Telecoms monopolies feel the pressure

18 January 2008
State-owned telecoms companies have prospered in the region’s tightly regulated markets, but are struggling as the sector opens up to competition.

Saudi Telecom is the largest telecoms operator in the Middle East by market capitalisation, revenue and net profits. Yet even as it celebrates its tenth birthday later this year, the company will be the only major operator in the region that is getting smaller rather than bigger.

The operator is 80 per cent owned by the Saudi government, with 70 per cent directly held by the government and another 10 per cent by two public sector agencies. It has been shrinking ever since its domestic market was opened to competition in spring 2005 with the launch of Mobily, a subsidiary of Etisalat, as the country’s second mobile phone operator.

Opening markets

The rest of the region’s monopoly telecoms operators are set to share Saudi Telecom’s fate as their markets open to competition. The last mobile phone monopoly in the Arab world will come to an end this year when Vodafone sells its first mobile phones to Qataris, who have had to become Qtel customers if they want to make phone calls. State-owned and partly state-owned operators elsewhere in the Middle East will also come under pressure as governments liberalise their telecoms markets.

Communications ministries across the region are realising they can generate more income from the tax revenues of multiple competing operators than they can from majority ownership of a single operator. And these revenues are welcomed as countries seek to diversify income streams.

Liberalisation has consequences for every major telecoms market in the region. Saudi Telecom will come under more pressure in March when Zain, the expansionary Kuwaiti operator, launches its Saudi subsidiary.

Saudi Telecom, which was 100 per cent state-owned until the government floated 20 per cent of the capital on the Tadawul in 2003, currently enjoys a market share of 70.3 per cent. Its only rival, Mobily, has 29.7 per cent. Zain will make inroads into both companies’ share of the market.

The former Egyptian duopoly of Mobinil, which is controlled by Orascom Telecom, and Vodafone Egypt has already felt the impact of the launch of Etisalat Misr, another Etisalat subsidiary, in May 2007. Mobinil and Vodafone Egypt had 12 months between the award of the third licence to Etisalat and the launch of Etisalat Misr. They used the time to seize as much of the Egyptian market as possible by drastically cutting prices. People with Mobinil phones can now spend as little as £E0.10 ($0.02) a month on a call or text message.

Vodafone Egypt has signed a deal with Telecom Egypt - which has a shareholding in Vodafone Egypt - to offer cut-price calls to favourite fixed-line numbers.

The companies’ price-cutting tactics have failed to stop Etisalat Misr from seizing 10 per cent of the market in just six months, gaining 3 million customers - although these gains have not been independently verified. The third licence holder’s figures are not audited, unlike those of Mobinil and Vodafone Egypt. Both operators publish their customer numbers in financial updates.

Algeria’s state-owned fixed-line monopoly, Algerie Telecom, could allow in a foreign operator in 2008. The country’s telecommuni-cations ministry has promised to privatise a strategic shareholding in Algerie Telecom for several years.

Etisalat, Qtel and Zain have all expressed an interest in buying the stake, which would give them a degree of control over Algeria’s second-largest mobile phone operator, Mobilis, also owned by Algerie Telecom. However, several challenges remain. Wireless Intelligence, an arm of telecoms trade body the GSM Association, estimates Mobilis had 8.7 million customers, or 35 per cent of the Algerian mobile phone market, at the end of September 2007.

At the GSM 3G telecoms conference in Cairo at the end of October 2007, Elias Ramrani, a director of Algerie Telecom, said Mobilis had 10 million customers, closing the gap with market leader Djezzy’s 12.7 million.

Djezzy, another subsidiary of Orascom Telecom, reported in its financial results that it had 66 per cent market share at the end of September 2007. Its management says Mobilis has even less customers than Wireless Intelligence estimates. Potential investors in Algerie Telecom do not have enough information to know what they are buying.

Expansion plans

Algeria, Egypt and Saudi Arabia are all massive markets for the handful of Middle East operators with the financial resources to expand into new countries at will.

However, Iran is an even bigger opportunity because it is the least developed market in the region. Mobile phone penetration in the country, which has a population of more than 70 million, has expanded rapidly since the government gave South African telecoms firm MTN permission to operate a second telecoms licence. It has 2 million customers in Iran.

When MTN-controlled operator Irancell launched at the end of December 2006, the state-owned incumbent, Mobile Company of Iran, a subsidiary of the Telecommunications Company of Iran (TCI), had 13 million customers. By the end of September 2007, the operator had 17.8 million customers, overtaking Saudi Telecom as the Middle East’s largest operator by this indicator.

Iran’s Communication & IT Ministry plans to liberalise the sector further in 2008 by organising an auction for a third mobile phone operator and selling a strategic stake in the state-owned operator to a foreign investor.

The ministry planned to sell a stake in TCI in September 2007, but nothing happened. A 5 per cent price-setting stake in TCI has to go on sale by the end of the Iranian year in March, if the company is to honour a pledge by Iran’s Supreme Leader Ayatollah Ali Khamenei.

TCI is another state-owned former mono-poly that does not publish audited financial results, but evidence that Iran’s mobile phone market is buoyant is visible everywhere. Potential investors will need better access to its profit and loss account before committing their funds.

The Middle East’s telecoms companies will have to become more competitive in 2008 if they are to continue growing. Few operators in the region have been commercial failures so far. But companies that fail to prepare for liberalisation will struggle in a more competitive world.

Key facts

  • Iran: Third mobile licence plus stake in state operator TCI to be sold

  • Algeria: Fixed-line monopoly to end

  • Saudi Arabia: Second operator to launch

  • Fixed-line monopoly to end

TABLE: Telecoms operators by market share - Algeria, Egypt, Iraq, Saudi Arabia

Telecoms operator% market share
Djezzy (Orascom Telecom)51
Mobilis (Algerie Telecom)35
Nedjma (Wataniya)14
Etisalat Misr (Etisalat)10.4
Mobinil (Orascom Telecom)47.4
Vodafone Egypt42.2
Asiacell (Qtel)32.2
Korek Telecom4.8
Saudi Arabia---
Mobily (Etisalat)29.7
Saudi Telecom70.3

Source: Wireless Intelligence, company reports

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