While Kuwait was the first country in the Middle East to introduce competition and liberalise its mobile sector, progress has since stagnated with the absence of an independent industry regulator. It remains the only country in the region without such an authority and the Ministry of Communications continues its strong hold over the industry.
Kuwait in numbers
3.5 million: Kuwait’s total mobile services subscriber base across the country’s three operators
25 per cent: Percentage stake the Kuwait government has in each of the three telecoms operators
Plans to set up a telecommunications regulator were announced back in 2007. The government has employed consultants to set up the rules and regulations for a regulatory body, but process has been slow. The instability of Kuwait’s Parliament means the ministry’s promise to have a body established by the end of 2010 is highly unlikely. In the past two years Kuwait has had three parliaments and four ministers of communication.
There are examples across global markets where operators are thriving in a low … ARPU environment
Najeeb al-Awadi, Viva
The Ministry of Communications is the industry’s policy-maker and regulator. It also has a monopoly over the fixed-line market, as well as control over the international gateways and infrastructure. It does not have an interconnection system with any of the mobile operators. Since all international calls go through state-owned gateways, the operators cannot provide promotions or discounts for overseas calls.
Opening Kuwait’s telecoms market
The situation is set to improve. The Ministry of Communications recently submitted a telecoms act to the Parliament, which is set to open up the market further. The current Minister for Communications, Mohammad al-Busairi, announced plans this month to privatise the fixed-line market.
|Internet penetration rates, 2010 (percentage)|
Despite the stifling nature of the ministry, Kuwait’s mobile sector has thrived and diversified in comparison with neighbouring countries. Mobile penetration stands at about 140 per cent with more than 3.5 million subscribers. There are three operators and the state owns a 25 per cent stake in all of them through the Kuwait Investment Authority.
Telecoms in the broader ICT sense is vital in going forward and in every aspect of development
Oliver Cornock, Oxford Business Group
The oldest is Zain, formerly known as Mobile Telecommunications Company (MTC). The company was established 27 years ago in Kuwait and grew to become the world’s third-largest mobile operator with operations in 24 countries. In March 2010, Zain sold off its Asian and African units to India’s Bharti Airtel for $10.7bn in a bid to streamline its business and focus more on the Middle East market. Zain announced in early November that a 51 per cent stake in the company will be acquired by Abu Dhabi-based Etisalat once the due diligence process is completed. The deal was worth $12bn to be paid in cash. Zain has close to 2 million mobile subscribers in Kuwait and a 49 per cent market share.
|Mobile penetration rates (percentage)|
|Source: Capital Standards|
The National Mobile Telecommunications Company, Kuwait’s second operator, was established in 1997 and operates under the Wataniya brand. Majority-owned by Qatar’s Qtel it has about 1.5 million subscribers and a 38 per cent market share. Until 2008 Wataniya and Zain operated a comfortable duopoly. Without an industry regulator both companies were able to charge high tariffs and use their revenues to quickly expand internationally. Average return per user (ARPU) levels during this time were about $108.
The Kuwait Telecommunication Company entered the market under the Viva brand in 2008. It is majority-owned by Saudi Arabia’s STC, which applied an aggressive policy in attracting market share and competed on price. It now has a 13 per cent share of the market and close to a million mobile subscribers. “Old established incumbents tend to make sure that prices go down gradually instead of suddenly,” says Irfan Ellam, consultant at Al Mal Capital. Viva’s approach drove down ARPU levels and almost halved them to $54.
Viva chief executive officer, Najeeb al-Awadi, says: “A falling ARPU is not necessarily an issue in itself. There are examples across global markets where operators are thriving in a low or declining ARPU environment and we intend to be one of those.” Operators require the flexibility to explore different strategies for such a strategy to be effective.
The ministry does not charge consumers for calls made from fixed-line to mobile phones. As a result, the two incumbents charged users to receive calls from fixed-line numbers. When Viva entered the market, it dropped these charges, so Zain and Wataniya followed suit. This has had an impact on falling voice revenue for the operators.
“Viva was the first to abolish call reception fees in the Kuwait market. This has provided unprecedented value to mobile subscribers and we are happy to take credit for that,” says Al-Awadi.
