Over-the-Top Services and Increasing Smart Device Penetration Set to Shape MEA Consumer Telecommunications Landscape in 2014, Says IDC
14 Jan 2014
International Data Corporation (IDC) today announced its annual predictions for the Middle East and Africa consumer telecommunications and media services market in 2014. IDC predicts that changing customer preferences, the growing usage of applications, rising smart device penetration, and the increasing prominence of over-the-top (OTT) services will continue to transform services and business models. The rise of the Internet economy, supported by improving data services, especially mobile services, is blurring the line between traditional telecommunications services and digital media services.
"As markets continue to evolve, more customers are eschewing core telecommunications services in favor of rich OTT services," says Paul Black, director of telecommunications and media at IDC Middle East, Africa, and Turkey. "This is forcing regional operators to reevaluate their business models, data offerings, tariff packages, and even network rollout plans, as well as go-to-market strategies. While traditional services are still offered, operators are expanding their role in the digital value chain by promoting local content generation and application development. Operators are also looking at adjacent markets and exploring new digital services opportunities."
"For digital media providers and OTT players," Black continues, "the changing market dynamics provide unique opportunities to establish direct relationships with end users. However, the business models are still evolving, and the ability to pay for these services, despite their growing usage, remains low throughout the Middle East and Africa (MEA). In this scenario, the importance of partnerships between telcos, content providers, OTT players, and digital media companies is growing."
IDC's Middle East and Africa Consumer Telecommunications and Media Services Top 10 Predictions for 2014, as presented today in a Webinar by Bhanu Chaddha, senior research analyst for telecommunications and media at IDC Middle East, Africa, and Turkey, comprise the following:
- The Exponential Increase in Mobile Data Will Force Operators to Rethink Their Network and Data Service Strategies. Mobile data services have continued to gain prominence in the business models of MEA operators. Those in the Middle East have remained at the forefront of technological development and invested heavily in building ubiquitous next-generation networks. Operators in Africa, however, have taken a more cautious approach, with sporadic network evolution centered on highly populous areas and major commercial centers. In 2014, mobile data will remain a cash cow for regional telcos. However, the growing popularity of data-hungry applications and services, particularly video, will contribute to an exponential increase in data traffic and make network investment economics difficult to justify.
- The Progressive Regulatory Environment Will Stimulate Competition. Telecommunications markets in MEA have expanded significantly over the last decade, backed by progressive regulatory environments and conscious efforts by the regulatory authorities to stimulate competition. The first era of market liberalization was marked by the opening of mobile markets to new operators, followed by progressive reforms to introduce new services (e.g., 3G) and/or the opening up of markets to competitors. Having done this, regional regulators will strive to improve the market dynamics in 2014, accelerating the development of new services in addition to increasing competition. Regulators can approach this in three primary ways: by introducing mobile number portability; by opening markets to mobile virtual network operators (MVNOs); and by releasing spectrum for next-generation 3G/LTE networks.
- Operator Media Transformation Will Continue; Acquisitions Are on the Cards. Due to the high mobile penetration levels, operators in the markets of the Gulf Cooperation Council (GCC) are looking to add new capabilities and diversify not just into international markets, but also into new business streams (e.g., ICT and digital media services) in which the potential for growth is higher. As operators gain control of content and content delivery, they are able to boost the uptake of their data services, which means additional revenues. In 2014, operators will move beyond merely setting up businesses to forming clear strategies to help them play a broader role in the digital economy. One obvious solution for entering into the digital space is the greenfield approach, in which operators build a new business organization. However, it is time consuming, and, at times, players miss the boat while waiting for the new organization to become operational. An inorganic alternative is to acquire other stakeholders in the value chain. IDC believes operators will aim to acquire content aggregators and platform developers in order to maximize their share of the communications and media market.
- Service Evolution Will Force Operators to Rethink Their Strategies and Recognize the Importance of the Customer Experience. As the usage of smartphones and mobile social media is growing rapidly in the MEA region, marketers are more cognizant of consumers' locations and preferences. Many organizations will explore ways to work closely with operators, media companies, and app developers to create targeted marketing practices in the region, which will prove to be a win-win situation for all involved. Telecommunications services are evolving as social media, multiscreen offerings, mobile applications, and OTT services increasingly influence consumer behavior. It is imperative for operators to understand consumer behavior and push products and services in line with their expectations. This will eventually help operators to counter declining service engagement cycles and improve customer experience.
- The Focus Will Shift to Designing Smartphones that Balance Price and Performance. IDC expects competition to intensify between traditional smartphone vendors and emerging players, particularly in Africa. Smartphone penetration in the region will continue to rise as consumers demand Internet access everywhere. Samsung and other established smartphone vendors will battle to maintain their large African market shares as new players (e.g., Techno and Huawei) provide similar smartphone offerings at a lower cost. These new smartphone vendors are already increasing their distribution networks to capture emerging markets with a relatively less affluent population in the MEA region. Other Asian vendors, including Micromax, Intex, and QMobile, have also made plans to target Africa with their new smartphone models. As the cost of producing smartphones decreases, prices are expected to drop even more in 2014, resulting in a wide range of low-cost devices, some even priced below $50.
