Competitor shakes up Qatar's telecoms market

14 September 2010

A second operator in Qatar telecoms market is causing a stir, but despite threats of legal action and intervention from the regulator, the increased competition has its advantages

In numbers

$2.12bn: Licence fee paid by Vodafone Qatar for mobile phone services

QR24bn: Qtel’s revenues in 2009

23 per cent: UK-based Vodafone Group’s stake in Vodafone Qatar

Source: MEED

As new mobile phone licences are awarded across the Middle East’s telecoms sector, many long-established industry giants in the region have had to face up to a new reality – competition.

When Vodafone Qatar – a consortium that includes the UK’s Vodafone – was awarded the second mobile phone licence in Qatar in December 2007 after submitting a bid of $2.12bn, the state-owned Qatar Telecom (Qtel) found itself in the unenviable position of having to compete against one of the world’s most recognisable brand names.

The result was a huge row between the state-owned telecoms monopoly and two of the UK’s largest telecoms operators, with threats of legal action and finally an intervention from the country’s telecoms regulator.

Telecoms pricing in Qatar

“The competition model is not something that is completely familiar to the [telecoms sector] in the region and certainly in Qatar the second licence was something new,” a source at Vodafone Qatar says. “People in Qatar are certainly reaping the benefits since Vodafone entered the market in regards to competitive pricing. It has made Qtel raise their game as well and they have made significant changes since we entered the market.”

Competition has been good for everyone in Qatar - the customers, the community and for the operators

Nasser Marafih, Qtel

The threat Vodafone Qatar posed to Qtel became apparent as soon as the fledgling operator entered the market on 1 March 2009. Many expatriate workers familiar with the Vodafone brand in countries as diverse as the UK, Egypt, Turkey and India signed up for its pre-pay and contract services; the firm now has a 19 per cent market share in those sectors. 

“At the moment, our significant customer base is the expat community, particularly the migrant workers on the building sites and oil and gas fields,” the source says. “International calling is a key market [in Qatar] and, from an operator’s point of view, one of the most valuable.”  

Vodafone Qatar target market share
Source: MEED

Despite the early successes of Vodafone Qatar, Qtel is still the major power in the country’s telecoms sector and the company has always maintained that it welcomes the competition brought by its rival.

“Competition has been good for everyone in Qatar – for the customers, the community and for the operators,” Nasser Marafih, chief executive officer of Qtel tells MEED. “Qtel has been a long-term supporter of the liberalisation of the communications market in Qatar, and we have been planning for competition for several years. We are confident that the business we have established in Qatar is able to meet any competition in our market.”

The controversial response from Qtel to competition from Vodafone Qatar was to form a partnership with the UK’s Virgin Group to introduce its youth-oriented Virgin Mobile brand in Qatar.

Launched in May 2010 with the usual fanfare associated with Virgin’s flamboyant chairman Richard Branson, Virgin Mobile offered highly competitive prices for both calls and internet, as well as longer airtime validity periods.  

Vodafone Qatar complaint to regulator

Virgin Mobile kiosks appeared in shopping malls across Qatar to sell the product and Qtel ran a series of promotional activities in the weeks following the launch. However, Vodafone Qatar was far from happy with the move.

 The problem was that Virgin Mobile looked to consumers like a third mobile operator alongside Vodafone Qatar and Qtel. There was no Qtel branding on any of the Virgin Mobile products so consumers could not know that the brand was part of the Qtel portfolio.

“If you walked up to a Virgin Mobile kiosk you would have been hard pressed to see any reference to Qtel,” the Vodafone source says. “All of the marketing and advertising was just Virgin Mobile and it had different call centres. Basically it looked like a de facto third mobile operator.”

Vodafone Qatar immediately lodged a formal complaint against the introduction of Virgin Mobile with the Supreme Council for Information and Communications Technology (ictQatar), the country’s telecoms regulator. Vodafone Qatar stated that Qtel’s actions contravened the contractual terms of its licence, namely that a third mobile operator could not enter the market for at least three years. 

