Recent announcements suggest great change in the Middle Eastern mobile market in 2009. MVNO Renna has launched in Oman; Etisalat has won Iran's third mobile licence and is bidding for an Iraqi mobile operator; and Vodafone is to begin operations in Qatar. Although it is tempting to suggest that change is sweeping the region, the reality is far less dramatic. Existing players will need to adapt to new conditions, but new entrants will face an uphill battle for profitability.
Existing players need to face up to a brave new world
The list of announcements over the past year demonstrates the opening up of markets in the region to greater competition, in the form of both licence awards and granting MVNO access. To existing players, the arrival of new players threatens to erode ARPUs, market share and, ultimately, revenues. In response, existing players must adopt more defensive strategies.
Customer loyalty schemes, greater customer segmentation and targeting offers will be essential. However, this must be done faster than before to maintain competitive advantage. Systems will be crucial, as new entrants will be unencumbered by legacy systems (provided they have chosen and deployed their supporting IT wisely), enabling them to respond quickly to customer needs.
Many existing players will also face the international scale and experience of new entrants belonging to multinational entities. An international brand can appear cosmopolitan and refreshing, particularly in the Gulf States with their large expatriate workforce. It can also bring global purchasing scale and group-wide product development.
New entrants must set realistic expectations
Yet for all the talk of challenges facing the existing players, experience elsewhere suggests that the opportunities for new entrants and MVNOs are muted. As our forthcoming report, Non-dominant mobile network operator strategies, concludes, non-dominant operators face an uphill battle in convincing customers to defect en masse from more established players.
Our research has found that a new entrant stands a far greater chance of success the earlier it can enter the market, with 'earlier' defined both in terms of market penetration and whether it is the second, third or fourth entrant. For example, with mobile penetration currently well over 100% in Qatar, Vodafone's development there will be very different to its experience in India. Therefore, assuming defensive strategies are employed, existing players will be impacted only marginally.
Conversely, new entrants must set realistic expectations. They are unlikely to succeed in completely undermining the existing players' market position. Therefore, they must be prepared for a long struggle, chipping away at specific segments - for example, targeting international call offers at foreign workers in the Gulf States. As a result, achieving sufficient profitability to remain viable is the most critical expectation. Revenues and market share mean nothing if the operation is unprofitable.
Regional players are the key drivers, and beneficiaries, of change
So why bother entering the market late? Among this discussion are the protagonists - and it is crucial that most are extremely familiar: Vodafone is in Qatar; Etisalat in Iran and Iraq; and Zain and Orascom have extended their control of Lebanese operators MTC Touch and Alfa respectively.
Given the above limitations on 'success' for later market entrants, only these - predominantly regional - players could justify the slim margins that are likely to exist as they enter markets late. They must leverage their multinational brands and purchasing power, so that every rial or dinar earned can further swell their coffers. This money must then be used to leverage further synergies, to help reduce opex, or enter new markets and generate even more cash.
Therefore, 2009 will see further opening up of markets, but the result will not be a dramatic undermining of the dominant operators in their domestic market. It will actually be aiding the consolidation of the regional market among the region's power players.