The advent of the smartphone has revolutionised the telecoms industry over the past five years and changed forever how consumers access many services and goods.

Whereas a decade ago, security concerns put many off switching to online banking through their computers, today few hesitate before booking tickets and paying for parking using mobile internet.

It is estimated that 45 per cent of people who live in cities already own a smartphone. Globally, app usage is expected to grow five-fold over the next three years, as handheld browsing devices, such as iPads and other tablets, become indispensable gadgets.

Data traffic

Illustrating the rapid growth in smart device usage, worldwide mobile data traffic in the first quarter of 2014 exceeded mobile data traffic for 2011 as a whole, according to Swedish telecoms technology provider Ericsson.

Video streaming is the fastest-growing segment of mobile data traffic and it is predicted it will account for 50 per cent by 2019, compared with about 35 per cent last year. This is followed by social networking on 10 per cent.

Consumers are increasingly demanding access to free wireless internet on transport and the idea of city-wide free mobile broadband is not so far from becoming reality. Governments are closely following these rapid changes, upgrading their services to work on mobile platforms so as not to be left behind in this latest technological revolution.

Private sector companies also have to adapt to make sure they fit into this digital web of instant service provision; otherwise they risk losing out to their rivals.

Leading transformation

The Middle East is at the forefront of this transformation, both in terms of consumer habits and investment in telecoms infrastructure.

“To some extent the region is leapfrogging other markets. Many [customers] don’t have wired lines; [they have] gone to straight to wireless,” says Tomas Ageskog, head of consulting and systems integration at Ericsson. “[Governments] have a lot of money, so they can invest a lot faster and take more chances.”

Last year, Dubai’s government announced a wide-ranging plan spanning transport, communications, infrastructure, electricity, economic services and urban planning to turn the emirate into a so-called smart city. It plans to roll out 100 initiatives and 1,000 services over the next three years to achieve a “smarter economy, smarter lifestyle, smarter transportation system, smarter governance, smarter environment and smarter generations”.

“There is no single definition, but a smart city is essentially a city that uses the latest technology to progress its triple bottom line [economic, social and environmental progress],” says Erik Almqvist, head of Dubai and global head of operational consulting at Analysys Mason, a telecoms, IT, and media consultancy. “Technology is an important means to advance the competitiveness of cities, and hence the interest in the concept of smart cities.”

Mobile broadband

Central to the idea of a networked society, which encompasses smart cities more broadly, is telecoms infrastructure. It is this that brings everything together: the services that customers want to access and the services that governments and private firms wish to deliver. Mobile broadband is the enabler in this new world order.

“Telecoms – and in particular broadband infrastructure – is one of the most, if not the most, important components of a smart city as it is the motorway on which information is transported, without which a city cannot truly be smart in any modern sense,” says Almqvist.

The rapid take-up of smartphones and the interest in developing m-government services mean the Middle East, and the GCC in particular, is an important growth region for telecoms technology providers such as France’s Alcatel-Lucent, Huawei of China and Ericsson.

Ericsson, for example, saw a 12 per cent increase in revenue from the Middle East last year to SEK17.4bn ($2.5bn), driven by increased investments in mobile broadband by telecoms operators.

Positive perception

The Swedish firm recently conducted a study of customer attitudes towards mobile operators in Saudi Arabia. It found network speeds to be a crucial factor in influencing the behaviour of mobile broadband users.

Faster networks encourage increased usage of data services, such as video streaming and mobile payments, and improved customer satisfaction.

“Our findings reveal that smartphone users on faster networks have a more positive perception and loyalty towards their operators, compared with users on slower networks, which provides operators with the opportunity to monetise their investments,” said the report. It found 19 per cent of smartphone users on slower networks made online payments, compared with 34 per cent of smartphone users on faster networks.

For the region’s telecoms operators, these changing customer habits and mass demand for ICT represent both an opportunity and a challenge. Increased data usage means more revenues, but faster connections requires state-of-the-art technology.

Heavy investment

For this reason, many are now investing heavily to upgrade existing infrastructure designed primarily for voice traffic to 3G and 4G or LTE technology to improve network speeds. Several are also signing managed services agreements, such as the one Zain Bahrain inked last October with Ericsson.

There is still huge variance in the quality of infrastructure installed and service provision across the region, meaning the Middle East will continue to be a growth market for years to come.

“The UAE has one of the world’s most modern telecom infrastructures, ahead of most OECD [Organisation for Economic Cooperation and Development] nations, while Yemen’s infrastructure is quite inadequate, especially on the fixed side,” says Almqvist. “Most Middle East nations have developed their telecoms infrastructure at a very rapid tempo in the last five years, so the region as a whole nowadays compares well with that of OECD nations, but with still great distances between leaders and laggards.”

There is also still room for further growth on the consumer side. Mobile penetration in the Middle East is estimated at 107 per cent, compared with 127 per cent in Western Europe and 144 per cent in Central and Eastern Europe.

The rapid evolution of communication tools is having a hugely transformative effect on lives around the world and the change is only just beginning. The next predicted trends include wearable technology and personal digital butlers. Without excellent connectivity and network performance, cities will be left behind.