Delta Partners research highlights the sizeable opportunity for operators to grow new revenues from ICT services

As the Enterprise ICT market reaches a tipping point across the Middle East, catalyzed by ambitious government ICT infrastructure projects and the connectivity requirements of the burgeoning real estate market, Delta Partners believes operators are well placed to grow new revenues to offset the inevitable maturing of traditional telecommunications growth.

"The Middle East markets, in particular UAE and Saudi Arabia, are expected to see significant growth rates in ICT managed services spend in the coming years. Markets will continue to grow with businesses, local and international, realizing the importance of managed services in lowering their costs and providing key skills and services. Equally important, managed services will allow companies to focus on their core business."

said Andrew Snead, Associate Partner, Delta Partners.

The multiple infrastructure development programmes such as the creation of economic cities, the e-enablement of schools, hospitals and ministries combined with the influx of international companies seeking more sophisticated services is creating a new level of demand.

"This is a very exciting time and a real opportunity for operators" commented Snead.

Delta Partners is however also keen to stress that ICT managed services warrant new capabilities and a different business culture to that which is typically found within the traditional telecoms industry and whilst incremental revenue growth can be achieved, operating margins can suffer.

"Venturing into the ICT services sector requires a significant shift in focus from the traditional telecoms business, particularly as operators move towards the pure IT-end of the value chain. Operators should therefore consider their approach carefully. This is not a one-size-fits-all market, as demonstrated in Europe, where only some operators have created positive shareholder value," added Snead.

"Some telecommunications operators have begun to realize this potential and have embarked on developing partnerships and strategic alliances to further enhance their range solutions offerings. Partnering is definitely a positive move, but not a panacea for all requirements; therefore we believe that operators need to have a clear view on when to partner, when to buy and when to build internally. Most will require a blend of all three" added Snead.

The situation for the incumbent operators is, as always, different to that of the challenger.

For some incumbents, the relative lack of competition at the access layer affords an opportunity to expand down the value chain towards IT services without the immediate threat of traditional connectivity disintermediation.

Alternative access technologies are less effective for Enterprise services, while digging new ducts for independent fiber access takes time.

The implication is that some local incumbents can benefit from the opportunity of the ICT revolution without necessarily experiencing an immediate threat, especially when compared to their western counterparts.

This will however, inevitably change in time.

For those incumbents facing intensifying competition, they need to respond quickly to avoid heavy losses of traditional revenues.