Booz & Company

Beirut, April 16, 2009

Conference Presentation

Growth in the Recession

Challenges and Opportunities for the Telecom Sector

This document is confidential and is intended solely for

the use and information of the client to whom it is addressed.

The world is experiencing a far-reaching recession

Comparative Growth Rates
Real GDP Change p.a. (%)
%
North Africa
Asia &
Australasia
Gulf
Eastern Europe
Latin America
G10
EU15

Note:

Gulf includes GCC countries and Yemen

Booz & Company

16 April 2009

However, emerging markets, including the Middle

East, continue to promise sustained economic growth
GDP Growth Projections, 2009-2010
%
2009
Old Forecast

2010
New Forecast

Old Forecast

New Forecast

2.2

0.5

3.8

3.0

-0.3

-2.0

1.6

1.1

5.1

3.3

6.2

5.0

Africa

4.8

3.4

5.4

4.9

Central and Eastern Europe

2.2

-0.4

3.8

2.5

CIS

3.2

-0.4

4.5

2.2

Developing Asia

7.1

5.5

8.0

6.9

Middle East

5.4

3.9

5.3

4.7

Western Hemisphere

2.5

1.1

4.0

3.0

World Output
Advanced Economies
Emerging and Developing Economies

Note:

Advanced Economies includes US, Euro Area, Japan, UK, Canada and Other Advanced Economies
Developing Asia includes China, India and the five ASEAN countries
Western Hemisphere includes Brazil and Mexico
Source: World Economic Outlook Update, January 2009
Booz & Company
16 April 2009

Telecom services growth has proven resilient in

economic downturns, especially in growing emerging
markets
Global Telecom Service Revenues
Telecom Resilience Drivers
(1997 - 2003) (USD Billion)

2001 downturn

Developed
Markets

Emerging
Markets

1997

1998

1999

2000

2001

2002

Essential service for users

Relatively small percentage

of disposable income

Nascent market stage with

continued exponential growth
momentum

Coverage expansion in
under- penetrated regions

2003

Source: ITU
Booz & Company
16 April 2009

 as telecom services are becoming essential for

consumers
Expected Cut in Consumer Spending during
an Economic Downturn
(2008) (%)

Luxury goods

Travel

Entertainment

Electronics

Household goods

Clothing

Rationale and Evidence

Voice remains an essential service
Broadband access is increasingly
becoming important for consumers
E.g. European Commission is
considering a universal service
obligation (USO) on broadband
access
Telecommunications services
become more critical during a
recessions; e.g.:
Less travel and face-to-face
meetings
Less social activities leading to
more calls and home
entertainment (IPTV, internet
browsing, etc.)

Essential Basics

Source: Business Week, Booz & Company Survey 2008, Booz & Company analysis
Booz & Company
16 April 2009

Telecom plays a key role in enabling other sectors

and is thus important for driving overall GDP growth
during
this recession
Telecom Industry Enabling Role
Contributions to GDP Growth
Average Annual Growth in %, 1985-2006
Sector

Applications - Examples

Labor Input

%
Healthcare

Government

Telemedicine
Health services research
Online monitoring
e-Public services
National backbone ICT
infrastructure

ICT Capital

3,5

Non-ICT Capital

3,0

Multi-Factor Productivity

2,5
2,0

Aviation

Ticketing systems
Routing systems
Aerospace research

1,5

Logistics

RFID and NFC apps

Broadcasting
Logistics IT applications

0,5

Education

e-Learning
Virtual university
Content management

Defense

Simulation systems
Remote intel gathering
GPS

1,0

0,0
-0,5
Germany Australia Canada

Japan

UK

US

ICT accounts for majority of capital's contribution to GDP

growth

Note:
ICT related capital includes hardware, communication and software
Source: OECD Factbook 2008, Booz & Company analysis
Booz & Company
16 April 2009

Governments see the national broadband

infrastructure and a key driver for growth out of the
recession
National Broadband Networks - Government Investments
[We] need action and action now. That is why I have asked my economic team
to develop an economic recovery plan that will help save or create at least two
and a half million jobs, while rebuilding our infrastructure As we renew our
schools and highways, well also renew our information superhighway because
thats how well strengthen Americas competitiveness in the world.

