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2006 Top Ten: Emerging Trends

Light Reading
LR Mobile News Analysis
Light Reading
12/29/2006

The so-called "emerging markets" came into their own in 2006 and are sure to be on the upswing next year. Here are 10 key trends to look out for in 2007:

10. Mobile Madness
Mobile growth in developing countries will account for more than half of all new telecom subscribers worldwide. While the BRIC countries (Brazil, Russia, India, and China) remain strong, nations like Indonesia and Nigeria are also becoming hot spots. (See Mobile Connections Pass 2.5B.) In fact, looking ahead Gartner Inc. predicts Indonesia will add more new telecom connections between 2005 and 2010 than Brazil and Russia.

9. Handset to Handset Combat
Nokia Corp. (NYSE: NOK) has so far dominated sales of low-end handsets and in some countries boasts a massive 70 percent market share. But Motorola Inc. (NYSE: MOT) is chipping away by introducing cheap handsets of its own, and expects to pick up market share with the Motofone. Launched last month, the phone is aimed at rural users and includes features such as voice prompts in local languages, a plastic high-contrast screen that can be read in bright sunlight or poor lighting, and a battery standby life of two weeks.

8. Everything's Made in China
Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) are making their mark in developing countries, sewing up equipment deals before their Western counterparts arrive. In the past six months, Huawei has been awarded contracts in Nigeria, Vietnam, Pakistan, Indonesia, Bangladesh, Morocco, Russia, Tajikistan, Saudi Arabia, Columbia, and Uruguay. (See for example WorldCall Picks Huawei, Huawei Expands Colombia Movil, Huawei Wins Comium Deal, Huawei Builds Uruguay UMTS, Mobily Uses HSDPA, and Vivo Picks Huawei GSM.). ZTE’s wins include Russia, Vietnam, Libya, Haiti, Algeria, Armenia, and Morocco. (See ZTE Builds Russian NGN, ZTE Takes DSL to Vietnam, ZTE Builds Network, ZTE Completes HaiTel Network, ZTE Supplies ATM Mobilis, ZTE Takes CDMA450 to Armenia, and ZTE Wins in Morocco.)

But growing sales in these countries have helped put the squeeze on the vendors’ profit margins, a trend that will likely continue as overseas sales account for an increasing share of revenues. (See Huawei's Feeling the Pinch and ZTE Leans on Credit Crutch.)

7. Why Not WiMax?
WiMax has been heralded as a savior for emerging markets where there is little fixed-line infrastructure for broadband. A slew of WiMax equipment contracts were signed in 2006, and the theory will be put the test in 2007 when networks start to go live in Asia, Africa, and Eastern Europe. (See Motorola Wins WiMax Deal, BSNL Deploys Aperto, Bulgaria Gets WiMax, Iraqtel Picks Redline for WiMax, Comstar Gets WiMax License, Navini Deployed in Ghana, and Netia Deploys Alvarion.)

6. Just Add Value
With calling rates as low as $0.02 per minute in countries like India, carriers are increasingly looking to value-added services (VAS) such as multimedia messaging, WAP, and mobile payments as a way to differentiate their services and boost revenues. (See Hutch Essar Does i-mode, Bharti Offers Windows Mobile 5.0, Reliance Offers MMS, and Airwide Upgrades Cell C.) Data services are also playing an important role as the lack of fixed-line services means that people in emerging markets are using mobile devices, not PCs, to access the Internet. That also translates to venture capital dollars for VAS startups, which are among the firms targeted by the VC funds focused on the developing world. (See OnMobile Secures $27.8M .)

5. What Up, 3G?
It looks like China’s much-delayed 3G licenses could finally be awarded next year, while India is looking at getting services up and running by late 2007. (See India Prepares for 3G Rollout.) Turkey is looking at issuing licenses some time during the year. Etisalat is in the process of building a 3G network in Egypt and Vodafone Egypt is in talks with the government to buy a license. Qatar Telecom QSC (Qtel) and Saudi Arabia’s Etihad Etisalat Co. (Mobily) have begun introducing 3G services in recent months, while Telekom Srbija a.d. rolled out 3G in three cities on December 27.

4. The Middle East Deregulates
Governments in the Middle East are set to award licenses for new operators early next year to open their markets to competition. Qatar is deregulating its market and will awards licenses for mobile, fixed and Internet providers in the coming months; a second fixed-line license and a third mobile license is up for grabs in Saudi Arabia; Bahrain will award two fixed-wireless licenses; Iraq intends to grant four mobile licenses to replace three interim licences; and Lebanon will award two mobile licenses in the first half of the year. New operator Emirates Integrated Telecommunications Co. (du) plans to launch in the United Arab Emirates by the end of the first quarter, and Kuwait-based Wataniya Telecom will form a new carrier in Palestine after receiving its license in September.

3. Carriers Consolidate
Operators in the Middle East are preparing for the increased competition by looking at acquisitions abroad. Jordan Telecom has announced plans to spend $300 million on acquisitions in the region, Bahrain Telecommunications Co. (Batelco) is looking to buy two companies during the next 18 months, Oman Mobile Telecommunications Co. LLC plans to pick up stakes in state-run operators, and Qtel -- which says it’s working on three acquisitions -- has recently taken out a $2 billion credit facility for international acquisitions. (See Qtel Gets $2B Credit.)

In India, Hutchison Essar is in the midst of a $15 billion bidding war and if the carrier is sold, it’s possible the market could see further consolidation with the likes of Idea Cellular Ltd. and Spice Telecom being snapped up before they manage to go public. (See Vodafone Sparks Bidding War Over Hutch.) Over in Russia, Golden Telecom Inc. is busily buying up assets. (See Golden Buys Corbina Stake, Golden Buys TV Asset, Golden Telecom Buys ISP.) Analysts sound a note of caution that with so many operators on the prowl, acquisitions will continue to be overpriced.

2. Private Equity Ponies Up
It’s not only operators that want a piece of the action -- telecom companies are increasingly attracting attention from private equity firms. The likes of The Blackstone Group and TPG Inc. are among those circling around Hutchison Essar, while Providence Equity Partners and TA Associates have recently picked up stakes in Idea Cellular. (See Providence Buys Idea Stake and TA Gets IDEA Stake.)

1. Sharing Is Caring
In markets where there is little installed communications infrastructure, carriers have major network buildout projects ahead of them to provide coverage outside of major cities. (See Indian Carrier Capex on the Rise and Moto Wins GSM Deal.) Infrastructure sharing -- where operators use the same base station sites and transmission equipment -- is gaining momentum as a way to reduce the time and expense of rolling out new networks. U.S.-based American Tower Corp. (NYSE: AMT) has recently received permission to set up a subsidiary in India, and GTL Infrastructure Ltd. , which has deals with IDEA and Spice Telecom, plans to deploy 6,700 towers in India by early 2008.

— Nicole Willing, Reporter, Light Reading

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