Shifting profit focus for telecoms industry
The saturated nature of the market and falling voice revenues and ARPU levels have forced the operators to explore new areas of growth. Competition is shifting and focusing on value-added services and mobile broadband to meet evolving customer needs. Viva has been the most innovative in this field.
“The shifts we have seen are related to new media, including mobile content and applications. Smartphones are proliferating at a rapid pace and are becoming more accessible to all market segments,” says Al-Awadi.
Kuwait has a high gross domestic product (GDP) and high spending per capita. Coupled with a large, literate youth population, there is a strong uptake in new technologies and a keenness to keep up to date with the latest devices.
The content and data market is one of the biggest areas for growth for all the operators. Kuwait’s infrastructure is one of the most developed in the region and has the ability to cope with new services.
Internet penetration in Kuwait
The operators all offer third-generation (3G) frequencies. Mobile broadband speeds range from 7Mbps to about 42Mbps. Earlier this year Zain began testing long-term evolution (LTE) technology, achieving download speeds of 150Mbps. Viva is expecting to roll out 4G capabilities by the end of this year. The rise in data usage will eventually lead to more competitive data packages.
Even with such advanced infrastructure, internet penetration is just 40 per cent according to the International Telecommunications Union. Broadband is still very expensive despite the existence of four internet service providers (ISPs). The ministry plans to only issue new licences for ISPs once a regulatory body has been set up.
The lack of an industry regulator is evident in the absence of mobile number portability (MNP), the ability to switch to another operator while keeping the same number. Although plans to introduce such a service have been discussed for many years, there seems to be little intention to offer it. The main fear is a negative impact on revenue, a view held across many countries in the Middle East. MNP is likely to intensify competition between operators with Viva set to benefit the most once it is introduced.
Like the UAE, voice over internet protocol (VoIP) services are banned in Kuwait. The position has been adopted by the state in order to benefit from the international calls made by the expatriate community, which makes up about 60 per cent of the population. It is also a way to protect the revenues of the mobile operators.
It is unclear how Etisalat’s takeover of Zain will affect the mobile sector in Kuwait. The acquisition was the largest in the GCC and will increase Etisalat’s presence from 18 countries to 26. Zain’s Khurafi Group, which led the sales for the Etisalat and Bharti Airtel deals, is believed to be in billions of dollars worth of debt. Both takeovers have reduced Zain’s influence from a global player to a regional telecoms provider.
Like Wataniya and Viva, Zain is now part of a regional principality, which could result in an integration of services and a potential for interesting offers and innovations. Roaming charges are very high across the region and according to Oliver Cornock, GCC regional editor for the Oxford Business Group: “There is a lot of movement in the GCC and there could be a flattening of the market.” Operators usually offer reduced costs to send texts or make phone calls abroad during Eid and Ramadan and there is a market for it. “STC will probably lead the way in this sense,” he adds.
Early in 2010, the Kuwaiti government announced a $100bn four-year National Development Plan. “While the plan does not earmark a particular budget directly to the telecommunications sector, it stands to benefit significantly from the heightened economic activity stemming from the various projects included in the plan,” says Al-Awadi.
Telecoms liberalisation in the Middle East
Zain was one of the many companies involved in the formation of the plan. “Telecoms in the broader ICT sense is vital in going forward and in every aspect of development,” Cornock says. “Modern, up-to-speed technology is essential.” All three operators will therefore play a vital role in the realisation of the investment plan, but the lack of an independent regulatory body leads to a lack of growth.
If the government liberalises the industry and opens up the international gateway, it enables the private sector and mobile operators to provide more competitive tariffs and develop more easily.
The government’s 25 per cent share in the three operators enables it to exercise significant power over the financial and operational activities. This power directly impacts the mobile sector and can be used as a regulatory measure to prevent destructive price cutting competition between the operators.
But this is not enough. While this influence can help maintain a healthy market, it can stifle competition. The state’s dominance in the sector has reduced flexibility and prevented all three operators from becoming integrated telecoms providers. The industry is in need of liberalisation and it needs to become more open to private sector investment if it is to develop. The process has been delayed and drawn out for a long time.
The potential is there. With the corporation of all three operators, an effective, independent regulator can be set up. “Things move quite quickly in Kuwait when the momentum is there,” Cornock adds.