Barack Obama,
Radio Address on the Economy1)

When we talk about the roads and the bridges and the railways that were built in
previous times - and those were anti-recession measures taken to help people through
difficult times - you could [by comparison] talk about the digital infrastructure and that
form of communications revolution at a period when we want to stimulate the economy.
It's a very important thing

Rationale
Policymakers in the US,
UK, Korea, Germany,
Spain, and Portugal are
looking at channeling
investments in Next
Generation Broadband
Networks to
create new jobs
support new businesses
stimulate investment

Gordon Brown,
The Observer Interview2)
1)
2)

http://change.gov/newsroom/entry/the_key_parts_of_the_jobs_plan/
http://www.guardian.co.uk/politics/2009/jan/04/gordon-brown-employment-new-deal

Booz & Company

16 April 2009

However, Government ownership in national

incumbents may create inefficiencies in operations
Government Ownership - Impact
Impact of Ownership on
Efficiency (2006)

Regional Incumbents (2008)

As the telecom sector develops, there is a lower need for the

government to remain directly involved

Other
Drivers

Changing demographic structure drive governments to free up funds to

invest in social welfare projects
Reducing ownership increases private investment attractiveness
Reducing ownership eases pressure international trade commitments

* Jordan Telecom excluded due to its recent rapid privatization and accompanying restrictions on labor cut-backs
Source: ITU 2005. Epsicom, Operator Annual Reports
Booz & Company
16 April 2009

MENA telecom liberalization has led to a rapid

increase in the number of operators, particularly in
the mobile sector
Number of Mobile Operators in the MENA Region
(2000 - 2008)

2000

2001

2002

2003

2004

2005

2006

2007

2008

Source: Global Insight, Booz & Company analysis

Booz & Company
16 April 2009

 resulting in strong market growth

MENA Telecom Market Overview
MENA Telecom Subscribers

MENA Telecom Revenues

(Million) (2004 - 2008)

(USD Billion) (2004 - 2008)

+27%
168.5
128.7
87.4

217.2
24%

227.0

+16%

Broadband

21%

Fixed

79%

Mobile

28%

35%
76%

43%

71%
64%

57%
2004

2005

2006

2007

2008

2004

2005

2006

2007

2008

Note:
Telecom revenues are estimates
Source: Informa, Global Insight, Booz & Company analysis
Booz & Company
16 April 2009

10

The MENA region can be divided into three subregional clusters, each with its unique characteristics
Overview of Sub-Regional Clusters in the MENA Region
North Africa

Levant and Egypt

Gulf

28.496

8.755
4.644
Population (Million)

GDP/Capita (USD)

Mobile Penetration

ARPU (USD/Month)

Number of Mobile Players

Note: All numbers are 2008

Source: Informa, EIU, CIA World Fact book, Booz & Company analysis
Booz & Company
16 April 2009

11

Market level competition is intensifying in most

markets, but lags in others
Competitive Activity of Sub-Regional Clusters in the MENA Region
(2008)

Legend:

< 3 Mobile Players

3 Mobile Players

> 3 Mobile Players

Source: Informa, Booz & Company analysis

Booz & Company
16 April 2009

12

 while cross border competition is becoming

increasingly dominant
International Footprints and Revenues of Selected Regional Players
(2008)
Zain International Footprint

