M&A activity will drive future telecom investment in the MENA region (page 1 of 3)

However, unless consolidating operators work to quickly realize cross-border synergies through early planning and a highly disciplined investment approach that includes strong pre-deal due diligence and post-transaction integration, these operators could face collapse or takeover, according to a study on the sector by Booz Allen Hamilton.

Intriguingly, Booz Allen observes that the telecom companies that will capture headlines in this new era of consolidation may not be the big regional players currently dominating the scene.
The study finds that favorable economic conditions have combined with a strong wave of telecom liberalization in the Middle East and North Africa (MENA) region to attract significant investments in the telecom industry. Such investments have occurred predominantly in the form of license acquisitions by regional telecom players whose primary aim is to mitigate the potential risk of stagnation or decline from imminent liberalization and saturation in their home markets.

At the same time, the scarcity of license issuances and privatization opportunities in the MENA region has driven up price premiums and triggered a new wave of consolidation among the top players.

"A period of uncertainty is now emerging, characterized by new challenges facing the operators that have caught the footprint expansion wave in the region and are now in the process of moving to the next phase of international development. The investors who will succeed are those who can best address the challenges of non-organic expansion," said Ghassan Hasbani, Principal at Booz Allen Hamilton, a global management consulting firm with offices throughout the MENA region.

Telecom Investment Environment

In the past few years, telecom operators in the MENA region have exhibited varying levels of readiness to expand beyond their home markets. As a result, only a handful of ambitious operators have dominated the race for international expansion. These operators are often referred to as the Big Four: Etisalat (UAE), Orascom (Egypt), MTC (Kuwait), and Q-Tel (Qatar).

It is evident that the international expansion pioneers have been the operators that faced growth stagnation in their home markets as they became liberalized or reached higher maturity levels. As such, these operators' ambitious plans were truly a product of necessity.

Other operators, however—especially those that focused on realizing untapped potential in their home markets—have de-emphasized to date the adoption of an international expansion strategy.
Classifying operators based on their level of internationalization and ability to create value provides insight into their next move.

Local Players: Operators that focus solely on their local markets. Unless their home markets exhibit significant value potential, these operators face a major risk from regional players who could eventually take them over.

Opportunistic Players: Operators that expand regionally with limited ability to realize synergies among their various operations. They should expect to integrate and consolidate their operations or risk failure or takeover.

International Integrators: Operators that focus on realizing synergies among the various regional opportunities they pursue. This category of players will dominate the telecom landscape across the region as they increasingly accumulate and sustain a competitive advantage.

Dormant Giants: Operators that have the potential to create value outside their home borders but have not yet pursued any regional opportunities.