The Middle East: Catching up online

14 September 2010

The Middle East and North Africa region has seen strong growth in internet usage in the past decade. Yet, compared with more developed markets, the region still lags behind

Middle East IT in numbers

28.7 per cent: World average internet penetration

10.8 per cent: Amount of Middle East nationals with access to fixed-line services

72 per cent: Middle East mobile service penetration

Source: MEED

The past two decades have seen information and communications technology make dramatic inroads in the Middle East. However, the region has yet to match the internet penetration seen in more developed markets. 

Just 3 per cent of the world’s internet users are in the Middle East, but the region was among the fastest-growing markets of the past decade, second only to Africa. Internet World Statistics (IWS) reports that the number of Middle East users soared 1,825 per cent between 2000 and 2010.

In many countries, operators who began in the mobile sector are moving into the fixed-line sector

Research & Markets report

Latest IWS figures show that 29.8 per cent of Middle East residents went online in the 30 days to June 2010, barely above the world average of 28.7 per cent. Although regional penetration rates outstrip those in Asia and Africa, North American penetration levels are approaching 78 per cent.

Internet penetration disparity in the Middle East

Within the Middle East, internet penetration also shows huge disparity. Bahrain tops the table with 88 per cent, followed by the UAE, approaching 76 per cent. But penetration falls to 1.8 per cent in poverty-stricken Yemen and 1.1 per cent in war-torn Iraq, which has just 325,000 internet users.

Young, affluent consumers are hungry for smartphones that fuse mobile phone and internet technology

With only one in every 100 citizens accessing the internet, Iraq will be one of the fastest-growing regional markets in future. Currently, neighbouring Iran is both the largest and the fastest-growing internet market in the Middle East; user numbers have soared from barely 250,000 in 2000 to more than 33.2 million.

In the six Arabic-speaking countries of North Africa, average internet penetration is significantly lower than in the Gulf and Levant regions. In Morocco, Algeria, Tunisia, Libya, Egypt and Sudan, internet user levels average below 20 per cent. Levels range from 5.5 per cent in Libya to 34 per cent in Tunisia.

Internet users worldwide by geographic region
North America266.2
Latin America/Caribbean204.7
Middle East63.2
Source: Internet World Statistics, 2010

North African internet penetration levels outperform those for Africa as a whole, where less than 11 per cent of the continent’s total population went online in May 2010. Since the early 1990s, the explosion in mobile and internet technology has seen the Middle East leapfrog its underdeveloped fixed-line infrastructure to embrace mobile communications.

In 2009, just 10.8 per cent of Middle East nationals had access to fixed-line services, dipping to single-digit figures in Yemen, Iraq, the Palestinian territories, Sudan, Jordan and Oman. This is half the global average. Nearly a fifth of the world’s population has access to fixed-line services, rising to an average of 60 per cent in the US.

Some observers argue that these low fixed-line density figures are deceptive because the average Arab household is larger than the average Western household. Large numbers of expatriates in the region live in shared accommodation, which could also skew figures.

Traditionally, the region’s fixed-line market has been dominated by state and other monopoly players. The Middle East fixed-line sector is poised for liberalisation to match that of the mobile telecoms sector. Progress has been slow. State companies maintain a monopoly in Tunisia, Libya, Egypt, Palestine, Lebanon, Syria, Yemen and Kuwait.

US consultancy Research & Markets argues that the Middle East’s fixed-line sector is the final frontier when it comes to competition in the telecoms market. Its recent study of Middle East telecoms found that “in all markets, the incumbent remains the major player in the fixed-line voice market”.

However, the consultancy anticipates rapid change. “Mostly through VoIP [Voice over Internet Protocol], calling-card operators and later WiMax [Worldwide Interoperability for Microwave Access] operators [and] in the case of the UAE, through sharing infrastructure. All fixed-line incumbents also offer mobile phone services and, in many countries, operators who began in the mobile sector are moving into the fixed-line sector,” the report says.

In Jordan and the Gulf, competition between operators has reduced mobile phone prices, eroding demand for fixed-line subscriptions. In North Africa, high tariffs have dampened demand. In Iraq and the Palestinian territories, customers prefer mobiles for personal security.

There are huge disparities within the region in infrastructure coverage, with mobile phones offering the only reliable communication across remote desert and mountain terrain. Nevertheless, in a region where 34 million people have no telephone subscription, the Middle East and North African markets are ripe for fixed-line growth.

Mobile internet in the Middle East

When it comes to mobile phone penetration, the Middle East is ahead of the world average. In 2009, penetration across the Middle East and North Africa was edging towards 80 per cent. Mobile penetration tops 173 per cent in Saudi Arabia and is nearly 156 per cent in the UAE.

Regional penetration outstrips the world average of 72 per cent – which falls to just 13 per cent in Europe, according to figures from the International Telecommunications Union.

The wealthiest regional consumers were quick to embrace the earliest mobile phones from the late 1980s, when the Middle East lagged behind developed regions in penetration and reliability of land lines.

