Skin in

the game
How telecom
operators can
win with gaming
Contacts
Beirut
Hicham Fadel
Partner
+961-1-985-655
hicham.fadel
@strategyand.ae.pwc.com

Dubai
Jad El Mir
Principal
+971-4-436-3000
jad.elmir
@strategyand.ae.pwc.com

Johnny Yaacoub
Manager
+971-4-436-3000
johnny.yaacoub
@strategyand.ae.pwc.com

About the authors

Hicham Fadel is a partner with Strategy& Middle Johnny Yaacoub is a manager with Strategy&
East, part of the PwC network. Based in Beirut, Middle East. Based in Dubai, he is a member of
he is a member of the telecommunications, the telecommunications, media, and technology
media, and technology practice in the Middle practice in the Middle East. He specializes
East. He specializes in strategic transformations in commercial go-to-market, performance
for mobile and integrated operators, with a focus turnaround, and customer experience strategies,
on commercial turnarounds, customer analytics, with particular focus on digital product design
analytical marketing, customer experience, and and agile development.
operating models.

Jad El Mir is a principal with Strategy& Middle

East. Based in Dubai, he is a member of the
telecommunications, media, and technology
practice in the Middle East. He advises
telecom operators and digital players on large
performance and strategic turnaround projects.
He specializes in the convergence of telecom
and media and entertainment.

Christelle Azar also contributed to this report.

Strategy& | Skin in the game 4

EXECUTIVE SUMMARY

Video gaming is an exciting opportunity for telecom operators. They can tap into this
rapidly growing market and diversify their business using their existing capabilities. This is
a particularly attractive proposition for operators in the Gulf Cooperation Council (GCC)1
region, where more than half the population is under 25 years of age.2

A successful foray into video gaming would improve the brand positioning of telecom
operators and increase the loyalty of their customers. Gaming would increase data usage
and produce some boost in revenue. Significantly, gaming would generate more data about
customers, which means improved behavioral analytics for a more targeted customer
experience and increased monetization.

Operators that choose to exploit video gaming need realistic short-term goals, and should build
on their experience to go further if desired. The first stage is associating brands with gaming,
which costs little. Operators should offer experience-enhancing products and services. They
can also host servers for top developers or sponsor events, largely through partnerships with
gaming companies.

Operators can then become involved in game development, again with partners. That means
launching some simple games, or making games relevant to GCC audiences. If successful,
operators could eventually develop their own games and compete with global game publishers.

Another way to associate with gaming is through investment in eSports, which are spectator events
in their own right. Operators can launch events and form eSports teams to compete worldwide.

Operators need enhanced capabilities in this market. They should be adept at selecting the
right partners and pursuing acquisitions. They will need excellent market research and insight.
Whether operators simply host video games or fully engage in their own game development,
state-of-the-art network infrastructure will be essential.

Strategy& | Skin in the game 1

THE GAMING INDUSTRY IS POWERING UP

Video games are a global cultural force. They are competing for individuals’ leisure time with
other entertainment activities like movies, books, and arts. The video game Grand Theft Auto V,
for example, achieved seven Guinness World Records after its release in 2013, including a world
record for US$1 billion of sales within three days of its release.3 It is estimated that there are now
2.5 billion gamers worldwide. Gabe Newel, owner of Valve, a video game developer, publisher,
and digital distribution company, mentioned that when an update is released on the company’s
Dota 2 game, the worldwide internet traffic grows by 2 percent to 3 percent.4 Netflix has even
said that Fortnite, the online video game, is a bigger threat than HBO.5

Just look at the GCC region. Describing the popularity of gaming in his country, FIFA player
Mosaad Aldossary, known online as “Msdossary,” said that “in Saudi Arabia, every family has
a video gaming console.” In 2018, Msdossary became the first Saudi national to win the FIFA
eWorld Cup, an event for which more than 20 million gamers attempted to qualify. In 2019,
gamers in Saudi Arabia are receiving a bonus: The country is hosting the region’s largest global
gaming tournament, PlayerUnknown’s Battlegrounds (PUBG) Mobile Star Challenge World Cup.6
Meanwhile, in the United Arab Emirates (UAE), for example, the median number of hours spent
playing video games each week has reached 14 hours.7

The gaming industry has grown faster than anyone could have ever imagined. It is now a
US$129 billion-a-year business. In terms of revenue, that is larger than annual worldwide box
office, annual music streaming and album sales, and the combined annual take of the top five
wealthiest sports leagues: the National Football League, Major League Baseball, the English
Premier League, the National Basketball Association, and the National Hockey League.8 Every
sports league in the world is worried. For telecom operators, however, video gaming represents
an opportunity to play in an area that has enjoyed massive growth in recent years.

