Telecoms focus shifts to data services

28 November 2011

With subscription levels nearing saturation, telecoms operators are focusing on supporting data services


Iraq is planning the initial public offerings of the three operators in the country

Source: MEED

The Middle East and North Africa (Mena) region’s telecommunications sector witnessed the introduction of new technology, but a more hesitant approach to consolidation during 2011.

The GCC markets in particular, continue to lead the way in terms of implementing new technologies. Each of the six member states have third-generation (3G) networks. The UAE and Saudi operators have now taken the sector on a step further by introducing long-term evolution (LTE) services, a super-speed mobile broadband technology.

Maturing telecoms markets

“The market is beginning to mature, so there is slower subscription growth,” says Matthew Reed, senior analyst and head of Middle East and Africa mobile research at UK-based research company Informa Telecoms & Media. “Operators have shifted to a new stage where they are competing harder for customers, whether to win them or retain them.”

Operators have shifted to a new stage where they are competing harder for customers

Matthew Reed, Informa Telecoms & Media

The growth potential for GCC operators no longer lies in voice subscribers, but in developing data and non-voice services, demand for which has been rising due to the proliferation of smartphone devices and tablets. Operators have responded to this trend by investing in upgrading their networks to LTE.

“Operators are moving deeply into data and the related area of content, this is a profound change,” says Reed. “Operators are questioning how they should deal with these new opportunities.”

The opportunities in data are turning into a challenge for the region’s operators, as they are now competing alongside traditional media players and new digital players.

Some fear that telecoms companies will become a dumb pipe, being simply the medium to transfer content and data produced by social media websites such as Youtube and Facebook. But others are becoming more actively involved in this new arena.

UAE telecoms operator Du has launched its own digital media platform called Anayou that brings together social media, videos and music and can be accessed on smart devices and televisions.

“It will become an even more acute dilemma for operators as to what role they should play in this changing environment,” says Reed.

The Mena region’s telecommunications market is varied. While mobile penetration has reached saturation point in the GCC countries, there is still huge potential for growth in the Levant and North African countries.

Lebanon introduced 3G services in November, which is set to spur on the data market for the two state-owned operators. Algeria is in the process of auctioning its first 3G licence and is likely to choose a winner next year, but overall there has been a general slowdown in the growth of the sector across the region.

The biggest acquisition planned for the year, the UAE’s takeover of Kuwait’s Zain Group, fell apart in March. The joint-bid from Bahrain’s Batelco and Saudi Arabia’s Kingdom Holding for Zain’s Saudi Arabia unit also collapsed in September due to financing problems.

Meanwhile, Syria has cancelled its third mobile licence auction following the outbreak of violence and political turmoil in the country.

Iraq has promised to auction its fourth mobile licence in early 2012, but whether this will happen is still questionable. The country also lags behind the rest of the region with no 3G operators as yet. This is likely to change, however, with Asiacell’s promise of an upgrade to 3G in 2012.

The most anticipated story in Iraq will be the initial public offering (IPO) of the country’s three operators. The deadline for the IPOs had been set for the end of August, but a general lack of understanding of the process has delayed the flotations.

The one success story of 2011 was Egypt’s Orascom Telecom Holding’s merger with Russia’s Vimpelcom in April to become the world’s sixth largest telecoms operator. The company is still in talks with the Algerian government over the sale of its Algerian unit Djezzy.

“All these markets are reaching different levels of development. They will all become more competitive and that will make things tougher for the operators,” says Reed.

For the countries affected by the Arab uprisings, there have been some financial repercussions. Roaming revenues are an important component of local operator revenue and the drastic fall in tourist arrivals to countries such as Egypt and Tunisia have fed through to earnings this year.

Public listings of telecoms companies

Tunisiana had planned an IPO for the first half of this year, but this was postponed due to the political unrest. The company still plans to float 10-15 per cent of its shares on the Tunisian Bourse and its owners Qtel are also looking to list on the Qatar Exchange. 

“If the economic environment improves there is still great potential for the telecoms sector,” says Reed. “In both countries, [Tunisia and Egypt] there has been a huge take-up of data services. The operators have launched competitive 3G packages at a good price to encourage the people to take up these services.”

Eventually, regional operators will be competing with one another on data. Voice has become a commodity and the real innovation lies in providing content and data at attractive prices. The strategy that operators will adopt will vary, but most will be willing to partner with other players.

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