Welcome to the telecommunications industry, where those inside are trying to break out and the outsiders are trying their hardest to get in.
Telecoms industry full of ins and outs
Welcome to the telecommunications industry, where those inside are trying to break out and the outsiders are trying their hardest to get in. The contradiction is evident at the Gitex conference in Dubai, where mobile is the theme of the week among technology companies small and large. Many are working around the clock to get their business into the hands, and pockets, of almost 2.5 billion mobile users worldwide.
But at the same time, mobile operators are seeking greener pastures beyond handsets and phone calls, looking to leverage their current position to become major players in the IT services business. "It is a new strategic direction for us," said Abdulla Hashim, the vice president for enterprise solutions at Etisalat. Mr Hashim's unit looks after Etisalat's 2,000 largest corporate customers, and by 2010 he hopes to see 20 per cent of the division's revenue coming not from phone calls or text messages, but from IT outsourcing services.
Etisalat will outsource a company's telephony systems and data centres, and can host applications used by company employees anywhere in the world. The company recently signed an agreement with Microsoft's Gulf to host its collaboration software, LiveMeeting, allowing business customers to run live videoconferences without investing heavily in software and equipment. "It's a value proposition for our customers - the business case is: get rid of their infrastructure, downsize their IT departments, outsource to us," Mr Hashim said.
Charbel Fakhoury, the general manager of Microsoft Gulf, agreed that the business case made sense. "Small businesses don't even have IT managers, so who is going to design their infrastructure, data centres, their security?" he said. "It is easier for them to outsource it to the same people that are providing them with the connection." Etisalat's new enterprise strategy is not a novel one, and has been executed by a number of the world's largest traditional telecommunications companies. Most notably, the UK's BT, formerly the monopoly phone provider British Telecom, has become one of the largest providers of IT networking services in the world.
"It is certainly an interesting opportunity for telecom companies to grow, but it is a different kind of market," said Andrew Snead, an associate partner of Delta Partners, a UAE-based investment and advisory firm that specialises in telecommunications, media and technology. "It requires different capabilities, a different kind of culture, a different workforce." Mr Snead's company recently released a report calling on all telecommunications companies to develop a plan for how to enter the IT services market.
"It's not just about short-term revenues, it is about strategic positioning," he said. "But they need to remember, acquisition is not a panacea for all your shortfalls." Entering the market should be done through a mix of acquisitions, partnerships and organic growth, with the mix determined by the operator's current reality, he said. If mobile operators smell opportunity in the IT business, the IT business is salivating at the prospect of getting their software and services on to mobiles.
At the Gitex conference, the halls feature scores of exhibitors at pains to make clear the mobile applications of their products: using mobile phones as the platform for everything from payments and money transfers to identification, security systems and gaming platforms. "Companies have realised that they have a wealth of content and applications - so they have moved into the mobile space because of the opportunity," said Hilal Halaoui, a principal who specialises in telecommunications at the management consultancy Booz & Co. "On a mobile you can have Facebook, voice over IP and applications. It is seamless, and it's ubiquitous."
While network operators have historically been possessive over their customer's phones, seeing them as territory needing to be fenced off and protected, Mr Halaoui believes the market is changing, and operators are accepting their role in a broader mobile ecosystem. "There is not one type of player that will dominate the mobility business," he said. "Media companies can't become network operators, network operators can't become software companies. And I don't see a lot of future for closed systems, especially on handsets."