52 million: Number of mobile subscribers in Saudi Arabia
200 per cent: Mobile penetration rate in the UAE in 2010
$883m: Amount paid by France Telecom for a stake in Morocco’s Maroc Telecoms in 2010
21 per cent: Internet penetration rate in Egypt
The telecoms industry is one of the most dynamic in the Middle East. Penetration rates have been increasing at a rapid pace and new licences continue to be issued for mobile, fixed and internet service providers (ISPs).
Increasing competition has resulted in lower voice revenues for operators and falling average return per user (ARPU) levels, but as Irfan Ellam, a consultant at Al-Mal Capital, says: “Falling voice revenues are one of the characteristics across the market.”
|Internet penetration rates 2010 (Percentage)|
This has pushed operators to seek new revenue streams and value-added services. But there are disparities among the countries depending on momentum and spending power.
The GCC countries lead in terms of infrastructure investment. The smaller states tend to have more advanced infrastructure simply because it is cheaper and logistically easier to roll out. Many operators have been trialing long-term evolution (LTE) technology, reaching speeds of about 150Mbps. Over the coming year, network upgrades to high-speed packet access (HSPA), 4G and LTE are likely to take place.
Mixed telecoms markets
Fixed-line infrastructure is not as developed as the mobile, which has resulted in lower internet penetration levels and high broadband costs. With increased investment in fibre backbone across the region, the situation is likely to improve greatly for 2011.
Markets are generally healthy with regulatory bodies encouraging competition. Though, ultimately, governments can overrule their decisions. Where the regulator is weak, or does not exist, as is the case in Kuwait, sector development has suffered.
Iraq is now commonly referred to as the most competitive mobile market in the Middle East
Mobile number portability (MNP) is a rare service to find in the Middle East, mainly due to weak regulations. The ability to switch to another operator, while keeping the same number, is considered a cause for declining revenue. Where it is available, such as in Saudi Arabia, the process is difficult and slow. Regulators across the region plan to introduce it, but whether it will be available next year is another matter.
While a few countries have broken the 200 per cent mobile penetration mark, some countries, such as Syria and Lebanon, are still in a relatively young phase in mobile-sector development, with penetration rates at about 60 per cent. In poverty-stricken Yemen, mobile penetration is just 30 per cent.
Bahrain has already launched next generation networks (NGN) and has one of the most competitive markets in the region. There are 15 fixed-line operators and three mobile operators; mobile penetration is 160 per cent. Saudi Arabia’s STC won the third mobile licence in February 2010. Bahrain’s industry is set to develop even further with penetration levels expected to rise to 166 per cent within five years.
Rapid growth for Gulf’s telecoms industry
Saudi Arabia has the biggest market with 52 million mobile subscribers, resulting in a penetrate rate in excess of 200 per cent. There are three mobile operators operating in a healthy market, regulated by an independent Saudi Communications and Information Technology Commission (CITC).
Lack of content is a problem, but it is a growing sector … it ultimately comes down to Arabising the internet
Oliver Cornock, Oxford Business Group
The UAE reached a 200 per cent penetration rate earlier this year. The country operates a duopoly with Etisalat and Du, which was established by the government to create competition. There has been talk of a third licence, but this is unlikely to happen without extensive pressure from a body such as the World Trade Organisation. A third operator would have a direct, negative impact on the incumbents’ revenue. The government is therefore unlikely to jeopardise its own enterprises.
Qatar’s Qtel monopoly came to an end in 2009 when UK-based Vodafone entered the fixed-line and mobile market. Mobile penetration is about 180 per cent. There are no plans to issue a third mobile licence, but there could be potential for further mobile virtual network operator (MVNO) licences, such as the one awarded to Virgin in May 2010.
More exciting are the emerging markets that have experienced fast-paced growth and have a greater potential for development. Iraq is now commonly referred to as the most competitive mobile market in the Middle East, with a penetration rate of 76 per cent. The country has three national operators with a fourth state-owned mobile carrier set to be launched by the first quarter of 2011. Whether this deadline will be met is questionable, as it has been delayed for around two years. The government has invested heavily in the telecoms sector, issuing 50 tenders in the past year. It plans to turn Iraq into a telecommunications hub connecting Europe to Asia by 2012.
Network control in the Middle East
Syria has issued a tender for a third mobile licence with an auction set to take place in April 2011. It has the most regulated telecoms industry, which has stunted growth and private-sector investment. This new licence is a step towards liberalisation and may encourage neighbouring Lebanon to also open up its telecoms industry.
