While 2008 was a horrible year for most communications, technology, and media (CMT) firms worldwide, many Middle East and Africa players – including Etisalat and Orascom,– demonstrated above average performance in Oliver Wyman’s Shareholder Performance Index (SPI). Among all regions, the Middle East and Africa, along with Latin America, posted the highest SPI – both with a regional average of 203, almost twice the CMT total average of 107. The calculation of the SPI, which is based on a five-year moving “window” of data, enables consistent comparison of shareholder returns by adjusting for the volatility of returns, differences in local interest rates, and mergers and acquisitions.
CMT firms around the globe collectively shed $3.1 trillion in market value in 2008, a 43% drop from $7.3 trillion to $4.2 trillion – erasing all the gains that had been made since 2003, according to Oliver Wyman’s second annual Communications, Media and Technology State of the Industry 2009 report. The report analyzes the top publicly quoted 450 companies worldwide in the CMT industries, and highlights several forward-looking and dynamic, long-term trends amongst industries in the Middle East.
“A handful of companies were able to navigate the rough economic waters and post outstanding performance in Oliver Wyman’s SPI. Mobile carriers in particular, are clearly gaining value at an exponential rate, and one prime example of the shift is the emergence of telecom powerhouses in the Middle East and Africa,” said Milan Sallaba, Dubai-based Partner of Oliver Wyman. “Our research shows that some consumer segments in this region are leapfrogging regular mobile phones in favor of smartphones, and here subscriptions on a 3G network now account for half of total mobile subscriptions.”
Sallaba added that Internet access via computers also contributed to the wireless Internet growth and the growth rate of laptop sales in the Middle East and Africa is now 10 times higher than for traditional PCs.
The report also highlighted that although there is still ample room for growth in emerging markets, many of the remaining unserved customers live in remote, rural regions that are difficult and expensive to reach. Thus, smart players are beginning to look for second generation value-creation opportunities, such as differentiated products and services for increasingly sophisticated consumers, services and support for business customers, reverse expansion into new markets, both close to home and in the developed world.
“We’ve seen many emerging-market players who have honed their offerings to appeal to low-income consumers, and they may prove very competitive with today’s frugal consumers. Once they’ve established a position, they might be able to adjust their offerings to attract high-end consumers as well,” added Sallaba.
“Playing defense, by reducing costs to protect your profit margins, doesn’t mean you can’t play offense as well, and that’s largely what distinguishes the top performers. So as geographic and sector boundaries blur, large companies that are flush with cash have the opportunity to redefine themselves through acquisitions, relocated plants, and other strategic moves. An economic crisis is also an opportunity for companies with strong balance sheets to make smart investments.”
Telecom
Telecom companies (which include the fixed, mobile, and cable sub-sectors) from emerging markets navigated the rough economic waters far better than their peers in developed markets, and they are starting to expand outside their home turf, according to Oliver Wyman’s 2009 Communications, Media, and Technology State of the Industry Report.
Mobile carriers in emerging markets have built significant value in the past few years., as demonstrated by the emergence of telecom powerhouses in the Middle East and Africa. Often building from very small home markets, the top telecom players in the Middle East and Africa had created a combined market value of almost $100 billion at year-end 2008, lead by South Africa’s MTN Group at $21.9 billion, Morocco’s Maroc Telecom at $16.8 billion, and the UAE’s Etisalat at $16.2 billion; all three are above-average SPI performers, as is Egypt’s Orascom. (1).
Among regions, China, Latin America, and the Middle East and Africa posted the highest average communications SPI scores, at 237, 209, and 201, respectively, versus the overall communications average of 174. Continued demand growth in emerging markets has fueled strong SPI scores in those markets, despite the losses suffered in 2008. Weaker performances were posted by the U.S. and Canada (138) and Western Europe (157).
Kuwaiti telecoms firm Zain is highlighted in the report as an example of operation excellence, demonstrating how customer-centric product offerings can increase sales and revenues in a saturated market. Zain, which since 2003 has expanded and grown from a single operation in Kuwait to 22 countries across the Middle East and Africa, now serves close to 60 million customers. While the Kuwaiti operation today contributes just 3% of overall subscribers, it generates about 20% of group revenues and 50% of net profits (as of the first half of 2008). As a result, Kuwait remains a key asset in the portfolio, and Zain actively seeks to defend its position in that market.
Another emerging-market player that has moved into developed markets is Egypt-based mobile networks operator Orascom Telecom Holding (OTH). After successfully expanding in the Middle East, Africa, and South Asia, Orascom acquired enough strength and experience to acquire operations in Italy and Greece, and plans to launch an operation in Canada.