- Mobile Payments Will Pass Their Growth-Rate Peak in Africa, But the Rate Will Continue to Rise in the Middle East. Mobile money is the most popular form of money transfer and payment in some African countries. In Kenya, Safaricom's M-Pesa and MTN's Mobile Money are revolutionary products that have transformed the lives of many people, especially those living in rural areas. It is imperative to note that one-third of Safaricom's revenue comes from M-Pesa. IDC predicts that growth in mobile money transactions such as M-Pesa will slow in Africa due to regulatory inhibitors and the lack of maturity of these services. Recent legislation introduced a 10% excise duty on money transfer services in Kenya. This excise tax will have a minimal effect on low-end transactions; with high-value transactions affected the most. Innovative products such as M-Shwari, a new banking product for M-PESA customers that enables the user to deposit and borrow money via mobile phone and earn interest on the deposits made, will continue to spur mobile money growth on the African continent. In the Middle East, mobile money uptake has been slow. The primary reason attributed to this is the widespread availability of banking infrastructure, with banks and ATMs accessible in all areas. However, telecommunications operators are increasing their participation in the mobile money field, with dedicated products focused on remittances and other payments.
- Nigeria and South Africa Will Fall from Favor. Historically, Nigeria and South Africa have been two of the most lucrative markets for companies looking to enter Africa. Nigeria has been favored for its high growth potential, while South Africa has been considered to have a sound and effective business environment. However, Nigeria is plagued by numerous challenges, including poor infrastructure (which often results in very high operating costs in the country) and ineffective private and public business systems, which combine to create a very challenging operating environment. Those players that have braved the market, including MTN and Airtel, are starting to feel the effects of operating in this environment. Although the costs of doing business in Nigeria continue to rise, the government requires lower costs for foreign businesses operating in the country, as well as high service quality, which is particularly problematic for telcos given the government's refusal to release the spectrum required to improve services. The current political instability creates additional market complexities. South Africa, on the other hand, is more of an unregulated oligopoly, and operators entering the market after 2005 have struggled. In IDC's opinion, they will continue to struggle to gain a notable foothold in the market, and there is no evidence to suggest that the status quo will change notably in the short term.
- Operators Will Play a Broader Role in the Application Development Ecosystem. Globally, telecommunications operators are naturally well placed to target the opportunities offered by mobile apps due to their strong brands, established relationships with customers, ability to understand specific customer requirements in local markets, and capability to integrate billing. However, not many mobile operators in the MEA region have been able to capitalize on these opportunities. This is due to strong competition from the app stores of mobile platform developers, OEMs, and OTT players; the limited choice of applications from mobile operators; very limited differentiation between operators; and the very few locally relevant and Arabic-language apps that operators offer. STC, Etisalat, MTN, Safaricom, Vodacom, and Mobily, among others, have launched their own app stores, but the success of these stores has yet to be validated. Telecommunications operators are also looking to use the app stores of platform developers and OTT players as a means of extending the reach of their customer services.
- Digital Disruption Will Offer Opportunities and Challenges. The digital revolution has disrupted many industries, including music and entertainment. Markets in the MEA region have not been oblivious to the growing popularity of digital services (e.g., OTT video and IP messaging). However, monetizing digital opportunities and ensuring long-term end-user engagement will remain a challenge in 2014 and beyond for digital media players, as well as for telecommunications operators, as they continue to explore new revenue streams to justify large infrastructure investments. Developing, emulating, or partnering for OTT services, as well as exploring digital opportunities in adjacent markets (particularly business-to-business-to-consumer [B2B2C] services that leverage Internet of Things [IoT] technologies such as smart utilities and smart cars), will remain top priorities for telcos in 2014 and beyond. Furthermore, the development of the digital ecosystem itself, backed by the proliferation of smart devices and the availability of anytime/anywhere connectivity will continue to motivate many startup companies to seek opportunities in this sphere, either independently or in partnership with a telco.
- The Regional OTT Market Will Evolve, and Business Models Will Become Clear. Although OTT services continue to gain popularity, the ability to pay for these services remains low throughout the MEA region. In recent years, the different business models (e.g., freemium, premium, and pay-per-use) tried by various telecommunications operators and media companies have created only limited interest in the market. IDC expects this scenario to change in 2014 as stakeholders take a combined approach while clearly defining their roles in developing and delivering OTT services. The inherent limitations of existing OTT business that have hampered their uptake and impacted monetization efforts will be removed as the market matures and partnerships thrive. Currently, most OTT services are positioned as extensions of native services, available only to existing subscribers. However, this trend is changing fast. In defining an OTT strategy, regional telcos will have to decide whether they will compete with current OTT providers or collaborate with them. These telcos will continue to align business models to gain maximum benefits and focus on partnerships. A number of partnerships with OTT providers currently thrive in the region, including Mobily and Nawras (Oman), Airtel Nigeria and WhatsApp (Nigeria), STC and Viva (Bahrain), and Etisalat and Facebook (Eygpt). These partnerships will continue to gain prominence, as they can help operators to reduce the long service innovation cycle and significantly reduce the risk associated with failing to emulate OTT services successfully.
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