Gaming is a comprehensive ecosystem in which global companies do business, and there are
opportunities for individuals to make money. Live streaming is one of the main reasons video
games have taken off, with gamers streaming themselves playing games in real time. Tyler
Blevins, known online as “Ninja,” is one of the most popular professional gamers. He earned
more than half a million dollars a month at the height of his popularity.9 Each day, fifteen million
people watch gamers live stream on Twitch, the world’s largest streaming platform. In this way,
games like Fortnite, PUBG, and League of Legends are transformed into enormous sporting
events.10 In 2019, Kyle Giersdorf, known online as “Bugha,” won the Fortnite World Cup and
took home $3 million, even more than the money awarded to the male or female winners of the
Wimbledon tennis championship.11

These are the headline-grabbing stories. What lies behind them is the core structure of the
gaming business. This consists of a plethora of developers, distributors, monetization channels,
and device manufacturers producing and enabling hit games across genres. It is this general
context that telecom operators need to understand if they are to make the appropriate play in
gaming, so that they can tailor their internal capabilities accordingly.

2 Strategy& | Skin in the game

To envision the practicalities of how the gaming industry operates (see Exhibit 1, pages 4-5),
think about EA Sports (a division of Electronic Arts that develops and publishes sports video
games) releasing the latest FIFA 2020 on mobile, consoles (Xbox and PlayStation), and PC. The
game is distributed to the public online through app stores, digital media stores (for example,
PlayStation Store), and other portals, or offline as CDs through retailers. These publishers
enable monetization through in-app purchases or adverts, and maintain an online support
presence for any technical issues gamers face. Thus, gamers can enjoy playing FIFA 2020 on
their device of choice.

Then there are the key complementary components of the industry. These include the ever-
more-popular events and conventions such as gamescom and E3 that are popping up in cities
around the world, showcasing the latest and greatest in gaming tech, and the thousands of
online gaming communities such as Twitch and Reddit where users can stream their gaming
reviews and walkthroughs and have access to game news.

Last but not least, there is the eSports industry, which has taken the world by storm. Here
professional players and teams pit their wits against each other in competitive pro leagues and
tournaments to win lucrative prizes.

Conventional wisdom says that an industry is on a major upward curve when the likes of Google
and Microsoft seek to disrupt it. That is exactly what is happening with cloud gaming, which
allows gamers to play sophisticated, “open-world” games directly on the web through streaming
instead of downloading them onto their devices. With cloud gaming, gamers don’t need to
spend money on constantly updating gaming devices just to play the latest games, which is
why even device manufacturers such as NVidia are investing in the cloud space as a hedge for
the future.

Last but not least, there is the eSports industry, which has taken
the world by storm. Here professional players and teams pit
their wits against each other in competitive pro leagues and
tournaments to win lucrative prizes.

Strategy& | Skin in the game 3

EXHIBIT 1
Gaming is a comprehensive ecosystem

Core gaming
Using your device of choice to play your favorite games

Developers and publishers

Distributors
Offline retailers
Monetization channels

Games

Devices Complementary gaming

Engaging in the vast online
and offline communities
of the gaming world

Offline Online

Conventions User-
generated
and exhibition video content
events platforms

Physical
Forums and
meetup
communication
communities

Merchandise News outlets

eSports
Tuning into your eSports channel to follow your favorite league and watch a
tournament where players compete in packed venues for coveted prizes

eSports distributor platforms and channels

Leagues

Competition events and tournaments

Coaches Teams Teams’

and players organizations

Venue owners

Brands and advertisers

Source: Strategy&

4 Strategy& | Skin in the game

Core gaming
Developers and EA, Nintendo, Activision Blizzard, EPIC Games, Sony, etc.
publishers
Distributors App stores (Apple Store, Google Play), OEM built-in (PS
Store, Samsung, etc.), portals (Steam, Battlenet, etc.),
cloud (Stadia, Hatch, etc.), etc.
Monetization channels Online ad platforms, in-app or in-game purchases, etc.
Offline retailers GameStop, Game Retail, etc.
Games Action (PUBG, Fortnite); sports (FIFA); role playing (Dota);
adventure (Red Dead Redemption); strategy (StarCraft);
racing (Need for Speed), etc.
Devices Mobile phones, tablets, PCs, consoles, VR sets, etc.

