The Case for MENA Telco's Wholesale BU Separation (2023)
Ahmed Abdel-Latif
MEA Digital Infrastructure Expert | Telco Wholesale Transformation Advocate | Carrier Services Chief Executive | B2B Growth Architect | Emerging Markets Strategist ● Ex-Verizon ● Ex-Etisalat ● Ex-GCX ● Ex-Batelco
A radical overhaul of MENA Telcos' organization structures - which remained the same since the late 1990s - is long overdue, if MENA Telcos are to create shareholder value & unlock their growth potential.
This proposition is given even more weight when one considers that MENA Telcos are typically the largest listed companies and among the largest national employers.
A potent yet consistently overlooked option for organizational transformation calls for separating a Telco's Wholesale Business Unit (BU) into a standalone company.
Below are some of the benefits expected from such a separation proposal:
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??. Valuation Transparency: Buried deep within the balance sheet of an integrated Telco, the market value of wholesale infrastructure assets & their profit contribution are lost. Carving out such assets into a separate entity with its own balance sheet would inevitably boost Telco's overall valuation.
??. Shareholder Value Extraction: A separate Wholesale entity allows shareholders to unlock value in that business (which would be otherwise untapped directly) via issuing shares or selling a stake to a strategic investor.
??. Capital Allocation Efficiency: Post-separation, the emerging BUs (Wholesale, Enterprise, Consumer, etc.) would get capital allocated based on their respective return on shareholder equity.
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??. Subsidy Elimination: In some operating environments, a Telco may be tempted to subsidize its Enterprise or Consumer lines of business with profits from its Wholesale business. A separate Wholesale BU would ensure such possibilities are eliminated (the shareholders may be the same for both entities).
??. Cost Rationalization: When a wholesale BU is spun off, all intra-Telco transactions (where wholesale BU provides service to the Enterprise or Consumer BUs) would then be marked to market as the Wholesale BU would need to competitively bid for the business of the Enterprise or Consumer BUs. A lot of fat will be removed.
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??. Wholesale Business Unit: With a new BSS/OSS, new processes, and ownership of its network and services portfolio; the spun-off B2B/Wholesale company will achieve transformation objectives that would be nearly impossible to achieve as a unit within a Telco.
??. Parent Telco 1: The spin-off of the Telco's Wholesale Business Unit would be an opportunity to redesign internal processes, revise the organization structure & reporting lines, and open up closed platforms.
??. Parent Telco 2: The spin-off of wholesale/B2B infrastructure assets will free the parent Telco from its dependency on legacy infrastructure and allow it to more aggressively pursue virtualization, cloud-based, and asset-sharing strategies for its consumer & enterprise service delivery.
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??. OTT Conflict Resolution: Rather than being torn between capturing value from OTTs in wholesale markets and protecting retail/enterprise revenues from being disrupted by the same OTTs, this entire conflict would potentially disappear.
??. Channel Neutrality: A standalone wholesale BU can sell to all available Wholesale, Consumer, or Enterprise channels, regardless of their ownership/affiliation.
??. Market Efficiency: As Telcos start carving out their Wholesale BUs, the market forces would determine which one is the most efficient in their respective niches. Over time, a more efficient market structure would emerge with specialized players (all of whom are profitable) making complementary investments (platforms vs. networks) in their niches.
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??. Gamesmanship: The separate Wholesale/B2B operator will be able to freely play in multiple markets simultaneously with no restrictions. The new entity can provide connectivity services (pipes), provide networking services (ports), provide top layer value-rich services (platforms), or a mix of all three.
??. Scale & Scope Synergies: The new entity would benefit from its focus on the B2B lines of business (scope) and would expand quickly beyond the organic business limitations of its legacy Telco parent (scale).
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??. Brand Emancipation: Retail-oriented Telcos have brands whose values do not translate well into Wholesale/B2B markets and do not support wholesale strategies. A new standalone Wholesale-only entity would be free to brand itself to fill gaps in the marketplace, better mesh with its key partners/customers, and communicate values that match B2B opportunities.
??. Innovative Pricing: An independent Wholesale/B2B player will be able to offer pricing structures that go beyond monthly or annual contracts that govern its Telco parent. Examples include daily lease rates, crypto-based rates, and so on.
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??. Regulatory Transparency: Obviously!
Ultimately, such a strategic decision comes down to a strong shareholder value creation mandate by a Telco's board. The larger the Telco, the bigger the benefits a spin-off realizes.
And the rest - as they say - is accounting.
Thanks Ahmed. Very clear article. I agree 100% on incumbents/former incumbents telcos, a little less for telcos that haven't invested so much on phisical assets in the latest years in their will to stay "lean". Considerations maybe could be different for fixed or mobile operators. Once an operator has already dismissed part of its assets, remaining network may be actually a sum of equipments with quicker obsolescence than fibre.
Growth Strategy Expert lI Business Mentor II Certified NLP, Life & Relationship Coach
1 年Great analysis and valuable insights for future market growth.. ??
Head of Carriers Relations
1 年Super Analysis ??, covering all aspects and benefits… i see two master keywords mentioned in your article are great hindrances to the separation of wholesale unit in any organization; subsidy and fats ??… eliminating both would uncover a lot of unpleasant figures in other areas and spot a clear light on all residuals … hence creating strong internal resistance lobby, that would substantially stop any desire to change. Nevertheless, this should not stop the unit separation if adopted by the main shareholders who can truly anticipate the huge benefits of such separation.
Regional Marketing Manager at Esri for Middle East, Africa, and Central Asia I Advocate of Geospatial Thinking & Location Intelligence Adoption I Promotes GIS Education I Supports Women in GIS across MEA
1 年Amazing insights Ahmed, especially coming from a Telco expert like yourself. Thanks a lot for sharing!
Leading Transformation | CEO | ICT executive
1 年Value and proposition is very clear long time ago, I would say it is a must do action, the question will always remain the same, r they capable of doing it considering the legacy, culture and qualifications? They need someone ready to lead the change, they need paradigm shift and clear demarcation points to avoid obstacles. Execution issue not direction or strategic issues