Convergence in Telecommunication in Saudi Arabia - Market, Players and Future Potential - Research Proposal Example

TELECOMMUNICATION IN SAUDI ARABIA Convergence in Telecommunication products in SA: An assessment of the market, current players and future potential January 24, 2010 Table of Contents Convergence in Telecommunication products in SA: An assessment of the market, current players and future potential 1 January 24, 2010 1 1. Introduction 3 References 11 1. Introduction Convergence is a term where operators converge or bring together multiple medias such as land telephony, Internet, TV, mobile telephony, radio and offer these services through a single channel. It is now possible to browse the Internet, watch TV, listen to the radio, dial up landlines, use VoIP and more, by using the mobile phone, the computer or other hand held devices. The technology that drives convergence is rapidly evolving with a number of protocols and business models. By itself, convergence would have no use unless suitable applications are developed that allows the media to be used by subscribers, at affordable costs. Companies that offer convergence and multiple services are able to strengthen their position in the global market and this would become a key to survival, as customers would prefer a single operator who would offer bundled services (Shneyderman, 2009). The global telecommunication market is growing exponentially, in 2008, it showed a growth of 8.9%, and the market value was about 557.3 billion USD. It is estimated that the total number of global subscribers in 2008 was about 2 billion and this represents a rise of 10.9%. By 2012, it is estimated that the global subscriber base would reach 3.1 billion customers and the market would be worth 733.1 billion USD. Networks have moved away from the early 2G networks to 3, 3.5 and 4 G networks and beyond. Having an optimum and affordable bandwidth is one of the basic requirements for convergence. It affords a great value addition for mobile telephony operators and a business and entertainment tool for people. It is obvious that convergence hold the key for growth, development, and telephony operators that can offer this service would survive (Datamonitor, August 2009). This thesis would perform a techno commercial analysis of the convergence market in Saudi Arabia – SA. 1.1. About Saudi Arabia Saudi Arabia is the worlds leading oil-producing nation. The country has a high standard of living and has one of the highest GDP per capita in the world. Moving from an oil based economy, SA has started constructing the King Abdullah Economic City and this would attract trade, stocks markets, tourism and offer port services. Obviously, such a high growth plan requires easy access to information and a means to merge voice and data traffic through mobile hand held devices. Internet users have increased over the years and use the Internet to access news, trading and stock market news and to conduct eCommerce and online shopping, entertainment and many other creative uses. It is estimated that by 2008 end, the eCommerce market in SA was worth 1 billion USD. This market is growing at a rapid rate of 33% annually. Many of the colleges in SA are using the Internet as a medium for learning. SA has a number of student who study in UK and US colleges and when these students return, they expect easy availability of high speed broadband Internet. SA government has removed its earlier curbs and the content filtering software it uses at the gateway is designed to block content such as porn, gambling and anti Islamic web sites. The government does not interfere with other news, business and entertainment websites (KSA, 2009). Since SA has the required infrastructure and users for broadband, some firms have already set up services for convergence products. An Irish vendor of fixed-mobile convergence and data-voice-video solutions has set up operations in SA in partnership with Technology Bridge, an application service provider. Such collaborations would help an accelerated growth of convergence solutions in the Kingdom of Saudi Arabia. (Tetco, 28 April 2009) 1.2. Literature Review Telecommunications Convergence is the merging of different types of media and delivery through a single device such as mobile handsets or computers. The term refers to crossing and integration of communication media and platforms. Types of communication media include broadcast media such as TV and radio; electronic media and telecommunications media. There are two aspects, vertical integration and horizontal integration. Vertical convergence occurred when products such as music, event tickets, eCommerce, music downloads, ring tones were marketed as bundled offerings. Horizontal convergence took place when these products were marketed and serviced through mobile channel (Walters, 2009). Convergence has some key drivers and these are customer centric service; creating synergies and creating brand value. Customer centric services means only providing services that the customer is interested in and these may include stocks, games, tech news, political news and so on. The Telco Company and the media company provide a wrapper of services and assume the role of a single point contact to deliver the required news and content to the customers handset or computers. A stock broker would need information of only specific sectors such as energy, IT, Petroleum while a sports enthusiast would be interested only in specific games such as football, boxing, horse racing and so on. Synergy refers to the relation between the telecom provider and the media house to share and reduce costs, take up cross selling and up selling and to get proportionate publicity. Therefore, CNN may decide to provide football match telecast through Vodafone and both companies have to develop cooperative models to ensure proportionate revenue sharing, share fixed cost burden and see that both get equal popularity and there is no question of one company upstaging the other. It must be remembered that neither CNN nor Vodafone would be actually playing football but they would serve as the crucial facilitators and medium for relaying information. Creating brand value comes after the two drivers have been established and for example ‘CNN on Vodafone’ becomes a branded commodity and for the brand value to sustain, the rates have to come down, quality of service has to increase and service has to be enhanced (Dahlman, 2007). The European market for convergence alone contributes about 35.4% and expected to reach a value of 237.3 billion USD by 2012 while China is the country with the largest number of subscribers. While the CAGR between 2003 and 2007 is about 17.5%, it is expected that the growth would decelerate and peak after some more years and then there would be a scramble for niche products and market optimisation with operators offering specialised services. It is also estimated that the rates of mobile telephony will slide further as technology becomes cheaper, further reducing the call rates and revenues of telephony operators. In such a scenario, it is estimated that convergence would hold a key to survival and companies that offer such services and applications would be able to consolidate their