Complementary gaming
Conventionsand exhibition events E3, EGX, gamescom, GDC, etc.
Offline Physical meetup communities Internet cafés, gaming venues, etc.
Merchandise Raven, EGL, H4X, Sector Six, etc.
User-generated video content Twitch, YouTube Gaming, Mixer, etc.
platforms
Online
Forums and communication Reddit, TeamSpeak, Discord, Esh, etc.
News outlets IGN, VB, The Score, etc.

eSports

eSports distributor ESPN, Twitch, Mixer, etc.

platforms and channels
Leagues ESL, Overwatch League, League of Legends Championship
Series, PUBG Global Championship, etc.
Competition events and The International, Intel Extreme Masters, Overwatch World
tournaments Cup, Fortnite World Cup Finals, etc.
Coaches Game Coach, Gamer Sensei, etc.
Teams and players N0tail JerAx, ana, etc.
Teams’ organizations Team Liquid, Cloud 9, etc.
Venue owners Fukuoka Convention Center Foundation, Fusion Arena,
Blizzard Arena, The Fortress, etc.
Brands and advertisers Coca Cola, Redbull, Nissan, etc.

Strategy& | Skin in the game 5

EYES ON THE PRIZE

Throughout the world, gaming revenue has seen strong growth in recent years, with the global
market value forecast to increase from $73 billion in 2014 to $146 billion in 2021 (see Exhibit 2).

EXHIBIT 2
Game on!
Global gaming industry overview (2014–2021)

Global video gaming market value (in US$ billions)1 Number of active video gamers worldwide (in billions)2

+7% +5%
146 +6% 2.7
+13% 138 2.6
129 2.5
2.3
118 2.2
110 2.1
2.0
97 1.8
84
73

2014 2015 2016 2017 2018 2019 2020 2021 2014 2015 2016 2017 2018 2019 2020 2021

1
PwC Global Entertainment & Media Outlook 2019–2023. 2014-2018 are actuals, 2019–2021 are forecasts.
2
Statista. 2014–2017 are actuals, 2018–2021 are forecasts.
Note: Percentage increases are compound annual growth rates.
Source: PwC Global Entertainment & Media Outlook 2019–2023, Statista

6 Strategy& | Skin in the game

Mobile gaming currently leads all gaming categories in value, and in average revenue per
user (ARPU) (see Exhibit 3). Meanwhile, the online video gaming market should receive a
considerable boost from the entry of players such as Microsoft and Google into the relatively
small field of cloud gaming.

EXHIBIT 3
Mobile gaming is in the lead
Global gaming industry trend (2017–2021)

Global video gaming market value by type CAGR ARPU

(in US$ billions)1 (2017–2021) (US$, 2017 and 2021)

87
84 Online
81 Streamed or partially
77 16% 3.1% 19 18
72 16% downloaded games played
16% online on consoles, PCs,
16%
16% or browsers
18%
18%
18%
18%
18% Download
Games that are downloaded 5.3% 13 14
onto consoles and PCs —
typically played offline

66% 66% 66%

66% 66%
Mobile
All mobile gaming apps that are 5.0% 54 51
downloaded onto devices —
can be played online or offline

2017 2018 2019 2020 2021

1
Boxed video game sales, demo/trial versions, and free-to-play games are not included.
Note: 2017–2018 are actuals, 2019–2021 are forecasts from Statista. CAGR = Compound annual growth rate, ARPU = Average revenue per user.
Source: Statista; Strategy& analysis

In terms of the complementary components of the industry, the eSports market is likely to
undergo substantial growth from its currently low base. The acquisition of sponsorship,
advertising, and media rights is projected to increase its annual global revenue to more than
$1.7 billion by 2021, around 1 percent of the total gaming market.

Strategy& | Skin in the game 7

In line with the overall global trend, the GCC gaming market has grown. Although the UAE was
the largest gaming market in the region in 2018, Saudi Arabia is expected to expand rapidly and
become the largest market from 2019 onwards (see Exhibit 4). As elsewhere in the world, the
mobile gaming segment in the GCC dominates the region’s gaming market when it comes to
revenue and penetration.

