There is new movement in the telecommunications sector in the Middle East. That in itself does not reveal much concerning an industry that is in constant flux and virtually depends on permanent innovation, much more so than most other sectors. What adds flavor to the latest trends is that highly saturated markets are attracting players betting on the revenue opportunities from new services and the development of loyal customer bases.
This does not apply to all markets in the region, though. Lebanon, steeped since 2001 in a morass of improbably high communications prices that impede economic growth, appears once again unable to pull itself out of the swamp by its bootstraps this year. Although the country’s political groups finally reached a cabinet agreement in July, the cabinet’s short lifespan leaves precious little time for devising a new auction to sell off mobile operator licenses. In terms of ministerial competency, the telecommunications portfolio seems to have been delivered as hostage to partisan political interests — as it was during several governments in the past decade — rather than given to a technocratic handler who could facilitate a deal with regional and perhaps international bidders interested in gobbling up a Lebanese mobile operator license.
Lebanon’s roughly 30% mobile telephone coverage is a rather boring case of industry stagnation, which will likely remain, at least until we see some political will for taking telecommunications forward.
More interesting are the GCC markets, where operators will shortly have to max out their creative talents in intensifying competition. Kuwaiti authorities are still working out the initial public offering for half the shares in its third mobile operator in the second half of 2008 after the IPO scheduled for the end of winter was halted. Once the new operator joins the fray, competition among the three players is sure to reach heights that the previous king of the heap, Zain, has yet to see in its home market, not even during the loss of its monopoly just over half a decade ago.
Regional markets reshaping
Also on the table are plans for a third mobile operator license in Bahrain and a partial sale of Omantel, the Omani monopoly operator in fixed line services and the dominant provider in the Sultanate’s duopolistic mobile market. In July Muscat announced that it wants to sell another 25% in Omantel, which will reduce the state ownership in the company to 45% before year end. In Bahrain, the move towards a licensing a new operator is expected to be carried out between August and December, with a winner to be announced before the end of the year.
But the new center of competition in Middle Eastern mobile communications will be the GCC’s largest and most lucrative market, the Kingdom of Saudi Arabia. This new market hosts a strong and ambitious leading local company, powerful new entrants, companies out to conquer niche and value-added services markets and enthusiastic governmental support for communications evolution.
Starting with the last point, the Saudi government, through its Communications and Information Technology Commission, has recently signaled its determination to push for the development of a true information society in the kingdom, through analyzing the state of the information technology sector and producing annual reports on the state of IT. This initiative, which is rooted in the Saudi National ICT Plan issued in mid-2007, broadly aims at building greater IT awareness in the business community and among home users.
The telecommunications landscape in Saudi Arabia has every potential to work as a factor in support of developing an information society. The kingdom’s customers have been served for the past ten years by STC, the Saudi Telecom Corporation. During STC’s role as sole provider of landline and mobile communications for the kingdom, this company set important marks in service quality. It transformed itself from a publicly owned to a private sector company and recently won an award for its corporate social responsibility program.
Recent numbers on the development of the mobile industry in Saudi Arabia have surprised analysts. A report by regional investment bank EFG Hermes said in June that subscriber growth in the KSA amounted to 7.4 million new mobile contracts in 2007. This growth meant that the total subscriber base reached 27 million customers at year end 2007, representing a 38% increase from a year earlier and beating growth forecasts by 10%.
Consequently, EFG Hermes upgraded their forecasts for the Saudi mobile communications market and now predicts that by 2015, the total market will have increased to 47.5 million subscribers — which equates to 146% of the population expected to live in the kingdom by that time.
The Saudi population is young, communications-savvy, and growing faster than many other countries of this size. This demographic will drive the Saudi telecoms market for a good number of years and the development will be amplified by further expansion in the number of mobile operators and their services, plus the arrival of new auxiliary services offered by new companies.
The distribution of customers between mobile operators in the KSA will this year be influenced by the entry of Zain Saudi Arabia, the joint venture led by the Kuwait-based Zain Group. Zain Saudi recently entered what the company called a user-friendly phase of test runs of its network. This entails free usage of the network by a number of initial customers estimated at tens of thousands of people. The network has been scheduled for official launch towards the end of August 2008.