OTH has about 80 million subscribers in the Middle East, Africa, and South Asia. Orascom has operated mobile networks in Egypt, Pakistan, Bangladesh, Algeria, Tunisia, and North Korea, after an initial joint venture with France Telecom in Egypt in the early 2000s. OTH, as both a public and family-run business, is operating with a unique governance and operating model.
Technology
The technology sector includes the communications hardware, computer services, consumer electronics, hardware, semiconductors, and software sub-sectors. Of these sub-sectors, consumer electronics was hit the hardest in 2008, with a 49% drop in market value, followed by a 48% drop in hardware and semiconductors,– declines more pronounced than those in most broad public markets.
Between 20 and 25% of the world’s population uses the Internet, more than double the penetration rate of just five years ago. Users increasingly access the Internet through mobile devices. A review of Q1 2008 data for leading telecommunications firms in 57 countries shows that more than half of their $8 billion in monthly data revenues comes from wireless Internet access plans, up from 40% a year ago. Through wireless and Wi-Fi networks and data cards, users can connect via laptops or netbooks; largely as a result, global laptop sales are growing at around three times the rate of traditional PCs. Laptop sales now account for 40% of all PCs sold. The growth is even more dramatic in emerging markets: In Latin America, laptop sales have been growing at a CAGR of around 50% for the past three years; in the Middle East and Africa, their growth rate is 10 times that of traditional computers. (2)
As telecommunications firms deploy 3G networks, consumers are also accessing the Internet through smartphones, which now make up an estimated 15% of global cell phone sales, up from 3% in 2004. Smartphone shipments grew from 16 million in 2004 to 120 million in 2008, and through the first half of 2008, grew more than three times the rate of regular cell-phone shipments. Oliver Wyman research shows that consumers in emerging markets are leapfrogging regular mobile phones in favor of smartphones in startling numbers. Further growth is likely: In the Middle East and Africa, subscriptions on a 3G network now account for half of total mobile subscriptions.
Many of the best-performing technology companies are deriving more of their revenues from businesses outside of what made them successful in the first place – including Apple in the music business and Google in the operating-system business - according to the report.
Geographic boundaries also are blurring, and an increasing number of companies that have cut their teeth in emerging markets now see opportunities outside their country and region, although they may not be household names there.
Among technology firms, Apple took top SPI honors, at 381, outperforming the average technology score of 82 more than fourfold. Nintendo took the No. 2 spot for SPI performance (350), while ANSYS, a U.S.-based engineering software firm, posted an SPI of 317. Notable new entrants to the top 20 SPI list for all of CMT include HTC, the Taiwanese mobile-device manufacturer, which ranked No. 10 overall.
Media
Traditional media businesses are dropping like dinosaurs, yet new media companies are not recouping all of that lost value, according to Oliver Wyman’s 2009 State of the Industry Report. Instead, market value is flowing to other sectors.
In 2008 the sector lost 47% of its market value, to $409 billion, a steeper decline than most broad stock markets.
Over the period 2003 through 2008, some value shifted from traditional to new media - but the absolute loss in traditional media was not offset by the absolute gains in new media. Traditional media - including media agencies, publishing, and broadcast and entertainment - lost 32% of its market value, or $137 billion, while new media (online content and services) gained 102% or $58 billion.
By contrast, the mobile communications sector gained in share of total CMT market value, in part because consumers are more willing to view content on mobile devices, and because telecoms operators have developed business models that offer content as a loss-leader in order to generate healthy margins on subscriptions.
“Media companies risk becoming add-ons to the telecoms players’ plans,” said Sallaba “They face the challenge of better understanding what consumers actually want and will pay for, as well as finding new areas of growth in emerging markets and through online advertising models.”
The top three SPI media performers were Tencent Holdings of Hong Kong (No. 1 among all CMT companies), Naspers of South Africa, and NHN of South Korea.
About Oliver Wyman
With more than 2,900 professionals in over 40 cities around the globe, Oliver Wyman is an international management consulting firm that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, organizational transformation, and leadership development. The firm helps clients optimize their businesses, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is part of Marsh & McLennan Companies [NYSE: MMC]. For more information, visit www.oliverwyman.com.
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Notes to Editors
Telecom Powerhouses in the
1: Telecom Powerhouses in the Middle East and Africa
Africa
Name 2008 SPI SPI 2008 market value
Rank ($ billions)
1 MTN Group 337 16 21.9
2 Maroc Telecom 365 8 16.8
3 Etisalat 165 123 16.2
4 Zain 105 222 14.1
5 Telkom 210 78 6.4
6 Orascom Telecom 214 73 5.7
7 Telecom Egypt 59 318 5.0
8 Qtel 90 254 4.4
9 BEZEQ 241 49 4.3
10 Mobinil 227 58 2.7
Source: Datastream, Oliver Wyman analysis. 31st of December 2008
2: Gartner Dataquest Forecast: PC Installed Base, Worldwide, 2004-2012