EXHIBIT 4
GCC gaming is growing
Overview on video gaming industry in the GCC (2017–2021)

GCC video gaming market value (in US$ millions)1

+4.3% CAGR
821 (2017–2021)
800
773
739
693
3% 3% 3% 3% 3%
8 8 8 Bahrain 7.1%
9 9
Oman 0.4%
10 10 10 10 10
Qatar 4.9%
13 12 12 12 11
Kuwait 0.8%

33 32 32
35 33 UAE 2.3%

33 34 35 36
30 Saudi Arabia 8.5%

2017 2018 2019 2020 2021

1
Boxed video game sales, demo/trial versions, and free-to-play games are not included.
Note: 2017–2018 are actuals, 2019–2021 are forecasts from Statista.
Source: Statista; Strategy& analysis

Market research indicates that global games devised by international developers have captured
the lion’s share of opportunity in the GCC.12 The top mobile games played in the GCC today
are PUBG Mobile, Intikam Al Salatin, Fortnite, and Rise of Kingdoms. However, the demand for
localized content remains strong and to an extent unfulfilled. This creates a potential for global
players to modify their content to satisfy GCC users, or for GCC users to adapt global content
themselves. Indeed, regional players such as gaming studio Falafel Games and Arabic mobile
games publisher Tamatem Games have started to emerge through building on their culturally
relevant content.

There is clear growth in eSports events, competitions, and investments in the GCC. New
venues such as Challenge Arena and Clix gaming lounge in Saudi Arabia and the planned Dubai
X-Stadium in the UAE have sprouted and established several competitions to date, suggesting
an increase in popularity. Meanwhile, local eSports players such as Msdossary are posting
world-class results.

8 Strategy& | Skin in the game

EMBARKING ON THE QUEST

The size of this opportunity means that it is now game on for telecom operators. The timing
of this opportunity could not be better. Telecom operators’ core revenue streams are flagging
and their markets are saturated. At the same time, they have to keep investing in infrastructure
to cope with the tremendous increase in mobile data consumption. Making matters worse is
disruption from over-the-top players and competitive pricing, which have contributed to the
decline in overall revenue and ARPU.

Adding to the pressure, operators are seeking to satisfy rising consumer demand for more
digital and sophisticated offerings, while countering the associated decline in customer loyalty.
Telecom operators possess considerable advantages in infrastructure, brand awareness,
access to a wide customer base, a developed understanding of customer behavior that enables
analytical targeting, and a natural service fit where digital services can seamlessly complement
existing telecom services. They have been searching for ways to use these advantages to invest
in new potential areas of growth, such as media and entertainment, or financial services.

These challenges are similar to those that experienced gamers face. Stay on the same path, and
eventually it is game over. Make a rash decision, a leap into the unknown, and the result could
be just as bad. There is an alternative, however. A wily gamer knows when to explore a new
path. Video gaming represents precisely that alternative approach for telecom operators.

These companies are already equipped to secure an immediate bridgehead by exploiting their
existing capabilities, before then deciding whether to attempt further expansion. Although a
successful foray into video gaming might not translate directly into a significant increase in their
overall revenue, the indirect impact on financial performance is likely to be substantial over time.
Strategy is not about instant gratification, but about a satisfying, long-term payoff.

There are major benefits for telecom operators that establish themselves in video gaming.
Telecom operators should not expect visible incremental revenue in the short term but rather
important intangible benefits with significant potential impact. The first benefit involves brand
positioning. An association with video gaming would alter customer perceptions of the operator.
These perceptions could change from seeing the company as a seller of digital services,
necessary but uninteresting, to perceiving it as a provider of exciting and appealing gaming
experiences. The change in brand perception would be most significant among the digitally
adept younger population. It would make them more receptive to its offerings in general. With
more than half of the population of the region under 25, these young customers, with their heavy
consumption of data, are a valuable prize for operators.

The second benefit would be increased customer loyalty. If that younger population is impressed
by the operator’s venture into gaming, then this may increase their loyalty to the brand,
thereby reducing customer churn. In an era in which traditional telecom services are becoming
increasingly commoditized, loyal customers are like the pot of gold at the end of the game.