This is later than Zain officials expected when the company presented its first statements on the Saudi operation after acquiring the mobile operator license in March 2007 for $6.1 billion. Factors that led to postponement of launch originally intended for the first quarter of 2008 included time-consuming negotiations with existing providers STC and Etisalat Etihad — whose network is branded as Mobily — over usage of their networks, along with some other obstacles.
Looking ahead
In the estimates of EFG Hermes, the market share outlook for the three mobile operators in Saudi Arabia over the next seven years sees STC retaining more than half of all subscribers, but dropping in market share from 64% in 2007 to 53% in 2010 and 50% in 2015. Mobily is expected to retain almost all of its 36% in market share achieved in 2007 in the years going forward, with EFG Hermes forecasting 35% in 2010 and 2015 for Mobily. By this projection, newcomer Zain Saudi would grow from 4% market share in 2008 to 11% in 2010 and 15% in 2015.
An element to which the investment bank’s analysts did not attribute too much weight in their expectation of subscriber choices is a service in which Zain Saudi will offer its customers the usage of its other Middle Eastern and African networks at no extra costs — meaning pre-paid or post-paid lines of customers in Saudi Arabia will also work for local calls and SMS messaging in almost 20 other countries.
In the view of EFG Hermes, this new service will “not have a significant effect on Zain’s additions” of new subscribers each year. Time will test this assumption but what observers should not lose sight of is that the borderless network has some amazing implications for regional, and even international, mobile communications. This is because the service, called “One Network,” is not, as it is often perceived, a roaming solution.
In the, naturally contrasting, view of Zain Group executives, the One Network is actually an anti-roaming solution — a new platform for a communications community that eliminates the artificial price and coverage barriers that result from national borders. This One Network concept was first developed about four years ago by the African Celtel Group, which is part of Zain.
The story of the anti-roaming development of the One Network has its own historic background in that it was a break with the colonial heritage of central Africa where a phone call from Kinshasa in the Democratic Republic of Congo to the city of Brazzaville 500 meters away on the other side of the Congo River would be routed through the old colonial power seats in Brussels and Paris.
These calls not only cost $3.60 per minute, they did not fit with the spirit of modern Africa. Thus the team of Celtel pursued the One Network concept vigorously and did so even more as this ambitious project was wholly aligned with the vision and mission of the Zain corporate family, which Celtel joined in 2005.
Simplicity is key to great innovations and simplicity is the center of the consumer experience in using the borderless network. No activation is required from a subscriber for using the platform and he or she will be able to place a local call in a participating network in another country in an exact replication of the experience they have using the network in their hometown. “There is no difference at all,” explained George Held, Zain Group’s One Network director who has been with the project from day one.
Zain’s Saudi prize
In the Middle Eastern countries under Zain coverage, the One Network was deployed in Jordan, Iraq, and Bahrain in April of this year, but its real opportunity to prove itself as revolutionary will come from Saudi Arabia, the region’s strongest economy by far and a center-piece for any communications revolution.
Zain claims that the One Network caused European regulators to take a very critical look at the pricing structures of mobile operators in the EU, thus bringing innovation and service quality from the Middle East and Africa to the so-called developed markets. The company predicts that the One Network will be adopted by other mobile operators and in five years will be found on every continent.
For the time being, the interesting news is that convergence of communications in the Middle East is making tangible and visible progress. The strength of the Saudi market is likely to be to the advantage of STC, which has expressed its own aims for a leading multinational operator role and presently is standing in the wings for developing a network in Kuwait, where it is the main holder of the third license. In Oman, STC has also stated its interest in acquiring the 25% Omantel stake on offer by the government.
Cross-border consolidations between providers are as much on the books as the introduction of innovative technologies such as mobile broadband. Furthermore, partnerships with providers of mobile banking solutions, financial and stock market information, and general news services are being forged.
One example of the bubbling enthusiasm among startups in Middle Eastern mobile communications, is a firm called ICMS — a new provider of mobile content based in Saudi Arabia that does not yet have a single paying customer — which expects to penetrate the mobile markets in Saudi Arabia, the UAE, and Kuwait in record time and to win tens of thousands of subscribers within the first six months of operations.
The financial rewards of mobile entrepreneurship and innovation may well be substantial but the impact of the next wave of the communication revolution on societies and life at large will be far more important — and with innovations such as the One Network being implemented in the region, Arab markets are for the first time earning entries in the history books of the information age.
