African telecoms at a crossroads, says a Middle East-headquartered advisory firm MANAGED SERVICES is likely to be the first corporate telecoms segment to experience a coming wave of consolidation in the local market, according to telecoms advisory and investment firm Delta Partners.

The Dubai-based firm, which is establishing its African headquarters in Sandton, is expecting the telecoms market to consolidate over the next two to three years.

PULLING TOGETHER THE CORPORATE MARKET

"A clear segment that has been underserved for years - or has not been fully developed, I should say - is the corporate segment," says managing partner Kristoff Puelinckx. "The big players were obviously selling to corporates, but the managed service industry has not been fully developed in this country.

"That`s why you had several of these specialised players come in and be able to build up a position in that part of the market, largely easily because it wasn`t that well addressed by the bigger players."

Puelinckx says the big players - fixed and mobile - have realised this, and will go after this segment of the market. "They will do that organically and expand the range of services they offer to these segments, but the easier way is to also potentially buy someone out. So I think that is the first place of consolidation."

FOCUS ON THE HOME USER

He adds that another area ripe for consolidation is that of residential internet service providers (ISPs). "That`s a typical place where initially you see a lot of people coming into that space, but that`s an area bound to be further consolidated. The ISP model typically supports - if you look at more developed markets - three to five large ISP players, not 10, 20 or 30."

Puelinckx explains why Delta Partners is expecting a wave of consolidation in the African telecoms market: "As markets mature and open up - typically liberalisation goes together with maturing of markets - you`ll see much more segmentation of the market. Before, you had one or two, maximum three, players covering the whole market. What you`ll see is you have more specific specialised players focused on certain segments of the market - the corporate market, the SME market, or certain segments of the consumer market.

"So typically what happens is it kind of opens up and you start to see a lot of specialised players focusing on certain segments, and then what happens is it starts to consolidate again because certain segments are too small for one player to survive, or others have not been successful - while they hold a licence they don`t necessarily have the commercial capabilities or were successful in building up the business," he says.

"So you typically see a wave of consolidation again, which I think is going to take anywhere from two to three years. But still at the end of it you`ll see a broader landscape with smaller, competitive players competing and differentiating themselves with a much more specific value proposition for a specific target market where the bigger players will continue to cover the majority of the market and also try to approach segments in their own way and be much more segmented in the way that they go to market."

Delta Partners, which was founded three years ago, has more than 100 professionals working across the Middle East and Africa.

THE RACE TO BE A PAN REGIONAL TITAN

"We have grown with the explosive growth of telecoms, initially in the Middle East, but as a lot of the operators and investors from the Middle East also started to enter Africa in the past three years, we followed that trend," says Puelinckx.

Delta Partners believes that the African telecoms industry is at a crossroads. In addition to further consolidation as regional players find they are not alone in the race to become pan-regional titans, the firm is also expecting organisational challenges as operators face a struggle to extract value from merged entities.

It also expects growth in network outsourcing and broadband opportunities, but sees a challenge in reaching the very low-income segment. It says mobile operators will need to rethink business models to profitably serve customers who generate less than $5 average revenue per user.