Strategy& | Skin in the game 9

The third benefit would be a higher ARPU, driven by dedicated consumer gaming products and
services, typically around quality of service. The overall video gaming ecosystem would further
increase data usage, the main growth area among operators’ core revenue streams, further
offsetting declining sources of income, such as voice calls.

The fourth benefit would be that operators would get to know their customers much better.
Growth in customers using gaming offerings will generate greater amounts of data relating to
customer behavior. Operators will be able to target offerings and provide an improved customer
experience. This means operators extracting more value from interactions with existing customers.

These challenges are similar to those that experienced gamers

face. Stay on the same path, and eventually it is game over. Make
a rash decision, a leap into the unknown, and the result could be
just as bad. There is an alternative, however. A wily gamer knows
when to explore a new path. Video gaming represents precisely
that alternative approach for telecom operators.

10 Strategy& | Skin in the game

 HOW TO PLAY THE GAME

Like an actual game, the video gaming value chain involves multiple, different players. Operators
need to understand these players so that they can build their own ways to play, and their own
ways to win in this growing market.

For the core gaming part of the industry, there are developers and publishers, distributors and
retailers, and device manufacturers. In the complementary part, the largest element is eSports,
which consists of such components as teams and leagues, event organizers, distributors,
gaming platforms, and advertisers (see Exhibit 5). Then there are the components of other
complementary services, such as online media portals for gaming video content, conventions
centered on gaming, and facilities for gaming community interaction, such as gaming cafés and
social media.

EXHIBIT 5
A telecom operator’s view of the gaming value chain

2 Distributors/Retailers
5
1
Game operations
Core
gaming
Developers/Publishers
3 Device manufacturers

4 Monetization channels

Complementary 6 eSports
services
7 Other complementary services
Gaming video content, conventions and events, gaming community, etc.

Enablers
8 Infrastructure enablers
Demand-side (internet connectivity, etc.), supply-side (server hosting, etc.)

Source: Strategy&

Strategy& | Skin in the game 11

Finally, there is the infrastructure layer — operators’ bread and butter — which enables the
demand for, and the supply of, video gaming.

There are numerous ways to play and as many to win. Telecom operators have the choice of
four different ways to play along the value chain for core activities, plus an additional way to
play that focuses on launching eSports entities (see Exhibit 6).

EXHIBIT 6
Telecom operators have five ways to play

PLAY VALUE CHAIN COMPONENT

Distributors/Devices/Ops
Developers/Publishers
INFRASTRUCTURE PLAY Monetization channels
1 eSports/GVC/Conventions Community
Infrastructure enablers

Distributors/Devices/Ops
Developers/Publishers
DISTRIBUTOR PLAY Monetization channels
2 eSports/GVC/Conventions Community
Infrastructure enablers

Distributors/Devices/Ops
INITIAL Developers/Publishers
Monetization channels
DEVELOPER PLAY
3 eSports/GVC/Conventions Community
Infrastructure enablers

Distributors/Devices/Ops
ADVANCED Developers/Publishers
Monetization channels
DEVELOPER PLAY
4 eSports/GVC/Conventions Community
Infrastructure enablers

ESPORTS PLAY eSports (distributor platforms and channels, leagues, events and
tournaments, teams and players, venues, etc.)
5
No play Light play Heavy play

Note: GVC = Gaming video content.

Source: Strategy&

12 Strategy& | Skin in the game

Infrastructure play
Providing enhanced connectivity through infrastructure is the simplest way to play for operators.
It is also the safest and least ambitious. Operators can supply data packages offering better
quality of service (lower latency) for gamers, potentially bundled with gaming hardware, content,
and online platform subscriptions. Many leading companies around the world, including in
Malaysia, Singapore, and the U.S., have already taken this path. Operators can also co-locate
and host the servers of top developers to enhance the user experience for gamers. Supplying
connectivity to major eSports events is another way operators can associate themselves more
closely with the gaming community.

