With growing competition for investment opportunities, major operators are now being forced to focus on relatively unregulated markets with high growth potential.
Major regional investors such as SingTel, Telekom Malaysia, NTT DoCoMo, Telstra, SK Telecom, Vodafone and Hutchison are already entrenched in the region, and are keen to expand their exposure to growth markets.
The operators are likely to target new markets such as Vietnam, Central Asia and the Middle East. Investment has also begun to flow in the other direction as well. Africa is also being examined again, as is Myanmar.
In a new response to growing competition, operators are beginning to consider investments in related industries such as e-commerce. Telstra's 2006 investment in the Soufun e-commerce website in China is the first major example of such a strategy. It may signal a new direction for investment in the region.
The current drivers of operator investment strategies in the AP region include uneven growth potential across the region, investment liberalization and regulation.
All three of these factors favor the mobile sector over the fixed sector as an investment target. Growth potential is highest for mobile because mobile infrastructure is cheaper to expand than fixed. In addition, prepaid business models have created new opportunities in low-income markets, where ARPUs as low as $2 to $5 can be profitable.
Declining handset prices have also increased the addressable market for mobile phone services. Foreign investment rules are often more liberal for mobile infrastructure, and the higher levels of competition in the mobile sector means that price regulation is less onerous.
The major threat to new investment is the tightening of foreign investment regulation in certain markets. Though this is not a region-wide trend as yet, there is a danger that foreign investment will become more of an issue as the regional footprint of investors expands.
Finding the right investment is getting harder. Many of the most attractive opportunities have already been claimed. Capital market liberalization has given target operators a wider range of options to source capital, and some governments in the region are recently taking a less hospitable attitude to direct foreign investment, especially where this involves foreigners taking a controlling interest. The level of investor competition has risen over the last ten years, forcing up prices of the opportunities that remain.
Important gains can be achieved through an integrated cross-market strategy. However, the Asian region is very diverse, and this diversity often demands a country-specific approach to business models and strategies. This reduces the scope to generate economies of scale or cross-country synergies, though it does not completely eliminate it.
For instance, Hutchison has been able to achieve gains in handset procurement, and there is evidence that SingTel is successfully transferring management expertise between operators at different stages of market development. But it is also possible to over-reach; Vodafone was forced to abandon its ambitious One Vodafone strategy in Japan and now has a more localized strategy in the region.
This all implies that the most important determinant of success of the overall strategy is the individual performance of the individual investments. No amount of 'synergy' will overcome a bad investment decision. This means that choosing the right investments and paying the right price for them are the most important success factors.
David Kennedy, a research director of Ovum, is based in Melbourne.
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