GCC telecommunication firms reinventing themselves as ‘techcos’: S&P Global
RIYADH: Telecommunication companies in the Gulf Cooperation Council region are redefining themselves as technology firms to diversify their revenue streams, S&P Global said.
In its latest report, the credit rating agency noted that moderate growth prospects for core telecom operations are one of the key drivers which compel these firms to rebrand as techcos.
Techcos can be defined as telecommunication companies that focus more on technology. These firms provide connectivity through newer channels, such as cloud computing platforms, making integrating hardware, connectivity and applications easier.
According to the S&P Global report, “techcos are gaining ground” in the region, adding: “Rated GCC telcos – including Beyon, e&, Ooredoo, and stc – aim to enhance their techco services and have already expanded their non-telecom businesses over the past few years.”
According to the report, telecommunication firms in the region provide a plethora of non-telecom services, with cybersecurity, cloud services, the Internet of things, as well as artificial intelligence, and data centers primarily targeting business-to-business customers.
Moreover, the GCC region’s mature telecom markets, with mobile penetration rates of 130 percent to 210 percent, offer limited organic growth prospects for telecommunication companies.
“The GCC telcos we rate are typically major local players, operate in a relatively favorable and stable regulatory environments, and benefit from their leading market positions and well-invested asset base. Even so, they suffer from a decline in some core telecom services, including fixed voice telephone and messaging services,” said S&P Global.
Additionally, these companies are also offering fintech services aimed at both business-to-business and business-to-consumer customers.
“Fintech offerings capitalize on digitalization trends, tech-savvy young populations in the Middle East, and underbanking in emerging markets,” said S&P Global.
The report further noted that telecommunication companies in the region are also venturing into media, entertainment and e-gaming sectors.
S&P Global also highlighted some recent acquisitions made by telecommunication firms in the GCC region to diversify their businesses.
In 2022, Saudi Telecommunications Co. secured significant stakes in systems integrator firms Giza Systems and Giza Arabia Systems.
Moreover, last year, UAE-based e& acquired over 50 percent of Careem Super App, an application that provides food and grocery delivery, micro-mobility, digital wallet, as well as fintech services.
The study pointed out that GCC governments’ digitalization and economic development agendas will support digital businesses and boost consolidated revenues of telecommunication firms.
“We estimate non-telecom operations currently contribute about 15 percent to 16 percent to rated GCC telcos’ combined revenues,” the report said.
It added: “While core telecom services will continue to account for most revenues and remain the overwhelming profit generators in the short term, we expect digital businesses will grow at a significantly faster pace.”
The report noted that telecommunication firms in the region will witness low single-digit growth for telecom revenues and organic growth of 10 percent to 20 percent per year in non-telecom revenues.
Mergers and acquisitions could compound organic growth in the non-telecom sector, resulting in much faster revenue accretion from tech-related services, the study stated.