Etisalat International Footprint

81% of
revenues from
international
Operations

STC International Footprint

Batelco International Footprint

22% of
revenues from
international
Operations

Booz & Company

16 April 2009

12% of
revenues from
international
Operations

30% of
revenues from
international
Operations

Qtel International Footprint

73% of
revenues from
international
Operations

Orascom International Footprint

83% of
revenues from
international
Operations

13

This is leading to the emergence of true global

players in the MENA region
Number of MENA Telecom Service Providers by Class
8
7

MVNO

Emerging
Global
Operators

Local
Incumbents

4
3
2

Niche
Operators

Regional
Operators
Description Operators with
several assets
within the
MENA region

Operators with
one telecom
asset

Expatriate
Operators

Typically part
of large
Western
European
group

Operators that
dont own
physical
network

Emerging global
telecoms with
assets spanning
multiple clusters

Mainly stateowned
operators that
have not
expanded their
footprint

Source: Global Insight, Booz & Company analysis

Booz & Company
16 April 2009

14

Lessons from advanced markets indicate that local

incumbents tend to disappear in time and
global/regionalMENA
players
dominate
and Europe Subscriber
Market Share by Class
MENA Market Share By Service Provider Class

Europe Market Share by Service Provider Class

(%) (2009)

(%) (2009)

Niche MVNO
2%

Niche MVNO
Local
Incumbent

2%
0%

Regional
17%

Regional 7%

71%
Global

77%
Global

Source: Global Insight, Merrill Lynch Matrix, Booz & Company analysis
Booz & Company
16 April 2009

15

Being part of a global or regional network helps

operators success against competition and serve
Non-Exhaustive
their customers appropriately
Potential Sources of Synergies
Leverage best practices and
knowledge sharing across the
organization

Align corporate strategy across

operations and unify corporate
brand image

Leverage intensity of traffic across

the footprint

Capacity
Building and
Know-how
Transfer

Corporate
Strategy
Unification

Roaming
Management

Synergy
Sources
Procurement
Consolidation
Shared
Services
Consolidation

Consolidate and streamline

purchasing activities across
operations

Consolidate other shared services with the

organization and streamline processes
across operations
Booz & Company
16 April 2009

16

As a result, the CEO agenda in the MENA region today

is beginning to resemble that of emerging markets
three years CEO
ago
Agenda - Advanced Markets (2005)
CEO Agenda - Middle East (Today)
1

International
Expansion

"This purchase (Vodafone Sweden) will improve our

economic scale in the Nordic region,
EVP, Telenor, 2005

This transaction will help us achieve our ambition

to become the undisputed leader in the region."
Chairman, STC, 2008

Service
Sophistication

Continued portfolio extension through tariff and

product innovation
CEO, Telefonica, 2005

Each package has its own unique advantage in

terms of pricing and services"
CEO, Omantel, 2008

Roaming
Agreements

Our strategic partnership with America Movil

significantly increases our roaming footprint
CEO, Vodafone, 2005

The partnership with Vodafone will enable du to join

the worlds largest international mobile network
CEO, du, 2009

Infrastructure
Investment

We intend to seed 3G among the masseslook

forward to more content and services.
CEO, SingTel, 2005

The launch of 3.5G rounds off the year in

spectacular fashion
CEO, Batelco, 2008

Horizontal
Integration

The partnership between Microsoft and FT promises

customers a New Experience in Telecommunications
CEO, France Telecom, 2005

Establishing a company for content reflects STCs

quest to launch value-added services
CEO, STC, 2008

Booz & Company

16 April 2009

17

In summary
The telecom sector is less vulnerable to the global recession than other sectors
The sector is seen as a driver of the economy and therefore policy makers are driving investments
and reform more than ever before
Support broadband infrastructure deployment
Encourage investments
Reduce Government ownership while increasing government support
The region continues to experience growth as liberalization advances, however lags behind in
some countries where liberalization is necessary
We will see single market operators being subject to failure as globalization pcks up pace
Being part of a global or regional group is a must for long term success
The gap between the Middle East region and Europe is narrowing, however some countries need
to play significant catch up in order to reach this level

Booz & Company

16 April 2009

18