan
UK
US
 ICT accounts for majority of capital's contribution to GDP
growth
Note:
ICT related capital includes hardware, communication and software
Source: OECD Factbook 2008, Booz & Company analysis
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Governments see the national broadband infrastructure and a key
driver for growth out of the recession
National Broadband Networks - Government Investments
“[We] need action – and action now. That is why I have asked my economic team to
develop an economic recovery plan… that will help save or create at least two and a
half million jobs, while rebuilding our infrastructure… As we renew our schools and
highways, we’ll also renew our information superhighway… because that’s how we’ll
strengthen America’s competitiveness in the world.”
Barack Obama,
Radio Address on the Economy1)
“When we talk about the roads and the bridges and the railways that were built in
previous times - and those were anti-recession measures taken to help people through
difficult times - you could [by comparison] talk about the digital infrastructure and that
form of communications revolution at a period when we want to stimulate the
economy. It's a very important thing”
Rationale
 Policymakers in the US,
UK, Korea, Germany,
Spain, and Portugal are
looking at channeling
investments in Next
Generation Broadband
Networks to
– create new jobs
– support new businesses
– stimulate investment
Gordon Brown,
The Observer Interview2)
1)
2)
http://change.gov/newsroom/entry/the_key_parts_of_the_jobs_plan/
http://www.guardian.co.uk/politics/2009/jan/04/gordon-brown-employment-new-deal
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However, Government ownership in national incumbents may
create inefficiencies in operations
Government Ownership - Impact
Impact of Ownership on
Efficiency (2006)
Jordan 3% 30%
Telecom Egypt
90
80
Gov't Ownership (%)
Regional Incumbents (2008)
Omantel
7%
61%
R2 = 0.8*
70
60
Morocco
Etisalat
Q-Tel
50
30%
17%
53%
France Telecom
40
Deutch Telecom
30
Telekom Austria
Qatar
55%
10% 25% 10%
20
Jordan Telecom
10
KPN
0
0
50
100
150
200
250
300
350
Telecom Italia
Telefonica
400
450
Lines per FTE
 As the telecom sector develops, there is a lower need for the
government to remain directly involved
Other
Drivers
 Changing demographic structure drive governments to free up funds to
invest in social welfare projects
 Reducing ownership increases private investment attractiveness
 Reducing ownership eases pressure international trade commitments
UAE
60%
KSA
0%
40%
70%
20%
40%
13% 17%
60%
80% 100%
Government
Public Institutional Investors
Private Sector
Foreign
* Jordan Telecom excluded due to its recent rapid privatization and accompanying restrictions on labor cut-backs
Source: ITU 2005. Epsicom, Operator Annual Reports
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MENA telecom liberalization has led to a rapid increase in the
number of operators, particularly in the mobile sector …
Number of Mobile Operators in the MENA Region
(2000 - 2008)
44
36
36
37
2005
2006
2007
32
26
27
25
2001
2002
2003
19
2000
2004
2008
Source: Global Insight, Booz & Company analysis
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… resulting in strong market growth
MENA Telecom Market Overview
MENA Telecom Subscribers
MENA Telecom Revenues
(Million) (2004 - 2008)
(USD Billion) (2004 - 2008)
40.6
+27%
168.5
128.7
87.4
217.2
24%
227.0
21%
+16%
Broadband
Fixed
36.4
32.2
27.5
22.8
28%
35%
76%
43%
79%
Mobile
71%
64%
57%
2004
2005
2006
2007
2008
2004
2005
2006
2007
2008
Note:
Telecom revenues are estimates
Source: Informa, Global Insight, Booz & Company analysis
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The MENA region can be divided into three sub-regional clusters,
each with its unique characteristics
Overview of Sub-Regional Clusters in the MENA Region
North Africa
Levant and Egypt
Gulf
28.496
141
83
80
20
36
14
53
84
10
63
13
8.755
12
4.644
Population (Million)
GDP/Capita (USD)
Mobile Penetration
ARPU (USD/Month)
Number of Mobile Players
Note: All numbers are 2008
Source: Informa, EIU, CIA World Fact book, Booz & Company analysis
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Market level competition is intensifying in most markets, but lags
in others…
Competitive Activity of Sub-Regional Clusters in the MENA Region
(2008)
Legend:
< 3 Mobile Players
3 Mobile Players
> 3 Mobile Players
Source: Informa, Booz & Company analysis
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… while cross border competition is becoming increasingly
dominant
International Footprints and Revenues of Selected Regional Players
(2008)
Zain International Footprint
Etisalat International Footprint
