May 8, 2008
By Guillaume Sachet and Joanne Leong/Accenture
Global Telecom CEO
Early this year, Maxis announced a $1 billion investment plan in India
between 2008 and 2013. About a month later, Chunghwa Telecom unveiled
a $3.9 billion, five-year spending package in investments in Southeast
Asia. These are just two examples of a shift in Asian telecom
operators' strategies: inorganic over organic, regional over local.
Telecom operators are looking at expanding overseas to develop new
revenue streams and to compensate for slowing growth in their country
of origin. Most telecom operators in Asia's more developed markets are
now planning to step up their investments in overseas acquisitions
over the next five years. In short, the Asian telecom operator of 2013
will be regional.
The prey becomes the hunted
Historically, APAC telecom markets have been the targets of global
players following the opening of the telecom markets around the world.
In the late 1990s and early 2000s, operators such as BT, Orange and
Telenor saw the potential of the industry in Asia, and took to
extending their operations to grab a piece of the growing pie. They
brought with them their expertise in handsets and wireless technology,
and penetrated the Asian market using their global brand name and
financial power. At the same time, Asian giants such as Telekom
Malaysia and SingTel started their international expansion to emulate
the global players.
Today, with the maturing markets in Singapore, Hong Kong, Malaysia and
Taiwan, players in the region employ similar tactics to gain an edge
over their local competitors, to build scale and to avoid becoming
acquisition targets. Equipped with best practices in operational
efficiency, network deployment and industry experience, the Asian
players have chosen to buy up stakes of other telecom companies in
neighboring emerging markets. Specifically, they have targeted markets
with low penetration rates, large customer bases and a growing
economy. Countries like India (Maxis), Thailand (Chunghwa Telecom) and
Indonesia (Maxis) have been the preferred destinations for such
investments.
This regionalization trend is only beginning and will amplify over the
next five years. With the penetration levels in the wireless space
reaching or exceeding 100% in developed Asian markets, the need for
new revenue streams becomes crucial. By venturing into new
geographies, Asian telecom operators will be able to grow their
customer base, diversify revenue streams, achieve economies of scale,
and therefore, ensure a sustainable and increasing flow of returns for
the future.
Approach to regionalization
The main path to regionalization is to exploit the same areas of
business in different geographies. Asian players are buying up stakes
of telecom operators in attractive, emerging markets (defined by low
penetration, high revenue growth) to leverage their expertise in their
local markets and to fill in the gaps in wireline infrastructure in
the new markets, using emerging technologies. Operators like Maxis are
also concerned about the levels of investments they can achieve.
Targeting emerging markets is, therefore, a way to combine limited
investments with high potential returns. Some of these markets in Asia
are in the investment phase (capital intensive) while others have
started to rake in the profits.
Emerging markets that are further along the maturity curve are
Thailand, Indonesia and the Philippines. Emerging markets that have
just started to shine are India, Vietnam, Pakistan and Bangladesh
while those that will shine soon include Laos, Cambodia and Sri Lanka.
Despite the risks inherent to investments in developing markets
(e.g.lack of regulatory transparency, low spending power, bureaucracy,
limited talent pool), Asian telecom operators will continue to grow in
their neighboring countries.
Another approach to regionalization that will become more prominent by
2013 is for telecom operators to seek strategic partnerships in
complementing domains to embrace the convergence wave. Opportunities
in the entertainment space (IPTV, mobile TV) provide telecom companies
with countless possibilities in the bundling and reshaping of their
products and services.
Operators will redefine their space as they acquire niche players (a
model that media companies such as Indonesia's Global Mediacom have
already adopted with their investment in China's Linktone), and build
alliances to create new product portfolios to enhance their existing
mix.
Is Africa the next target?
As Asian telecom operators look at future regionalization
opportunities, they will realize that potential acquisitions or green
field investments in Asia will decrease, either because the size of
the investment level is too high (e.g. China, India) or because
markets have become too competitive (e.g. Thailand, Indonesia). When
this happens, expanding beyond Asia will become crucial to their
growth.
Three potential geographies for telecom investments besides Asia are
the Middle East, Eastern Europe and Latin America, where the economy
is growing and political stabilization is under way. These markets
already serve as the playground of European giants such as Vodafone,
Orange and Telefonica, offering limited opportunities for Asian
players that do not have the required scale. They are also the
platform for new competitors on the global scene. For instance, Middle
Eastern telecom operators are now venturing beyond their regional
markets. For example, Dubai Etisalat is considering investments in
Vietnam and India.
In this context, Africa can become a good investment target for Asian
telecom operators in the near future, particularly in the more stable
countries of Mauritius, Tanzania and Ghana. Ghana has already taken a
number of steps to improve their institutions and infrastructure to
attract foreign investments.
Joanne Leong is a strategy business analyst at Accenture
Guillaume Sachet is Accenture's communications, medias and high tech
ASEAN strategy lead
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