Industry Thought Leadership

Telco’s Digital Controversy: A Challenge or an Opportunity?

April, 2017
Bushra Omer Alkhalil Altayeb
Business Analysis Manager

Sudatel

As digitization conquers most aspects of the consumer’s daily activities, an imperative for innovation has become deemed necessary, traditional business models need to be disrupted for businesses to maintain relevance with their stakeholders. The consumer’s expectation for digitalization unravels organically as an entire generation is now fully accustomed to the digital environment. The development of the technology has allowed it to become affordable to the end user. Furthermore, the economic benefits of the digital world are massive. All are key factors that are driving the dynamic growth of the digital world. The question still remains intact, “How are telecom operators reacting to the dominant impact of digitization?”

The effect of digitization has initially been viewed by telecom operators as a challenge, the perception of a product/service that is not extracted from the Telco’s core portfolio is a threat. However, with slower revenue growths and declining margins operators find themselves at crossroads. In the MEA region, a region that enjoyed a 10 year run till 2016 and contributed to 20% of the industry’s economic pool profit , is now strategically challenged. The high capital requirements, increasing operational costs complimented by relatively matured markets insinuates that cash wins will not be easy in the Middle East markets. Operators find themselves in a critical position that has led to the emergence of certain trends; Mergers & acquisition, cost optimization initiatives and introducing digitization to their portfolios. The time for altering Telco’s strategic identity has now come. On the other hand the case of Africa is different, the telecom market and digital context vary significantly from one country to the other. In South Africa penetration rates have exceeded 133%, whereas in Sub-Saharan Africa penetration rates averaged at 44% . To grasp a solid understanding of digitalization in Africa one must be aware of the cultural differences and gaps in order to adjust their digital offering. The increase in smart phone penetration and aggressive demand for data is a weighty trend in the region, a factor that can stimulate the adoption of digitalization aggressively. Whether it’s M-pesa in Kenya or the Nigerian Netflix, African countries can utilize digital transformation to bridge the gap towards further development. Therefore, the trigger for adopting digital transformation between Africa and the Middle East may be different, yet the role of telecom operators remains the same in both markets.

The fear operators’ face of becoming irrelevant in the digital revolution and the benefits reaped from digitalized business models has paved the way towards telecom digital strategies. From precisely that context, Sudatel telecom group developed its five year corporate strategy. Sudatel operates in four African countries, three of the operations are located in West Africa, namely, Expresso (Senegal), Chinguitel (Mauritania) and Intercel (Guinea Conkary). As mentioned earlier, these African markets vary significantly yet all indicators illustrate high demand for data and huge potential for digitial adoption. Sudatel operates in cut-throat competitive markets but enjoys a modest market share and a strong presence.In 2016, Sudatel recorded revenues of approximately $500 million , enjoying EBITDA margins of 35% which comfortably fall within the region’s average. Sudatel strategically targets revenues of $ 1 Billion by 2020 and achieving an EBITDA margin of 45%. The strategy dictates a diversified portfolio by 2020 meaning that 50% of revenues are to be incurred from modern services ( digital services & broadband).

The 2020 Corporate Strategy is divided between two stages to achieve the vision of becoming a leading ICT provider in the region. The first phase highlights the importance of bettering the basics and addressing key issues in regards to connectivity. During the past two years, the company has been working on improving its competitive abilities through optimizing the network, improving processes, maximizing synergies and building partnerships. Several cost optimization projects have taken place and enriched go to market techniques have been developed. The objective of this period is to ensure that STG is utilizing its assets in a manner that allows the company to realize its full potential. When viewing this part of Sudatel’s journey it aligns with the growth potential seen in all markets that needs to be realized prior to or in tandem with the digital transformation. An unserved demand still exists towards different services in all markets. For example, in Sudan and Mauritania a high demand for voice and data still exists whilst in Senegal and Intercel the demand for data shows high potential. Moreover, to lay the groundwork for ICT services Sudatel has been gradually started to introduce digital services. The second phase of the Strategy focuses on convergence and the portfolio Sudatel can introduce using its 13,675 km of fiber optic infrastructure, its state of the art data center based in Khartoum and markets that are ready for innovation. During this stage STG will extend its market reach into new markets, new segments and new products.

The implementation of the strategy will occur by focusing on five main pillars ; creating organizational agility, leading customer experience, accelerating business growth,buiilding richer connectivity and developing people and culture. Achieving a high degree of agility through developing organizational capabilities and ensuring a healthy financial performance is a major focus area for STG, given the highly competitive market and emergence of new forces in the industry. Moreover, leading customer experience through building a platform that consists of culture, systems, processes & procedures to bring SUDATEL closer to its customers. Through recalling the growth tone and expanding organizational capabilities to diversify growth opportunities the strategy will accelerate business growth. Connectivity will always be a key element during both stages of the strategy and prioritizing investment based on customer experience impact. Finally, creating a work environment that provides a space for innovation and unity is vital for the employees of Sudatel. The five principles strategic plan aims to initiate and manage a smooth transition cycle for Sudatel group that starts by laying the ground and context effectively for ICT transformation.

The key challenge facing the STG strategy will be introducing digitalization to markets that have led a traditional manner and host a small population of digital savvy consumers. The emphasize of African governments set on developing a fully-fledged digital ecosystem is a key factor for telecom operators to play an active role in these markets. For instance, Rwanda’s master plan developed by the government to use ICT as an economy enabler has highlighted the benefits of digitalization. Rwanda has managed to attain average growth of 7% between 2012-2015, primarily driven by ICT services. Fortunately, over the past few years government strategies have been influenced by the role ICT can play in the economy. Sudatel has witnessed that governments in all opcos have grasped the importance of digitalization. With the support received to date, Sudatel will be able to introduce e-commerce and e-government initiatives into its portfolio during the upcoming year.

As a telecom operator in a region that shows high growth prospects, Sudatel is arming itself not to reach a precarious position. The motive for telecom operators to introduce digitization may have come by force, yet the gains that range from increased revenues, churn reduction and customer acquisition position digitalization as a massive opportunity that telecom operators have to leverage from. In the case of Sudatel, the success of digital adoption is highly interlinked with national strategies. The success of operators will enhance the success of this new ecosystem, the gains will range from increased revenues for operators to higher growth rates in the economy. The necessity of an aligned collaborative ecosystem is crucial, only then can Sudatel realize the full gain from digitalization.

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