x Abu Dhabi, UAEThursday 18 January 2018

They've got the whole world in their hands

GCC operators began embarking on international expansion programmes of their own in the mid-2000s.

Over the past decade and a half, an unprecedented wave of expansion has altered the global telecommunications industry.

As part of the sector's transformation, several global telecoms operators have emerged and some have footprints that span several continents.

GCC operators began embarking on international expansion programmes of their own in the mid-2000s. To date, these companies have expanded their presence across emerging markets including Indonesia and South Africa, passing through south Asia, the MENA region and sub-Saharan Africa.

GCC telecoms operators including Etisalat, Saudi Telecom, Qtel, Zain, Batelco and Omantel now have a presence in 63 markets.

In expanding globally, GCC operators are hoping to reap the same benefits as European operators such as Deutsche Telekom, Telefonica and Vodafone that began building global companies in the mid-1990s.

Investors have favoured these expansion-minded companies. Collectively, the operators with large multi-market presences have markedly outperformed local and regional telecoms competitors as well as major financial stock market indices.

Investors have rewarded the global operators for increasing revenue right away and in anticipation that scale will lead to increased profitability.

Indeed, international expansion contributed substantially to the operators' financial results. In our analysis of 25 large, mature markets, the top four operators in terms of revenue outside their home market had better Ebitda margins than their regional or local competitors.

Similarly, these high-performing global operators were able to capture a larger slice of market share than smaller regional players when launching new operations.

The results of these successful companies emphasise the potential of global operators to outperform the competition. They can capitalise on their management experience when they enter new markets. Several global operators have created centralised functions that focus on the design, deployment and operation of telecoms networks.

Additionally, global operators are likely to have better operational processes than their competitors across an array of functions such as IT, network and customer service. This is an especially critical advantage in the first six months or so of operations, because operators need to make an immediate and lasting impression on customers.

Finally, global operators have more experience in marketing and again can learn from past successes and failures when it comes to introducing products and services that offer the best value proposition in each new market.

Operators cannot assume, however, that by expanding internationally they will automatically capture all the value of having a global operation. The most successful global operators have realigned their operational structure, enabling them to fully realise their potential.

Accordingly, GCC operators will need to realign and institute synergy programmes to benefit from their expansion and justify the premiums paid for cross-border acquisitions.

The first step for operators is to identify their individual opportunities to create synergies. To do so, they need to look at the relative scale of their international portfolio: the larger the revenue contribution of international operations, the more synergies can be realised through overall economies of scale.

They also need to examine how much control they have in the companies they have acquired. Having a large stake allows global operators to integrate operating units more swiftly and effectively.

Another consideration is the level of coherence across a global operator's international portfolio. This could be determined by its level of consistency across service capabilities (fixed, mobile, or both), its market profile (mature or emerging), and its competitive positioning (premium, value, or budget operator). The more homogeneous the assets within the portfolio, the more likely it is that operators can achieve synergies.

The second step is to design a synergy programme. Telecoms operators that evolved successfully into profitable, well-functioning global giants focused on building the right organisational model to manage their sprawling operations in different countries.

Synergy programmes tend to evolve in stages. Many operators take an ad hoc approach during the early stages of globalisation. There is no executive oversight and support, no global processes, and an undefined interaction model between the subsidiaries.

The few synergies that are realised are usually driven by the agenda of the dominant operating company, likely the home country of the operator.

Operators then migrate to a collaborative approach at the group level; a common approach in a nascent global organisation. Companies often create virtual structures or global committees composed of executive members from each operating company who together develop the global synergy agenda and ensure its effective execution.

The key challenge of the collaborative approach remains balancing strategic objectives of the group with the objectives of individual operating companies.

The final stage, which only a few global operators have currently achieved, is a fully integrated organisation, in which operating companies are synthesised within the group, sharing systems and IT platforms. In these organisations, synergy-related processes are embedded as part of business-as-usual operations.

The ideal model for each operator will depend on the size of its international programme and its corresponding synergy potential. Those companies that have little control in their operating companies, limited scale, and low strategic alignment are unlikely to achieve synergies even if they are fully integrated.

GCC telecoms operators are continuing to expand aggressively beyond their home markets. These operators are poised to reap many rewards from their international reach, as there is significant value in going global.

Clearly, operators that are already global in reach have the early competitive advantage. But all operators that can transition successfully from collections of independent local companies into truly integrated global companies will sustain competitive advantage for years to come.


Karim Sabbagh is a partner and the global practice leader for the communications, media and technology and Mohamad Mourad a principal at Booz & Co