In July, ictQatar released a ruling finding in favour of Vodafone Qatar. In a 22-page statement the regulator said it had “concluded that Virgin Mobile services were represented by Qtel to the public between 13 and 18 May 2010 in a manner which misled or deceived people about who was providing the services.”

Telecoms perceptions for Qatar’s residents

The statement also said that people were “misled into thinking that Virgin Mobile was a new telecommunications operator or service supplier in Qatar” and that this had the effect of “distorting competition, as it presented another apparent third operator or service supplier option to customers or potential customers”.

Following the ruling, ictQatar ordered Qtel to correct the misleading perceptions and warned the company to ensure compliance with the country’s telecoms regulations.

Some issues regarding the case were deemed to be beyond the jurisdiction of ictQatar and were referred to the attorney general. But the exact details of these have not been disclosed for legal reasons. 

As soon as the ruling was announced, Qtel released a statement saying that it accepted ictQatar’s recommendation that it could have been more open with the Virgin Mobile concept, but it staunchly defended its position.

“The review found that the core complaint of Vodafone Qatar – that Qtel’s Virgin Mobile service was a ‘third mobile service provider’– was baseless and without foundation,” the statement said. “We have ignored numerous erroneous statements made by a competitor and continued to focus  on our key responsibility – delivering an exciting new service for our customers.”

Vodafone Qatar said the decision to lodge a complaint was taken on behalf of the company’s shareholders and praised ictQatar’s transparent decision-making processes.

“We welcomed the decision by ictQatar and were happy with the transparent way the decision was made,” the source at Vodafone says. “If there are disputes in the future we are confident they will be handled in the same manner.”

He adds that Vodafone Qatar is still looking at its options for suing Qtel for damages.

The ramifications of ictQatar’s decision remain to be seen, but there is no doubt that Qtel still has a strong lifestyle brand in Virgin Mobile. Being forced to ensure consumers know it is a Qtel service by adding its branding to the advertising and marketing as well as the sales kiosks is something that should not affect Virgin Mobile’s sales. “Competitors can always duplicate the kind of products you offer in the marketplace, but what they can’t match is the strength of our customer relationships,” Marafih says. “[Qtel] will always be the leading communications company within Qatar.”

 Although Qtel will maintain that Qatar remains the core of its business, some 76 per cent of the company’s QR24bn ($6.6bn) revenues were generated outside the country in 2009 and it is now the largest telecoms provider in the region through a number of operations. The company has identified the wider region as well as the Asian subcontinent and Southeast Asia as key markets for its expansion plans.

“We continue to examine opportunities as they become available and assess them according to how well they sit within our target market and the value we believe we can generate from any acquisition,” Marafih says. 

While the Vodafone Group is a global brand, the company only has a 23 per cent stake in Vodafone Qatar, as well as holding the management contract. The state-owned Qatar Foundation has a 22 per cent stake, while Qatari institutional investors hold 15 per cent and the remaining 40 per cent are traded on the Qatar stock exchange.

Vodafone Qatar’s market share ambitions

The advantage of this ownership structure is that the company can concentrate solely on Qatar. Even though the country only has a population of 1.6 million, many customers spend a lot of money on both the handset and calls and services. The company is also set to launch its new business services in late 2010. 

“We have now been in Qatar for two years and we understand the market much better than when we first came here,” the Vodafone source says. “It’s important that we execute our plans well. Qtel is a strong player and has been established for a long time. They also have a lot of loyalty from their customers.”

Vodafone Qatar has ambitious targets for growing its market share. By 2012, the company is planning to have a 32 per cent market share, increasing to 43 per cent by 2018.

Vodafone’s entry into the Qatar telecoms market has demonstrated that provided a regulator is willing to make tough decisions a country’s telecoms sector can benefit from two strong companies competing against each other. Qatar now has the first truly competitive telecoms sector in the Gulf and for customers that can only be seen as positive.

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