Emerging markets start to mature

The opportunities presented by emerging markets have become increasingly complex. Some are already exhibiting the signs of voice saturation, others are looking to deploy mobile broadband services, while some Indian and Chinese operators seem determined to expand beyond their national boundaries.

This diverse level of market development is apparent in Africa, the Middle East, Latin America and elsewhere, but is most evident in southeast Asia/Pacific.

This region, in which I will include China and India, is displaying almost the full range of cell phone market characteristics--from unsophisticated voice and text messaging up to operators such as China Mobile and Bharti Airtel that are aggressively looking to invest in new and high-growth market segments.

The challenges are many. Some large operators face slowing growth rates in their home markets, a situation some have countered by forcing their way into developed regions--as illustrated by Bharti Airtel's merger deal with South Africa's MTN. And smaller operators are suffering an overabundance of competition.

Operator glut

According to Marc Einstein, industry manager for Frost & Sullivan Singapore, there are a number of countries with an operator oversupply. In Indonesia there are 11 operators, India likely will have 12 by the end of this year, seven are active in Vietnam, Bangladesh has six, and Cambodia has eight mobile operators with a population of only 14 million.

This situation looks untenable given the inevitable fierce competition triggered by this level of operator saturation. "I wouldn't be surprised to see a cash-rich firm such as China Mobile enter a number of these markets and acquire some of the more proficient," maintains Einstein.

However, this profusion of operators is but one issue. "More importantly, we have seen negative growth quarter-on-quarter from some of these operators because competition is so ferocious. Globe Telecom in the Philippines reported negative revenue growth for the year, which is not something you would normally see in emerging markets," he said.

Also, SIM subscriber numbers in some countries are already in excess of 100 percent of population, such as in Thailand. Vietnam and the Philippines are already in the 80 percent range.

Second wave of growth

To create advantage in such a market, a growing number of mobile operators are looking to migrate their customers to 3G. The strategy behind this move is to entice a progressively more sophisticated population to use their wireless handset as their primary access point for the internet.

Indeed, the uptake of these new data services, albeit initially slow, is sparking a new behaviour, claims Saberio Romeo, industry analyst with Frost & Sullivan. "We haven't seen this in Europe or North America, where consumers have followed the evolution of mobile technology. Emerging markets are evolving on a different track, and at a faster pace."

These changes have given rise to a new label--transitional markets. Such markets carry trends from both emerging and mature markets. For example, some operators in the Asia/Pacific market are looking to outsource aspects of their business--previously the preserve of mature operators. On the other hand, these operators appear opposed to network sharing, a topic being explored by a number of operators in mature markets.

"There is almost no progress with network sharing," says Peter Elliot, head of wireless and broadband for PA Consulting. "This seems to be due to the different political model that operates in these newer markets, as against what we see in Western Europe."

A place for the big boys

Do these conditions provide opportunities for the likes of Vodafone, Telefonica or France Telecom?

According to Elliot, these multinational operators are still looking to expand into new markets while retaining very tight control over operating expenses in their European subsidiaries. "They are pushing out European investment plans into the future, as against emerging markets where there is little evidence of any change to their expansionist strategy."