Why would a telco ever buy a groceries startup?

In the previous issues of this newsletter, we were focusing on how telecom operators pursue digital transformation and how they design their architecture. The current article explores how e& transforms its business model.

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The telecommunications business was always investment heavy in favor of earning stable recurring revenue from millions of subscribers. Telcos possess expensive assets under the ground. In the last century, these companies made significant investments in copper-based networks. As technology advanced, they started investing in fiber infrastructure. These investments in fiber optics have become crucial assets, enabling them to meet the evolving mobile and fixed service needs of customers in an increasingly digital and data-driven world.

At the beginning of the 2010s years, telecommunications companies faced the challenge of eroding voice call and SMS revenues caused by the rapid adoption of VoIP services and popular chat applications like Skype, Viber, and Whatsapp. As consumers increasingly embraced these alternative communication methods, traditional voice calls and SMS have experienced a decline in demand. This shift in consumer behavior was driven by factors such as cost-effectiveness and convenience. Telcos are on the slope ever since the business became less profitable. Let’s have a look at how operators can make good money in 2023 if they sit on top of a large heap of capital to invest.

1.) What is e&?

e& was formerly known as Etisalat Group, was rebranded as the new name is a better fit for the group’s positioning.

2.) The vision of e&

Note that the telecommunication business is not even mentioned in the vision. Operators were always keen on selling adjacent services for large enterprise customers (e.g. system integration engagements or cloud computing), and the organization has a good baseline and capabilities for such services. Although, investments are a path that only a handful of telcos took.

3.) The strategy of e&

Revenue from telecom services is expected to remain the steady pillar of the group.

You can find in the next section which acquisitions were made to increase the non-telco revenue.

Digital native services reshaped customer expectations, businesses cannot survive without addressing those expectations.

As per a 2021 Boston Consulting Group study, the telecom industry accounts for 3 to 4% of global CO2 emissions, about twice that of civil aviation. And with global data traffic expected to grow around 60% per year, the industry’s share will grow further unless investments in energy efficiency and renewables can offset the effect.

4.) What e& did in 2022 towards this strategy?

Many acquisitions.

Smiles started as a loyalty program for Etisalat UAE’s subscribers, now it is a lifestyle app available for everybody in the UAE. It is a marketplace. Beyond groceries, Smiles also offers food delivery, hotel booking, cinema tickets, car insurance, home cleaning, salon treatments at home, handyman, plumber, pest control, laundry, and many more. This is a whole new level of increasing customer stickiness, beyond loyalty deals and rewards. Smiles leverages the power of long tail.

It is the most obvious move for every telecom to leverage the existing connectivity and data center assets to have a B2B cloud computing offering, nonetheless, barely any of them was able to come up with a decent alternative against AWS/Azure/GCP in the last 10 years. The Middle East is a different market, the governments take seriously data ownership/residency. The regulation is not in favor of transferring PII data outside the country. Therefore, such a joint venture has a strong rationale.

The VOD OTTs are the most annoying players for telcos. VODs are beneficiaries of all the infrastructure investments that a telco pay for (enabling B2C customers’ data traffic), but OTTs cannibalize the revenue from TV subscriptions. With this acquisition, e& gets a slice of the OTT pie.

Other important investments:

5.) Conclusion

As per its annual report, e& already “transformed from a telecommunications company into a technology and investment group and expanded into new business verticals”. Indeed, 2022 was a remarkable year for the company. e& expects that “the majority of the revenue growth will come from investments and the successful integration of non-UAE telcos”. Do you agree that buying a groceries startup absolutely makes sense?

Join me to explore how digital transformation initiatives can perform better in the telecommunications industry.

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Read more:

1. 3 Tales from Greenfield

2. Reference architecture of modern telecom operators

3. Reference architecture of legacy telecom operators

4. What is wrong with the telecom operators’ Fixed Price / Fixed Scope engagements?

5. 6 reasons why digital transformation fails at every telecom operator

This is a personal post. The views and opinions expressed here are only those of the author and do not represent those of any organization or any individual with whom the author may be associated, professionally or personally.