To expand or not to expand, that is the question

Half of the world’s population will be using mobile devices to access the internet by 2020. It is calculated that there were 2.2 billion mobile internet subscribers in 2013, representing approximately 30 per cent of the global population. GSMA Intelligence forecasts that an additional To Expand or not1.6 billion citizens worldwide will become mobile internet users over the next six years, bringing the total number to 3.8 billion, or around half of the world’s expected population in 2020…

Almost all of the additional mobile internet users expected over the next six years will come from the developing world. The number of mobile internet users in the developing world will double from 1.5 billion in 2013 to 3 billion by 2020, rising from 25 per cent of the developing world population to 45 per cent over the period. In Sub-Saharan Africa, just 17 per cent of the population were mobile internet subscribers in 2013, but penetration is forecast to increase to 37 per cent by 2020. Source: GSMA Intelligence

It has been a tough few weeks on the stock market with investors getting very nervous about their overseas investments. The Chinese stock market has seen its biggest crash since the financial crisis in 2008 and has dropped by as much as 8.5% in a day. The newspapers were filled with alarming headlines warning us that the financial crisis of 2008 would be “only a drop in the ocean” compared to the current crisis. The markets have, however, begun to settle down and investments are stabilising. The recent volatility has led me to think about the future of telecoms and overseas expansion.

Much talk in the telecoms sector has been focused about consolidation and right-sizing and the appetite for expansion and growth has been waning and strategic retreat has become commonplace. Back in February, Telefonica’s CEO, Cesar Alierta told investors on a conference call that he has no plans to enter new markets in Latin America and he stated that the telco is “not planning to launch operations in Bolivia, Honduras and Paraguay.” Alierta reaffirmed that Telefonica will focus on the consolidations of the markets where it currently has presence. The question has to be asked, are the telcos missing a trick by not investing in high growth emerging markets?

The GSMA’s Intelligence forecasts that an “an additional 1.6 billion citizens worldwide will become mobile internet users over the next six years” which is around half of the worlds expected population in 2020 and the majority of these will come from the developing world. Whilst some of these may well be in territories where some major telcos such as Telefonica are already established many of them are not, which clearly opens the door to new investments and revenues to be made. Moreover the latest buoyant forecast only talks about the opportunity for connecting half of the world’s population… what about the other half? Surely it is better to enter new markets now, and grab a foothold which will enable further expansion?

The picture is not entirely rosy and as we know, there are of course many challenges with expansion and a lot of associated costs. Many telcos have had their fingers burnt, expanding too quickly in unregulated markets, paying too much for spectrum and overspending in the initial layout of infrastructure and seeing poor ROI especially in developing continents such as Africa and Latin America. There are also very few markets left which have little or no competition and a fully undeveloped telecoms market. One of the last of these – Myanmar has just been opened up with Norway’s Telenor and Qatar’s Ooredoo winning the first international operator licences.

Recent successes have been made with expansion and one only has to look across to the UAE and look at the fantastic success Etisalat has had with its overseas investments and service expansion. Once a small regional player Etisalat has seen raid expansion - now operating in fifteen countries across Asia, Middle East and Africa with a customer base of over 150 million subscribers. The Financial Times has ranked Etisalat as 140/500 top companies in the world. So what is the success behind the expansion of Etisalat and can it be emulated? In my opinion, absolutely and they key to Etisalat’s success is that it understands its customer! Etisalat operates and expands across a market it culturally knows very well and has launched content rich services aimed at the Muslim and Arabic world. Orange has also been successful taking this approach through its expansion across Africa from once serving the African francophone market is now a truly pan-African operator offering specialised regional services such as Orange Money – tapping into the lucrative “banking the unbanked” market. Whilst providing financial services has so far proved to be a huge success in developing markets, new services such as mHealth, mAgriculture and mEducation will pave the way for future growth and will become another lucrative opportunity.

So yet again the mantras – “know your customer” and “serve your customer” prove true and you can never underestimate the value of customer knowledge. This is of course not only applicable to expanding into new territories. Whilst the opportunity for expansion is certainly there, the appetite amongst many service providers may not be strong, but the same principals apply for operators to reduce churn, increase market share as well as to launch new services in the markets they currently operate in. Whilst the majority of this blog has focused on the potential for expansion in emerging markets, the same principals can be applied to the developed world. By delivering outstanding customer experience and by utilising and harassing big data correctly, service providers can move away from data and voice services and capitalise not only on the $7.1 trillion IoT market but also the $50.8B enterprise market.

To answer the question and to sound rather Shakespearean “to expand or not to expand” the answer has to undoubtedly be yes. Despite the current market challenges the opportunities far outweighs the challenges. The chance to connect the unconnected and offer new services in developing markets is one that I would certainly grab with both hands. The key to success is as shown in the case studies with Etisalat and Orange. Know your customer and know your market. Knowledge of your customer and harnessing consumer data will allow you to offer new innovative services and grab a larger piece of the market share and will allow you to continue to improve your market offering. If geographical expansion doesn’t arose your appetite, then vertical expansion surely will. This is not the time to sit back. Operators must continue to invest, expand and innovate to ensure long term growth and success. Now is the time to sow the seeds for the future.