81% of
revenues from
international
Operations
STC International Footprint
Batelco International Footprint
22% of
revenues from
international
Operations
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12% of
revenues from
international
Operations
30% of
revenues from
international
Operations
Qtel International Footprint
73% of
revenues from
international
Operations
Orascom International Footprint
83% of
revenues from
international
Operations
12
This is leading to the emergence of true global players in the
MENA region
Number of MENA Telecom Service Providers by Class
8
7
7
MVNO
Emerging
Global
Operators
Local
Incumbents
4
3
2
Niche
Operators
Regional
Operators
Description  Operators with
several assets
within the
MENA region
 Operators with
one telecom
asset
Expatriate
Operators
 Typically part
of large
Western
European
group
 Operators that
don’t own
physical
network
 Emerging global
telecoms with
assets spanning
multiple clusters
 Mainly stateowned
operators that
have not
expanded their
footprint
Source: Global Insight, Booz & Company analysis
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Lessons from advanced markets indicate that local incumbents
tend to disappear in time and global/regional players dominate
MENA and Europe Subscriber Market Share by Class
MENA Market Share By Service Provider Class
Europe Market Share by Service Provider Class
(%) (2009)
(%) (2009)
Niche MVNO
4% 2%
Niche MVNO
Local
Incumbent
2%
0%
Regional
20%
17%
Regional 7%
71%
Global
77%
Global
Source: Global Insight, Merrill Lynch Matrix, Booz & Company analysis
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Being part of a global or regional network helps operators success
against competition and serve their customers appropriately
Potential Sources of Synergies
 Leverage best practices and
knowledge sharing across the
organization
 Align corporate strategy across
operations and unify corporate
brand image
Non-Exhaustive
 Leverage intensity of traffic across
the footprint
Capacity
Building and
Know-how
Transfer
Corporate
Strategy
Unification
Roaming
Management
Synergy
Sources
Procurement
Consolidation
Shared
Services
Consolidation
 Consolidate and streamline
purchasing activities across
operations
 Consolidate other shared services with the
organization and streamline processes
across operations
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As a result, the CEO agenda in the MENA region today is
beginning to resemble that of emerging markets three years ago
CEO Agenda - Advanced Markets (2005)
CEO Agenda - Middle East (Today)
1
International
Expansion
"This purchase (Vodafone Sweden) will improve our
economic scale in the Nordic region,“
EVP, Telenor, 2005
“This transaction… will help us achieve our ambition
to become the undisputed leader in the region."
Chairman, STC, 2008
2
Service
Sophistication
“Continued portfolio extension through tariff and
product innovation”
CEO, Telefonica, 2005
“Each package has its own unique advantage in
terms of pricing and services"
CEO, Omantel, 2008
3
Roaming
Agreements
“Our strategic partnership with America Movil
significantly increases our roaming footprint
CEO, Vodafone, 2005
“The partnership with Vodafone will enable du to join
the world’s largest international mobile network
CEO, du, 2009
4
Infrastructure
Investment
“We intend to seed 3G among the masses…look
forward to more content and services.”
CEO, SingTel, 2005
“The launch of 3.5G rounds off the year in
spectacular fashion”
CEO, Batelco, 2008
5
Horizontal
Integration
“The partnership between Microsoft and FT promises
customers a New Experience in Telecommunications”
CEO, France Telecom, 2005
Establishing a company for content reflects STC’s
quest to launch value-added services
CEO, STC, 2008
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In summary…
 The telecom sector is less vulnerable to the global recession than other sectors
 The sector is seen as a driver of the economy and therefore policy makers are driving
investments and reform more than ever before
– Support broadband infrastructure deployment
– Encourage investments
– Reduce Government ownership while increasing government support
 The region continues to experience growth as liberalization advances, however lags behind in
some countries where liberalization is necessary
 We will see single market operators being subject to failure as globalization pcks up pace
– Being part of a global or regional group is a must for long term success
 The gap between the Middle East region and Europe is narrowing, however some countries need
to play significant catch up in order to reach this level
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