Going into 2011, new reports on the telecommunications sectors of two Middle Eastern countries detail the past year’s progress and potential future developments. Saudi Arabia and Lebanon come under the spotlight with new assessments from Research & Markets.
The Saudi Arabian telecoms market is perhaps the most interesting in the Middle East. It is more competitive than most others and all the big regional players have at least a toehold in the market. Saudi Arabian incumbent STC is the largest telecoms company in the Middle East when measured by either revenue or by market capitalisation. It has been joined in the Saudi Arabian mobile market by the second and third largest Middle Eastern regional players, Etisalat of the UAE and Zain of Kuwait.
Etisalat has considerably more than a toehold in the market. It won the second GSM/3G mobile licence and, operating as Mobily, now has over one third of the GSM market and three quarters of the 3G market. It has also bought Bayanat Al Oula, a major ISP/data comms licence holder, and has invested in considerable fibre and WiMAX infrastructure.
Zain won the third GSM/3G licence in 2007 and launched operations in August 2008. It paid a huge US$6.1 billion fee, almost twice the price paid by Etisalat for the second mobile licence (US$3.45 billion) in 2004. At the time it was the world’s highest licence fee on a per capita basis, at US$226 per Saudi inhabitant.
These three giants have been joined in the market by Batelco of Bahrain and Qtel of Qatar. Batelco is a major investor in a consortium, Etihad Atheeb, which has won a fixed-line licence. Finally, the remaining large regional player, Qtel, has a major share in the small iDEN mobile operator, PTC, through its Wataniya subsidiary.
What makes Saudi Arabia so attractive to all these operators is the combination of its population size and wealth. While its total population is nowhere near as high as those of Turkey or Iran, its GDP per capita is much higher - and while the smaller gulf countries are richer per capita, their populations are tiny. In addition, its market has been slower to develop than some others in the region such as the UAE or Qatar, leaving room for growth.
Fixed-line penetration has remained steady for some years rather than falling as it has in some other countries in the region. Internet user penetration is nearly 40% but DSL broadband subscriber penetration is only around 5%. However, the number of DSL subscribers doubled in the two years to end-2009. STC also started work on a FttH network in early 2009.
Mobily and Atheeb Telecom are planning to make extensive use of WiMAX, with Mobily offering coverage in 20 cities by early 2010. It launched a WiMAX service for residential subscribers branded broadband@home in September 2008 offering speeds of up to 2Mb/s. Mobile subscribers have grown rapidly in the competitive market and penetration rates have now reached 175%.
Mobily is making an extensive push with mobile broadband, and claimed to have over one million mobile broadband subscribers in early 2010.
As competition becomes fierce in its home market, STC has used its considerable resources to expand abroad. It has direct interests in Malaysia, Kuwait and Bahrain and, through its purchase of a 35% share in Oger Telecom, also in Turkey.
However, Lebanon’s telecommunications sector is unfortunately not quite as developed as Saudi Arabia’s. The Lebanese market has suffered for many years from a lack of political will to make the changes necessary to free up the market in order for it to reach its potential. Consequently, despite a higher GDP per capita, Lebanon languishes well behind neighbouring Jordan in ITC development, with the inevitable consequences of lower economic and social outcomes than would otherwise be the case.
As the years go by, Lebanon falls further and further behind with inadequate broadband services, restricted mobile services, no 3G or HSPA and rampant piracy. The new government, which took five months of negotiations to form following elections in June 2009, unfortunately looks no more capable of reaching an agreement than previous governments.
In early 2009 the outgoing government went some way towards releasing the pent-up demand in the mobile market. Lebanon has two government-owned networks, operated by Orascom Telecom of Egypt and Zain of Kuwait in return for a management fee, with all revenue going to the government. All prices are set by the Ministry of Telecommunications (MoT). Previous governments followed a strategy of limiting subscriber numbers and keeping tariffs high, resulting in the highest prices in the Middle East and the lowest penetration rates other than in desperately poor Yemen. Monthly ARPU levels were over US$60. In April 2009 the government took the radical step of lowering tariffs and increasing the maximum number of subscribers for each operator, arguing that total revenue would increase. This had a startling affect on subscriber growth.
For many years, governments have been unable to agree on whether to privatise the two mobile operators. Deadlines for decisions come and go. Consequently, the operators exist on temporary contracts with the attendant lack of incentives to improve services.
Broadband Internet services were very slow in coming to Lebanon and were not introduced until 2007, again leading to much frustration. The long wait for ADSL services, which were imminent for over five years, was blamed variously on constraints in the capacity of the international cable, the lack of a functioning TRA to set and enforce prices, the difficulty of enforcing the ban on VoIP once DSL arrived (potentially having a disastrous effect on the state budget), and the protection of wireless broadband providers. The rollout of services was slow during 2008 and although the MoT now claims reasonable coverage, speeds remain slow and prices high.
The Telecommunications Regulatory Authority (TRA) was established in the expectation of further liberalisation. The appropriate law was passed in 2002 and the decrees for its establishment were approved in 2004 but from 2004 to 2007 the TRA board remained unappointed, partly due to political infighting over nominations. However, since beginning work in 2007, the TRA has been energetic and active, in so far as it has been able without new broader Government legislation, and developed a Regulatory Framework designed to cover the entire spectrum of the telecom market.
Plans have existed for many years for the privatisation of fixed-line incumbent Ogero Telecom, together with the operational responsibilities of the MoT, starting with its conversion into a government-owned company Liban Telecom. This is not likely to happen any time soon.