The coming consolidation in Telecom in South Asia and Asia-Pacific region led by the Telecom, New Media and Consumer Electronics firms is an immense opportunity for many service companies to sell services and service oriented products in the region and a severe threat to those who do not prepare for this - starting right now.
The Why, How and What of it
Large-scale market consolidations in the US have changed the telecom landscape. Certain analysts say the sector has come a full circle - break up of Bell into Baby-Bells and now integration of these companies into super-entities again. While this could be true, there is also the view that the long-term aspect of derived knowledge from the operational difficulties in a segmented market was vital for the sector as a whole to develop business maturity. The diversified market in the US before the mergers and buy-outs of smaller and large sized firms is very similar to operating conditions in still-evolving markets of China and India today. There is a very real possibility that future consolation in the telecom sector is waiting to happen in the Asia Pacific region.
Why a consolidation?
Telecom in the Asia Pacific geographical segment can only go from strength to strength. China is now world's largest telecoms market. There is also strong growth in the demand for services in the Chinese market. The competitive landscape in the Indian market has already pushed the airtime rates to become the lowest in the world. All of the market conditions are poised for the consumer and to increase the subscriber base in the region. For instance, market research firm In-Stat predicts that wireless connections in India will hit the 150 million mark in under five years; this still leaves a huge untapped potential in the more than a billion people strong Indian market. The predicted subscriber base in United States during the same time frame is 196 million and at this point a high level of market saturation has already set in, slowing down growth substantially. Thus, a substantial shift in the net worldwide wireless subscriber base is anticipated. As with any standard increase in the growth - more so considering the rather rapid, sporadic growth that is taking place in the telecom sector in Asia Pacific region - there would have to be consolidation at some point where market drivers would make it economically unviable for smaller, or tier 2 or 3 players, to sustain themselves. This process is already underway in the United States. When this happens in the Asia Pacific region, the change and integration would be on much larger scale.
How is this growth fuelled?
Both China and India were largely closed economies until a few decades ago. Investment in all core sectors were not only regulated by government, but were largely made through planned expenses from government budgets. This meant that investment in the telecoms sector and subsequent increases in the outlay and facilities hinged on a variety of factors – political being the most prominent one. Profitability was definitely not one of the top criteria. When the economies of these Asian giants opened up, China and India were receiving massive investment towards building infrastructure. As the old generation infrastructure was not generally of an acceptable standard of service, which translated to lower profitability, private operators needed massive investment routed to the latest wireless technologies and new-age switches. In a sector where prices of hardware components keep declining this made perfect business sense.
As an indirect consequence of the influx of new technologies, the telecom companies in this region can offer a whole array of services that even mature markets, such as the US and Europe, do not have in full strength. In effect, this means the region is poised for strong growth in hardware as well as services - and with an ever-increasing subscriber base of telecom based services, growth will accelerate. This change will be very visible. For instance, the transition from multi-year waiting periods for the availability of telecoms services to on-demand phone connections in certain regions have taken less than a decade to accomplish in the Indian market. There exists tremendous potential to extend these models to the vast untapped markets in these countries. The sheer size of the Telco markets in these countries has potential to influence the sector across Central and South East Asia.
This market will not diminish any time soon and to add to the positive note in the industry, regulatory actions in these economies vis-à-vis Telecom investment and operations have been largely positive. In an age, where we see a resurgence of ‘Energy Nationalism’ with governments across Latin America, Central Asia and Mid East securing or building walls around investments in energy sector, the recognition that better inbound technology, and consequently foreign investment, is needed to ensure excellence in Telecom sector is in itself crossing a major geopolitical barrier.
What does this mean to Services Firms?
Large-scale consolidation, with hectic M&A activity, would mean that the problems that merging companies would face, in domains of technology, change management, service offerings and market positioning, would in many ways mirror the issues that organization in the United States are presently undergoing. This means that any experience your firm could gather in this space presently could serve as potential experience for the business opportunity in Asia in the later part of this decade. Also, demonstrating core expertise in the kind of problems that come with Telco mergers would make an excellent USP for selling services in this region in future.
In Effect…
There exists an immense opportunity to tap this field in the future. But, intense competition would emerge not only from traditional services firms, but also from firms based in the Asia Pacific region that would have years of operating experience in the region. For instance, in technology consulting sphere - the regional outsourcing firms have made it as a mandate to move up the value chain and are rapidly adding strategy based skill sets to their ranks. In order to make most of this potential business opportunity, the first steps that firms should be taking should be –
• Involve as much as possible in live projects pertaining to strategy, process and technology consulting with the Telecom companies in US that are undergoing the merger and consolidation process now.
• Research and study the issues related to the sector. White papers and market analysis documents of the changing landscape would build the information base to take on the consolidation business opportunity when it becomes available in Asia.
• Build a strong geographic base of operations in the region with a focus on the sector. Understanding the geographical nuances of the region and in particular - understanding the differences between these markets and those of Europe and US are essential to win work and successful execution.
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About the Author
Deepak is a seasoned Consultant with strategy consulting background in both business and technical domains, primarily for Telecommunications and Media verticals, spread evenly across two continents. He shares a keen understanding of operational issues and cultural nuances that face businesses during setting up offshore units or during entry into new markets.
