Open Innovation for Telecom Companies in

the Middle East

Dr. Shaikha Al-Jabir

October 2010
 What is
Innovation?

• Innovation is the implementation of a new or

significantly improved product (good or service),
process, business models and organizations
• It becomes “strategic” when it is an intentional,
repeatable process that creates a significant difference in
the value delivered to consumers, customers, partners
and the corporation.
• It becomes “open” when adopting a more collaborative
approach to developing ideas and bringing them to
market. And when bridging internal and external
resources to make innovation happen.

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 Innovation in the
Middle East

• Innovation is a key growth driver and a high priority for

executives worldwide.
• Leading technology companies have thrived through innovation
• In the Middle East, most of the telecom companies have not yet
developed a robust infrastructure encompassing the tools and
culture needed to successfully innovate and are, therefore, at
risk in the new global innovation race.
• Even during the financial crisis, we haven’t seen companies
embracing innovation.
• Yet some organizations have started to see innovation as a
strategic choice to ensure sustainable growth and profitability!

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 Why Telecom
Need Innovation

• Erosion of core revenues due to

– Slowdown in growth: Wireless markets are approaching 100%
penetration rate
– Increased competition
– VoIP impact
• Innovation is the key to grow as there will be a need to compete against
very innovative companies coming from different industries
• The purpose is to identify new revenue streams, and to create
breakthrough growth strategies.
• Telecom operators need to redefining their roles along the value chain and
to embrace different business models
• This can be accomplished by adopting open innovation values

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 Erosion of Core Revenues-
Slowdown of Growth
Median revenue growth of top 30 telecom companies by region (CAGR %)
Analyst
Historic revenue growth forecasts

European 13.2
9.2
telecom
0.8

American1 14.4
11.0
telecom
2.4

Asian &
Pacific 16.8
12.1
telecom 3.6

1990–2002 2002–09 2010–12E

The telecom growth is slowing down globally

Note: 1includes north and south America
Source: InFinancials; Bloomberg; McKinsey analysis
 Erosion of Core Revenues –
Increased Competition
Average EBITDA Margins Evolution for Mobile Telcos in Selected Markets (2006–2009)

Country CAGR (%) # MNOs

65
60
55 Indonesia -6.1% 8
50 Egypt -1.4% 3
%

45
Malaysia -3.3% 4
40
Singapore -4.7% 4
35
India -4.5% 6
30 Pakistan -2.3% 13

2006 2007 2008 2009

Growth slows down and increased competition is gradually eroding
profitability margins of telcos
Source: Merrill Lynch Wireless Matrix, A.T. Kearney Analysis
VoIP is impacting Operators’ Revenues
Revenues from Switch & VoIP Services VoIP Traffic Growth (1988-2008)
TDM AND VoIP Switched and VoIP
(Bn of Mins) Traffic Growth

0.3
0.3
1
2 3.5
4 4.5
4.5 5 9 10 13
6
4
4.5 CAGR 1999-2008 : +46.3%
6 6 6
CAG
49.4 R
45
40 -
36 6.8%
32.5
30 28 27 26.2

2005 2006 2007 2008 2009 2010 2011 2012 2013

Switched Revenues
VoIP Revenues
Lost Revenues due to Presence of VoIP

In the last three years, VoIP's growth overtook TDM traffic growth.
TeleGeography, VoIP in Europe: Its bite is worse than its bark, 2009 (need original data), ITU, Skype’s share of the international long-distance pie on the increase,
2009
DRAFT 20/20 Strategy Refresh | April 2010 7
 Innovation Issues in
the Middle East
• Innovation is a complex subject , of all the core functions of most companies,
innovation seems to be managed with the least consistency and discipline
• Main challenges are stemming from organizational prospective like culture,
mindset
• Lack of internal information sharing and cross-functional collaboration
• Intranets used for disseminating information not for promoting collaboration
• Dominance of vertical structure, innovators look up for approval before they
look across for alliances and support.
• Innovation is driven by technology trends only not by customer insight
• In many organizations IP laws and IP protection are not well-defined
• Degree to which firms will open their walls to engage external partners to
advance innovation is not identified.
• There is need to build skills in managing partnerships.
• Traditional education systems which focus on building the ability of absorbing
content and recalling it on exams without considering skills for research,
analysis, critical thinking, collaboration.
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 Open
Innovation
• Open innovation could be a major trigger to spur growth in ME telecom market
• Adopt open innovation model based on
• internal resources capabilities
• collaborating with customers, businesses, academic institutions and
industry leaders; and
• establishing presence at technology clusters
• Historically, telecom innovation happened inside labs, and telecom firms rarely
resorted to sharing innovative results as a means to generate competitive
advantage.
• Benefits from adopting open innovation are:
– Faster development and of new products and services
– Accelerate marketing new products and services
– Reduce direct spending on R&D
– Improve the success rate of new products and services
– Increase in revenue and market share ( growth)
Recently, initiatives are emerging uniting telecom operators and manufacturers to
collaborate with application developers to generate valuable innovations (the
Wholesale Applications Community or WAC).
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 What is needed to
adopt innovation?
• Create the basis for cultural change to support the
development of innovation as a corporate trait not as a
serendipitous activity.
• Cross-functional teamwork and collaboration is a
necessary tool for strategic open innovation.
• Build on local capacity and talent by tapping into the
education systems to keep these talent here (to avoid
brain drain)
• Encourage establishment of local VCs and create funding
mechanisms for start-ups
• Work with the education system (public and private, k-12
to universities) to cultivate a culture of innovation and
collaboration at an early age and develop lifelong learners
• Open innovations are only possible with the right IP laws
and IP protection in place like Creative Commons
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 How it can be
achieved
• Innovation should start at the top, with leaders/ CEOs who provide
strong direction for innovation and establish organizational cultures
and climates that are conducive to innovative activity
• Define a managed innovation process that coordinates the
relationship between external and internal resources
• Information sharing can be done through forums, fairs, workshops
and conferences with industry and academic guests.
• Internet technology can help in collaboration and access to
information.
• Better understanding of customer needs to derive innovation
• Collaborate with local industries and academia (QU, Education City,
QSTP) to develop and nurture open innovation
• Measure quantitative and qualitative innovation outcomes to track
results towards defined objectives.
• Culturally, we need to be willing to accept failure

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 Thank You!

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