position (Datamonitor, August 2009). Yeonbae (2005) speaks of a critical mass that is required for a technology to become affordable. According to the author, a new technology takes time to diffuse into the market and the rate of diffusion at which a new technology diffuses into the market would depend on customer’s perceptions, affordability and exclusivity. Rogers (1962) speaks of the manner in which technology is diffused in a society. He speaks of diffusion as the method used by an innovation to be communicated by using certain channels among different groups in a social system. The author has attempted to explain the mechanics of the why and how and the rate that innovations, new products and technologies are spread through different social groups and cultures. The findings hold true for technologies, consumer goods, food items and other innovations that are seen. Coming back to convergence and its applications it must be noted that the critical mass has yet to be developed that would provide a bigger user base that would reduce costs. However, telephone operators must invest in these technologies today to reap the benefits in the coming years. The extent to which mass appeal and following would develop is unknown and this is a risky venture. A new type of telephony operators has emerged called the MVNO - mobile virtual network operator and these have different business models and revenue generation mechanisms. MVNOs do not own any infrastructure such as towers, relay units, transponders and radio spectrum allocation but it leases these facilities from other operators. MVNOs have lower operational costs and can offer lower rates and rely on their marketing expertise and branding to be successful. They can switch to other operators as and when needed and can even use the services of multiple operators. The disadvantage is that MVNOs do not have any patented technology and they would be out of business of the operator closes down. However, MVNOs are best placed to make use of convergence and exploit it. Some well known MVNOs are Virgin Mobile in UK, Helio and Disney Mobile in USA and other companies such as Elephant Talk, ASPIDER Solutions, Convergys, LogicStar and more that 400 other MVNO operators. Vodafone would be competing with these companies and it remains to be seen who would emerge as the winner (MVNO, 2009). 1.3. Research Question The research question framed is “Convergence in Telecommunication products in SA: An assessment of the market, current players and future potential”. It is proposed that the research would cover the actual practices in international markets of Europe and USA, find the current status in SA and conduct a gap analysis. The paper would provide a techno-commercial analysis on the convergence market. 1.4. Aims and Objectives To answer the research question, a number of aims and objectives have been framed. These are listed as below. Understand the meaning of convergence, impact and extent to which convergence exists in SA, Europe and other markets. SWOT analysis of SA for convergence and to find the extent of telecommunication diversification and segmentation. Understanding of the technology used in convergence and the meaning of applications such as VoIP, Internet Telephony, Internet TV, 3G and 4G protocols Examining the penetration of services such as Skype, Avaya, Cisco, Nortel, ShoreTel, MVNO operators and others and discussing how these niche services could affect Vodafone Discussion of critical parameters to determine reliability and availability of different service providers More questions, subjects and themes would be developed as the paper progresses, in addition to the above. SA is financially very sound and has successfully used a number of high technology products. However, convergence requires very sound technical expertise and while financial investment is vital, it is not just a case of buying equipment and hiring people but investing in research and development and developing the right corporate culture. It is also crucial that in the initial stages, there should be sufficient volumes for convergence to take off and become financially valuable so that the costs can be distributed. An attempt will be made to understand if SA will be able to meet these challenges. 1.5. Methodology Research would be performed using a combination of primary and secondary methods. Secondary research would be performed using the literature review methods. A number of peer-reviewed journals, books and review of reputed financial newspapers will be accessed to find information about convergence. In addition, websites of telecommunication services and Internet service providers such as Saudi Telecommunications Company, Integrated Telecommunications Co Ltd., Bayanat Al Oula for Network Services, MeduNet; Voice & Data Telecommunication Company and many others would be accessed. To find the latest development in convergence, databases and websites of mobile service providers such as Vodafone, Virgin Mobile, T Mobile, Erricson, Nokia, Etisalst and others would also be accessed. After the preliminary literature review, a list of key words related to the thesis would be prepared and a search will be run in online libraries such as Questia, Thomas Gale and ProQuest. For primary research, it is proposed that business analysts and technology officers of leading and emerging Internet service companies, voice and data integration firms, convergence providers, would be approached. These people would be administered a structured survey instrument and an interview to find their view on where convergence is heading in SA. The results from the primary and secondary sources would be further used to form the findings. These findings would be analysed to frame the conclusions and recommendations. 1.6. Project Planning Schedule of activities for the research is given in the following Gantt chart. Figure 1.1. Gantt chart of research activities References Dahlman, E., July 23, 2007. 3G Evolution. Academic Press, London, UK. Datamonitor, August 2009. Global Wireless Telecommunication Services Industry Profile. Datamonitor Europe, London, Reference Code: 0199-2154. KSA, 2009. Internet in Saudi Arabia. [Online] Internet. Gov. SA. Available at http://www.internet.gov.sa/learn-the-web/guides/internet-in-saudi-arabia/view?set_language=en [Accessed 23 January 2009] MVNO, 2009. Are MVNOs the mobile operators saviours? [Online] Strand Consult. Available at http://www.strandreports.com/sw2.asp [Accessed 23 January 2010] Rogers, E., 1962. Diffusion of Innovations. The Free Press, New York, USA. Shneyderman, A., 14 January, 2008. Fixed Mobile Convergence, 1st edition. McGraw-Hill Osborne Media, UK. Tetco, 28 April 2009. Tetco-Voxpilot announces exclusive partnership with Technology Bridge in Saudi Arabia. [Online] Enterprise Ireland. Available at http://www.enterprise-ireland.com/News/Press+Releases/2009/PressApr282009.htm [Accessed 20 January 2009] Walters, S., 2009. New Telephony, Technology Convergence, Industry Collision, 2nd Edition. NY: Prentice Hall. Yeonbae, K., 20 April 2005. Effects of consumer preferences on the convergence of mobile telecommunications devices. Journal of Applied Economics, Routledge Publications, 37(7), pp. 817-826. Read More