Distributor play
Building on the infrastructure play, operators can create partnerships with leading
gaming companies. This allows customers access to exclusive game releases or in-game
advertisements of the operator’s own products. It also enables direct carrier billing (DCB)
for popular games, making it possible for users to complete in-game purchases by charging
payments to their phone bill, as is done throughout the world for apps from Google Play13 or
the Apple Store. As cloud gaming develops, operators are partnering with cloud gaming service
providers to distribute their platform. For example, Etisalat joined forces with Gamestream to
offer cloud gaming services to its customers. Moreover, operators can share eSports content on
their streaming platforms to enrich their portfolio. They can also sponsor and engage in eSports
tournaments and gaming conventions, as well as pursue efforts to improve brand perception,
such as through in-store initiatives. For example, SK Telecom in South Korea partnered with
Niantic, Pokémon Go’s developer company, to rebrand 4,000 of its stores through Pokémon and
deploy Augmented Reality to boost customer interest.14

Initial developer play

The next stage involves close partnerships with developers. The goal is to make gaming content
more relevant for GCC subscribers. That can mean translating games into Arabic, or adapting
images and the storyline to the GCC culture. This is particularly relevant to GCC operators,
given cultural sensitivities that lead to certain top games not being allowed in some markets.
This play would also see a more robust entry into complementary services, such as hosting
tournaments and gaming conventions. For example, Verizon entered the eSports arena by
hosting a tournament in Dallas in 2015.15 NTT Docomo, the Japanese operator, sponsored the
game event EVO Japan in 2019, showcasing its new partnership with a major gaming company
as well as its plans for 5G.16

Advanced developer play

This play entails the operator developing and launching its own games and products. At this
stage, the operator is confident and ready to take on the dominant players. Like gamers who
have earned their stripes, now is the time to be bold. For example, Indonesian wireless network
provider Telkomsel launched Shellfire, a popular mass online battle arena and first-person
shooter game, utilizing its own distribution network to promote the game to users. Turkcell, the
Turkish operator, introduced digital board games on gaming platforms through its subsidiary
Inteltek. In this play, the operator enters into partnerships only to secure solutions needed in
respect of distribution, monetization, and gaming devices. Operators can achieve a still more
forceful entry into the complementary market by launching online communities and Internet
cafés. Dunia Games, Telkomsel’s online gaming portal in Indonesia, offers articles, reviews,
trend reports, and information on eSports events.

Strategy& | Skin in the game 13

eSports play
The eSports arena lies outside the core of the video gaming industry. For this play, the operator
will need to invest heavily by launching its own events and building its own eSports teams to
compete worldwide. This would position the operator at the forefront of the gaming ecosystem
and the minds of its customers. For example, Mobile TeleSystems (MTS) in Russia acquired
Gambit eSports, an owner of four eSports teams, for approximately $5 million in 2018, while
AT&T now owns ELeague, an eSports league, through its acquisition of the league’s parent
company, Time Warner.17 Movistar eSports, owned by Telefónica, aims to become the largest
provider of Spanish-speaking eSports content.18

Operators can make use of various business models to implement these ways to play:

• Partnerships with gaming companies to access their gaming development capabilities

and offerings

• Partnerships with other telecom operators to make use of each other’s capabilities and
assets, and jointly utilize channels to expand the popularity of regional eSports

• Strategic investments in gaming companies (for example, through purchasing shares or

funding), with the operator obtaining access to their gaming portals in exchange

• Acquisition of a gaming company, thereby gaining access to its subscribers

• In-house gaming development by the operator itself

14 Strategy& | Skin in the game

OPERATORS’ CREED: THE WAY FORWARD

The gaming prize is tempting but risky. Operators need to play their way forward with care and
craft. They need to develop a road map that marries their ambitions with available capabilities.
As they acquire experience and market knowledge, they will progress in the gaming market,
proceeding to the next level. To do so, operators will need to set realistic short-term goals,
medium-term ambitions, and a long-term vision.

The first goal for operators should be to earn some gaming credibility with gamers. That means
associating their brand with gaming so that customers immediately think of games when they
encounter the operator’s brand. To date, this has usually been achieved through the distributor
play. Building credibility entails providing services and content to gamers through exclusive
releases, dedicated bundled packages and integrated payment services, and engaging in
eSports events or sponsorships. Such activities do not require significant direct investment.
Instead, these objectives could be achieved largely through partnerships with companies in the
gaming industry.

Once they have established some credibility, operators can start to become familiar with the
developer side of the value chain through the initial developer play, rather like gamers feeling
their way through a new scenario. In this way, they can consolidate their position in the gaming
ecosystem by working with partners to launch some simple games, or make some highly
popular games more relevant to local audiences. They can push their eSports agenda through
the acquisition of content or teams or entities. They could also contemplate some limited
investment in their own development capabilities at this stage.