Previously, the regional mobile telecoms market was dominated by monopoly players. Now, the sector is seeing cross-border competition, European operators buying into or setting up subsidiaries across North Africa and the Middle East, while Gulf-based operators expand into North Africa.

With the regional mobile phone market reaching maturity, it will take increased market share for regional telecoms firms to boost their growth. Strategies to gain share include lower call tariffs, extending and improving their network coverage and introducing new services, such as mobile broadband.

Mobile broadband – wireless high-speed internet access, using a portable modem, mobile or similar device – has an estimated regional market share of just 2 per cent. Telecoms companies are rushing to upgrade their regional networks to third and even fourth-generation (3G and 4G) long-term evolution (LTE) technology.

Investment in regional telecommunications infrastructure has created a market for internet-enabled mobile gadgets. Across the Arab world, consumers are sending emails from their smartphones, reading books on e-readers, shopping online and planning journeys to meetings using satellite navigation systems.

Young, affluent consumers are hungry for smartphones that fuse mobile phone and internet technology. With ever-increasing amounts of time spent using smartphones to browse the internet, watch television and other data services, industry estimates suggest that voice services now account for just 10 per cent of mobile phone useage.

This is driving new regional demand for telecommunications infrastructure that can deliver higher speed and greater bandwidth. But there is again great disparity within the region. Data from Amman-based Arab Advisors Group shows that regional broadband usage ranges from 14.6 per cent in the UAE and 12 per cent in Bahrain to 0.2 per cent in Yemen.

To increase penetration, regional governments and telecoms companies are investing in new technology, including fibre-optic connections to speed up connection and replace the asymmetric digital subscriber line technology that dominates regional broadband provision.

Worldwide, more than 2 billion people will use broadband internet connections by 2015. This will include 150 million users in the Middle East and North Africa. To achieve this growth, the region needs to invest heavily in telecommunications infrastructure.

Mobile broadband offers a cost-effective alternative to fixed-line broadband and the technology is evolving quickly. Today, 22 telecoms companies offer 3G mobile services in 15 Arab countries: Saudi Arabia, the UAE, Bahrain, Kuwait, Qatar, Oman, Mauritania, Morocco, Tunisia, Libya, Egypt, Sudan, Syria, Jordan and Iraq. By 2013, forecasts suggest the Middle East will have more than 266 million mobile subscribers.

Future expansion will see 3G technology replaced by 4G wireless systems – LTE technology that is able to deliver up to 150Mbps to deliver high-speed internet and high-definition video.

Already, Bahrain’s Batelco is expanding its mobile network to prepare for LTE, in partnership with Ericsson of Sweden. Other regional players preparing to launch 4G include Saudi Arabia’s STE and Zain KSA and Qatar’s Qtel. In Jordan, operators Zain, Umniah, Express and Orange are preparing 4G proposals for the Telecommunications Regulatory Commission.

Libya hopes to leap from second-generation technology straight to 4G when mobile phone operator Al-Madar al-Jadeed launches its LTE network at the end of the year. Other regional companies working towards 4G include Zain Bahrain and the UAE’s integrated telecom service provider Du.

The first LTE-enabled handsets will come onto the market in 2011. Manufacturers are looking for ways to extend battery life so that customers can use mobile-based video services effectively.

Already in the Gulf states, the most affluent consumers are finding sophisticated new uses for their mobiles, says Jawad Shaikh, managing director Middle East & Africa for consultants Capgemini. Now, the region must create the bandwidth to support a reasonable standard of service.

Internet content growth in the Middle East

If opportunities exist for new high-speed broadband infrastructure and equipment, the region will also see growing demand for content. With nearly a third of Middle East nationals aged 15-30, the region offers a prime target for web-based and mobile communications.

Worldwide, more than 300 million people speak Arabic. But for those Arabic speakers not fluent in English, French or other major European or Asian languages, the choice of internet content is limited. Google estimates that just 1 per cent of the world’s 1 trillion unique web pages is in Arabic.

Australian Consultancy firm Effective Measure recently canvassed young professional men in Egypt and the GCC. It found that 88 per cent of respondents went online every day and that more than half – 51 per cent – spent at least three hours a day online. This prime target audience relies heavily on non-Arabic content.

Since social networking website Facebook launched in Arabic, it has become the fourth most-popular site in Qatar, attracting more than 37 per cent of internet users and about a fifth of all users in the UAE and Kuwait. Other popular foreign sites include Twitter and YouTube.

With 4G systems in place, the Arab world’s young, tech-savvy consumers will need new sources of home-grown content – everything from high-definition films to internet banking and from social networking forums to online shopping. Opportunities will grow too for web-based advertising, which makes up less than 2 per cent of regional advertising spend.

“There is absolutely an opportunity for entrepreneurs to develop Arabic content,” Shaikh says. “There is enough content now for Arab consumers to start to engage with the internet, but high-speed broadband will filter down in affordability in future. This will generate more and more regional users.”

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