A major growth opportunityDigitization in the MENA region repŽresents immense potential for telecommunications companies. In fact, Booz & Company estimates that the market for digital services in the region will reach $35bn by 2015; and so, properly prepared MENA telecom operators will be well placed to meet this growing demand.
"The advance of digitization is already evident throughout the region," explained Bahjat El-Darwiche, a Partner with Booz & Company. "In recent years, the fiber infrastructure that provides the backbone of digitiŽzation has been extensively deployed, particularly in the resource-rich countries of the Gulf Cooperation Council (GCC)."
Concurrently, the MENA region's predominantly young population and the growing availability of smart devices and applications are driving customer demand for all things digital across four principal market segments:
• Consumers: Every day, there are 36,000 new Facebook subscribŽers in the MENA region and an ever-growing population of digital consumers that are quickly coming to expect access to a broad array of digital content and services.
• SMEs: The MENA region's SMEs are adopting digital technologies and services to manage their primary operational challenges: anemic cash flow and the lack of in-house IT skills.
• Large enterprises: Digitization is transforming the business models of large enterprises in the MENA region. In effect, these organizations are increasingly adopting M2M-based solutions and various related industries are also turning to digital services to create competitive advantage in their markets.
• Governments: MENA governments are equally recognizing the longstanding benefits of digitization. Some governments, including those of Qatar, Saudi Arabia, and the UAE, have recently launched large-scale digitization initiatives that are focused on digitizing government operations, extending government services over the Internet, and digiŽtizing public services, such as health, utilities, and transportation.
The Right to PlayWith conventional voice and data revenues stagnating, telecom operaŽtors are seeking new growth opportunities and digital services are an obvious solution - especially given the new market's close positioning to voice and data services and the already high penetration levels of mobile and fixed broadband service in the region.
"There are six adjacent service segŽments that MENA telecom operators can build digital portfolios around: M2M, applications and content, solutions development, cloud computing, systems integraŽtion, and managed services," said Louay Abou Chanab, a Principal with Booz & Company. "These services can be marketed as horizonŽtal platforms that cut across customer segments and/or various industries, or they can be marketed as bundles of services that address specific customer segments and/or industry verticals."
Telecom operators in the MENA region occupy an advantageous posiŽtion in the emerging marketplace for digital services:
• Network infrastructure: Etisalat leverages its nationwide 3G network coverage and partners with Pacific Controls for the development of M2M solutions.
• Customer information: STC uses deep customer insights to dynamically tailor services with attractive promotions targeting customers with specific behavior patterns.
• Integrated offering and single-bill: Etisalat offers its home consumers the eLife triple play package, bundling TV, broadband, and fixed voice services for a monthly subscription discounted by 20 per cent.
• Established customer relationships: Mobily partners with Yesser - Saudi Arabia's e-government program - to provide the enabling infrastructure connecting ministries in order to launch e-government services.
With these assets already in place, MENA telecom operators undoubtedly have the right to play as integrated digital soluŽtions providers.
Key ChallengesAlthough the market for digital services in the MENA region is highly attractive, telecom operators will still have to face myriad challenges.
"They need to develop skills and business models to take advantage of these adjacent digital services opportunities. That also demands that they gain familiarity with the digitization delivery chain," said Jad Hajj, Principal with Booz & Company. "As they enter digital services, these telecom operators will face competition from hardware and software vendors, IT service providers, and Internet players. Finally, they need to engage their business partners collabora-tively in new ways that are different to existing contractual relationships."
Telecom operators that can build complementary capabilities along these areas - in a timely and differentiated fashion - will earn the right to win in the MENA digital services marketplace.
A new capabilities systemMENA telecom operators looking to penetrate the digital marketplace need to determine a value proposition that differentiŽates them from other players. In developed markets, telecom operators that expanded into digital services have typically followed one of two distinctive value proposiŽtions: they either become technology enablers or ecosystem enablers.
"Whether a telecom operator chooses one or the other, it will need specific capabilities in order to win in the marketplace. These capabilities - composed of skills, knowledge, behaviors, processes, structures, and technology - will have to be aligned to create a competitive advantage," said Abou Chanab. "In the digital services market, there are four areas in which differentiating capabiliŽties are commonly located: innovaŽtion, solutions delivery, platforms management, and commercialization expertise. When built in a robust and complementary fashion, they provide the foundations for a telecom operator's success in the digital space."
InnovationIn order to develop digital offerŽings, telecom operators will need to embrace and cultivate market-driven innovation. They will also have to envision new service concepts, create proactive cultures that foster innovaŽtion, and leverage synergies among industry verticals and customer segments. In addition, operators will need to make convincing business cases, align internal support, and obtain funding for their pioneering concepts.
Leading telecom operators know that the ability to innovate is essential to their success, and, today, several MENA telecom operators are already developing their orgaŽnizational capacity for innovation in digital services.
Solutions DeliverySolutions delivery is fundamental to the development of both end-to-end and vertical digital services; it creates the common ground needed to bring together suppliers and sets the stage for operational readiness. The delivery of digital services begins with a detailed description of the features essential to the service from the end user's perspective. Moreover, this descripŽtion also articulates how different functional and business units will work together to deliver an end-to-end service and ensures the compatibility of any new service with a telecom operaŽtor's existing network and IT systems.
"Although MENA telecom operators typically possess a strong capability for creating traditional connectivŽity services, they will likely need to recruit solutions design experts with track records in the development of end-to-end technical services to support their entry into the digital services market", added Hajj. "Some regional players have already begun developing this capability through partnerships".
Platforms ManagementMENA telecom operators that choose to develop a comprehensive digital services portfolio will need to build an end-to-end, horizontal platform through internal development, partnerships, and acquisitions. A well-defined operating model is also essential to ensure that strategic direction, roles and responsibilities, process interfaces, and handoffs are clearly understood by all stakeholders.
Some MENA telecom operators have already begun developing horizontal platforms. And, those unable to build them internally can tap into their strategic investment units for horizontal acquisitions. Telecom operators also need to carefully assess their capability gaps and anaŽlyze their options when making their build, partner, or buy decisions.
Commercialization ExpertiseMENA telecom operators will need strong commercialization expertise to succeed with digital services. Fortunately, commercialization capaŽbilities are relatively well developed among the regional operators for traŽditional telecom services - and most operators have already successfully launched advanced telecom products for the mass market.
Operators providing services to B2B segments may need to build sales teams with vertical expertise that are capable of designing and selling services that address compelling business probŽlems. Furthermore, telecom operators have to be able to integrate digital soluŽtions that will be mass-produced to satisfy the needs of consumers and small businesses, or tailor-made to meet the needs of large businesses, governments, and service providŽers.
"With the markets for core voice and data services reaching saturation, MENA telecom operators need a new growth platform, and the digital services market offers an attracŽtive opportunity. Tomorrow's leading telecom operators will be those that begin pursuing growth potenŽtial in the digital services market today. These operators will ensure a prosperous future by identifying and developing the capability systems within the four areas described - as this will allow them to successfully differentiate themŽselves in the market segments and geographies in which they choose to play", concluded El-Darwiche. "These are the telecom operators that will earn the right to win in the MENA region's fast-emerging digital services marketplace".
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