With these ventures completed, operators should have established the requisite level of trust
with customers. They should have acquired a nucleus of loyal gamers happy to associate
themselves with the brand. Should they decide on further expansion at this point, they can
commit themselves to developing their own games. At this level, they will compete with global
game publishers (see Exhibit 7, page 16). The vision of dominating the gaming market and
community within their own region could then become a realizable ambition. Telkomsel offers
one example of a company that has moved successfully through the various stages to establish
itself as a major player in the gaming industry (see “Success mode in Indonesia,” page 16).

Strategy& | Skin in the game 15

EXHIBIT 7
The way forward for telecom operators

ADVANCED
DEVELOPER PLAY
INITIAL DEVELOPER PLAY
- Own game
DISTRIBUTOR PLAY development
- Localized top games - Dedicated bundled
- Simple game packages
- Exclusive releases development - Integrated payment
- Dedicated bundled - Dedicated bundled services
packages packages
- Integrated payment - Integrated payment
services services

ESPORTS PLAY
eSports events eSports acquisitions
and sponsorships (content, teams, entities)

Associate themselves Solidify their role in Dominate gaming market

with gaming the gaming ecosystem and community

Source: Strategy&

Success mode
in Indonesia
Telkomsel is a leading Indonesian telecom operator that Finally, it successfully launched its first mass online
established itself successfully as a leader in consumer battle arena and first-person shooter game, Shellfire,
gaming. It started off in the industry as a distributor in 2018 — with plans to develop seven additional
with the launch of its Dunia Games web portal in 2013, games. All throughout, Telkomsel was increasingly
allowing customers to download games and directly active on a complementary front, boosting its Dunia
charge them to their phone bill through DCB. Then in portal with gaming articles, reviews, and trend reports,
2017, in an initial developer play, Telkomsel partnered launching the Indonesia Games Championship eSports
with games such as PUBG to activate special in-game tournament, as well as introducing special advertising
offers for customers subscribed to their dedicated initiatives in local gaming communities. By 2019,
online games data package. Telkomsel achieved a 22 percent market share of
Indonesia’s gaming industry.19

16 Strategy& | Skin in the game

LEVELING UP

Gaming success will depend on getting capabilities right. Recognizing the enticing market
opportunity of a young GCC customer base is important, but attracting those customers will
require considerable skill.

As newbies in the video gaming market, telecom operators will need to make use of their
various existing capabilities, such as infrastructure, a broad customer base, an established
brand, and strong distribution channels. A high-performing operator would also be able to tap
into numerous other invaluable capabilities that have been built up over the years. These would
include strong marketing expertise, a superior analytics team, advanced payment options, and
high-quality customer care.

As they become further immersed in the industry, operators will need to develop their internal
capabilities further to meet customer needs. First, they will need to develop a cross-functional
operating model for gaming, as it requires collaboration throughout the organization. This would
involve defining and demarcating roles and responsibilities, setting key performance indicators
for each gaming initiative, and ensuring the transfer of gaming knowledge between business
and functional units. Second, operators will have to recruit top talent for gaming, including
gaming-oriented marketing and customer support teams. Third, where necessary, they will have
to upgrade technology requirements for specific gaming initiatives, such as server capabilities.
Whether acting as hosts for other gaming companies or developing and marketing their own
games, an advanced state-of-the-art network infrastructure delivering superior quality of service
(lower latency) will be a vital requirement, either through fiber-to-the-home connectivity or
through 5G mobile technology.

Operators will also need the appropriate capabilities to take on the complementary components
of gaming, most notably eSports. These would include prudent selection of events to sponsor,
access to funding for acquiring and operating an eSports team, skills for setting up and
managing tournaments and events, and ability to bring together sponsors and renowned
players. To promote their eSports streaming offerings, operators will also need access to
premium and attractive content, most notably from popular gamers and streamers.

Building or developing such capabilities need not occur organically. The ability to select the
right partners, or even acquisitions, across the value chain will be crucial. A venture into cloud
gaming will require partnerships with cloud developers. Making top-quality games relevant for
regional audiences calls for partnerships with top game developers and localization experts. If
operators move into developing and launching their own games, access to partners with game
development capabilities and more diverse distribution channels will be necessary. At all stages
of their development, operators will rely on market insight into the various areas of the gaming
industry, and will thereby be able to determine their own readiness and chances of success.