Political instability has had a dire effect on Lebanese telecoms. There are no 3G services. The two state-owned carriers are operated by Orascom and Zain in return for a management fee, with all revenue going back to the government. The government has been unable to decide whether to privatise the two networks.
Palestine also plans to issue a tender for a third mobile licence, subject to Israel’s Ministry of Communications releasing the necessary radio frequencies. Until this happens, a licence cannot be issued. Operator Wataniya Palestine hopes to raise $50.3bn in an initial public offering (IPO) set to close on 2 December 2010.
Libya’s Communications Minister promised an IPO of its two state-owned mobile operators this year. This has yet to take place. The ministry also cancelled plans for a third mobile licence.
Generally, the North African countries have good infrastructure and relatively healthy markets. Tunisia awarded France Telecom’s Orange the third mobile licence and the country’s second fixed-line licence in May this year. France Telecom also bought a stake in Morocco’s Maroc Telecoms for $883m this year. Morocco has one of the healthiest and most competitive telecoms markets in the region, with penetration levels at about 80 per cent.
Egypt has a dynamic mobile market with penetration levels also about 80 per cent. Fixed-line incumbent Telecoms Egypt (TE) has a strong influence over the entire industry. It is a state-owned enterprise with a 45 per cent share in Vodafone Egypt. TE has routinely expressed an interest in entering the mobile sector and is likely to bid for the fourth licence set to be issued next year by Egypt’s Telecommunications Regulatory Authority.
Algeria’s most profitable operator, Djezzy, may be nationalised next year. Egypt’s Orascom, which is the majority shareholder, plans to sell the unit in an acquisition by Russian telecoms provider Vimpelcom. Algeria’s government remains adamant that it will maintain a controlling stake in the country’s most profitable operator. Djezzy’s future looks uncertain.
The general trend in the mobile sector is growth and higher levels of penetration. Where GCC incumbents have reached saturation levels in their home markets, they have sought acquisitions and new licence bids to expand further. Etisalat, Qtel, Batelco and STC all have operations across the world. Kuwait’s Zain was the world’s third-largest telecoms provider this year, before it sold off its Asian and African units to India’s Bharti Airtel in March for $10.7bn. The company sold off a 51 per cent stake to Etisalat in a deal worth $12bn in November 2010. The deal has yet to close, but if it does, it is likely to change the landscape of the Middle East telecoms industry as whole. It creates the scope for an integration of services and a potential flattening of the market where roaming charges are reduced.
One major area of growth is mobile broadband and digital media. Driven by a large youth population with a keenness for new gadgets such as smartphones and internet-enabled devices, content development is receiving more focus and investment. In Saudi Arabia, about 50 terabytes of data a day is downloaded – this is four times the average in Scandinavia, which has the highest mobile download rates in Europe.
By comparison, the internet sector is not as advanced as the mobile sector in the Middle East and PC penetration is low. Egypt’s internet users are the world’s second most active after China, but internet penetration levels in the country are around 21 per cent.
While mobile penetration in Oman is around 143 per cent, internet penetration is just 40 per cent. Up until 2007, most Saudis accessed the internet via dial-up modems. Reasons behind these low figures are poor fixed-line infrastructure, lack of internet service providers (ISPs), low PC penetration rates and the lack of available Arabic content. Censorship has also had a negative impact on internet penetration. This is set to change, with operators now investing in DSL and fibre-optic cables and greater investment in digital media.
“Lack of content is a problem, but it is a growing sector and it ultimately comes down to Arabising the internet,” says Oliver Cornock, GCC regional director for the Oxford Business Group.
Du recently launched Anayou, an online platform offering content, games and applications in Arabic, English and French. : “I believe there will be a cancellation of the standard telco model because of the internet and the value-added services. The main innovation is social networking and in the future data revenue will overtake voice,” says Du chairman Osman Suliman.
Companies such as Finland’s Nokia and Canada’s Research in Motion are now offering their applications stores in Arabic. “The Middle East market is one we’re so excited about. There is a new wave of technical innovation for mobility,” says Blackberry’s co-chief executive officer, Jim Balsillie,
The development of mobile broadband will lead to greater integration of services and media convergence. Internet protocol television licences are set to dominate the industry within five years, with the linear growth of telecoms as infrastructure develops.