Strategy& | Skin in the game 17

CONCLUSION

The video game niche is a tremendous opportunity for GCC telecom operators. Like gaming
itself, exploiting that niche demands skill, patience, and the right strategy. Operators can use
gaming to improve their brand positioning and connection to young customers. They can test
their own suitability for the gaming industry by progressing steadily and with caution in the first
instance. In time, they may wish to advance more aggressively, even developing and launching
their own games. Each stage of this process requires a reappraisal of internal capabilities, and
further investment may be required to address any potential shortcomings for the next phase of
development. Just like a complex game, operators may find the gaming market baffling at first,
but in time they will grow in confidence. At that point, they will be on course for victory.

18 Strategy& | Skin in the game

ENDNOTES

1. The GCC countries are Bahrain, Kuwait, 7. Mideastmedia.com (http://www.

Oman, Qatar, Saudi Arabia, and the United mideastmedia.org/survey/2016/
Arab Emirates. chapter/games/).

2. Abdulrazak Abyad, “Demographic 8. Raul, “Which Professional Sports Leagues

Changes in the GCC Countries: Reflection Make the Most Money?” Howmuch.net
and Future Projection,” Middle East (https://tinyurl.com/zf9gweb)
Journal of Age and Ageing, vol 5, issue 1,
February 2018 (http://www.me-jaa.com/ 9. Tae Kim, “Tyler ‘Ninja’ Blevins explains
February%202018/GCC.pdf). how he makes more than $500,000 a
month playing video game ‘Fortnite,’ ”
3. Kevin Lynch, “Confirmed: Grand Theft CNBC, March 19, 2018 (https://tinyurl.
Auto 5 breaks 6 sales world records,” com/yah8jxan)
Guinness World Records, October 8, 2013
(https://tinyurl.com/whzzf99) 10. Sarah Perez, “Twitch now has 27K+
Partners and 150K+ Affiliates making
4. Julian Benson, “Dota 2 accounts for 3% money from their videos,” Techcrunch,
of the world’s internet usage every time an February 6, 2018 (https://tinyurl.com/
update is pushed out,” PCGamesN, May y72uxoza)
5, 2012 (https://tinyurl.com/sv36tun).
11. Annie Pei, “Here’s the 16-year-old who
5. John Archer, “Netflix Reveals That Its won $3 million at the Fortnite World Cup,”
Biggest Threat Is... ‘Fortnite,’” Forbes, CNBC, July 30, 2019 (https://tinyurl.com/
January 17, 2019 (https://tinyurl.com/ rvga7wr).
ua6thj7)
12. Market research of gamers in Saudi
6. Arab News, “Saudi Arabia to host region’s Arabia, conducted by Strategy& in 2019.
largest global gaming tournament,”
October 18, 2019 (https://www.arabnews.
com/node/1570421/saudi-arabia).

Strategy& | Skin in the game 19

13. For example, George Malim, “Bango 17. Graham Ashton, “MTS Acquisition of
launches direct carrier billing with Gambit Esports’ Parent Company Valued
Google Play and Idea Cellular,” Vanilla+, at Roughly $5M,” The ESports Observer,
May 5, 2016 (https://www.vanillaplus. May 2, 2018 (https://esportsobserver.com/
com/2016/05/05/17834-bango-launches- mts-gambit-esports-valuation/).
direct-carrier-billing-with-google-play-and-
idea-cellular/). 18. Jacob Hale, “Telefónica creates the
Movistar Riders Academy,” eSports
14. Teleinfotoday, “SK Telecom Signs Insider, March 25, 2018 (https://tinyurl.
Partnership Agreement with Niantic, Inc. com/wjklq7p).
and The Pokémon Company” (https://
tinyurl.com/r77tn4l). 19. Oliver Ring, “Mineski to invest $2 million
in Indonesia as it aims to bring Indonesian
15. John Gaudiosi, “Here’s why Verizon is esports “to the next level,” Esports Insider,
breaking into eSports,” Fortune, August December 17, 2018 (https://tinyurl.com/
6, 2015 (https://fortune.com/2015/08/06/ y9pkghwa).
verizon-esports/).

16. Rovio Entertainment Corporation, “Rovio

Entertainment Corp.: Hatch enters
strategic partnership with DOCOMO for
Japan,” globalnewswire.com, February 5,
2019 (https://tinyurl.com/ueuzold).

20 Strategy& | Skin in the game

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