Telecommunication is one of the fastest growing sectors worldwide. Globally, there are currently 3.3 billion mobile subscribers, 77.9% of them in the Global System for Mobile communications (GSM) standard. With an increase of 1.5 billion mobile subscribers anticipated over the next four years, a 75% overall penetration rate is expected by 2011, according to TAIB Research. Worldwide annual subscription growth is expected to slow down this year to 12.7%, compared to 18.6% in 2007. Growth in revenues of the mobile segment is also estimated to decline somewhat from 50% in 2007 to 44% in 2008.

In the MENA region, the subscriber base for mobile users is expected to double over the next ten years, reaching 400 million by 2017. Consolidation in the telecom sector over the past three years has seen over $55 billion been spent on mergers and acquisitions, with the sector achieving an annual growth rate of 20%. According to TAIB Research, the telecom and broadband internet sector in the region is expected to generate annual revenues of $70 billion by 2015.

The mobile segment, which has seen very high growth over the years in the region from 41% in 2003 to 76% in 2006, may see growth upwards of 85% in the next three years as demand for GSM continues to rise.

Among the GCC countries, the highest mobile penetration rates were recorded in Bahrain, the UAE, Saudi Arabia, and Qatar, where levels have already exceeded 100%. With the incorporation of new technologies the Gulf countries are expected to spend up to $275 billion on telecoms and related infrastructure over the next decade.

Expansion into new markets

As one of the telecoms with largest geographic reach, Kuwait-based Zain covers 22 countries and is poised to enter into the Saudi market. “As of the end of March 2008, our active customer base was over 45 million of which around 15.6 million operate under the Zain brand in the Middle East and Sudan [and mtc Touch in Lebanon],” explained Ibrahim Adel, chief communications officer for Zain. “The remainder currently falls under the Celtel brand [Zain’s wholly-owned African subsidiary] although in the near future, these African operations will re-brand to Zain.”

Saudi Arabia has a large market of 27 million, almost half below the age of 20 and a population growth of around 3% per annum. “We expect that these factors will result in Saudi Arabia continuing to be one of the fastest growing mobile markets in the world. It is anticipated that mobile penetration will reach over 140% by end of 2012 from its current figure of some 82%,” said Adel.

Batelco, Bahrain’s first telecom, extended its operations across the region including Egypt, Kuwait, Jordan, Yemen and Saudi Arabia, now covering over 60 million people across the Middle East. It recently acquired a 20% shareholding in Sabafon, Yemen’s leading mobile company. Batelco also focuses on wireless networks across the region with a Wimax license in Saudi Arabia and Jordan. In addition, explained Nadia Hussain, corporate affairs general manager for Batelco, “We reached over 1.7 million mobile customers in Bahrain and Jordan and launched ICT business solutions in Bahrain and Kuwait. Whereas we don’t foresee significant opportunity for growth in the home market, there is much scope for growth through our subsidiaries and affiliates overseas.

“Furthermore, we will continue to explore further opportunities to acquire new acquisitions and licenses throughout the MENA region and have started to explore opportunities in the Indian and Asian markets,” she said.

On the home front in Bahrain, with penetration rates over 100% in the kingdom, Hussain explained, “As the market matures however, we need to seek diversification in ICT related markets, grow our scale in overseas markets and manage our costs tightly. Whilst doing all of the above we need to ensure that customer experience improves — we need to understand and better serve specific customer segments, we need to deliver innovation and we need to be more responsive than ever.”

In April 2008 Zain announced “One Network,” the first borderless mobile service available to four countries in the Middle East market. The service made telecom history when it was launched in 12 operations in Africa a few years ago, as it allows Zain/Celtel customers the ability to make calls across borders at local calling rates. In the Middle East, Zain’s 14 million customers in Bahrain, Iraq, Jordan and Sudan are now under one mobile rate umbrella.

As Adel explained, “One Network also enables them to top-up their mobile phone credits with locally purchased scratch cards, which are widely available in more than 200,000 points of sales. Furthermore, there is no need for pre-registration, no extra fees, no roaming deposits, no complicated dialing formats, etc. Customers are automatically switched onto One Network when they cross borders.”

Networks

Throughout the region, the push has been mainly toward unveiling new technologies for wireless. For Zain, network capabilities vary across MENA. In Africa, Iraq and Lebanon operations provide a minimum of 2.5G service (GPRS/EDGE that provides high-speed wireless Internet access). This year 3G deployment has been planned for Jordan and Saudi Arabia providing a richer mobile and multi-media experience. Bahrain and Kuwait have network capabilities that go beyond 3G (often referred to as 3.5G) to include WiMax and high-speed packet access (HSPA) service delivering up to 7.2 Mbps internet speeds, according to Ibrahim Adel, chief communications officer of Zain. 

Zain Bahrain launched WiMAX in September 2007. The service has been very successful, and this is especially true from the technical and technology point of view. “The deployment of WiMAX came as a part of a complete offering of broadband and voice services to residential and business customers, and the take-up has been excellent. The interest in the service has been high due to both the commercial attractiveness of the offer and the technical quality of service,” explained Adel. “From the technical point of view, all customers enjoy download speeds higher than that of the highest paying ADSL subscribers of other networks. Being wireless, service is provisioned in a few days, and the service virtually covers the whole country from day one.”

Batelco has also upgraded its networks. It offers Wimax in two markets and 3G in Bahrain. As Hussain explained, “We have made a decision three years ago to upgrade our legacy network to an MPLS based NGN with full IP Core. This was meant to be a five-year project but we are on track to complete it earlier. It will give us tremendous capabilities for the deployment of new and sophisticated products and services.”  

WiMax Difficulties

Adel explained that the difficulties faced by other WiMAX operators stem from the fact that these operators are overtaken by the hype of WiMAX being a “4G technology,” a technology that provides “super” high speeds, on the move, anywhere, anytime. “The fact is that such technologies are not ready yet,” he explained.

Adel attributes the success of Zain’s deployment of WiMAX to the fact that the company was clear about what it wanted from the technology — a system that provides broadband and voice services to (mainly fixed) residential and business customers to compete against PSTN/ADSL networks. Although Zain already operates an HSDPA (High Speed Data Packet Access) network, it did not want to be in the situation of competing against its own mobile data network.

According to the Zain communication officer, “The future for telecoms is wireless; the future for wireless is high-speed data and for the majority of customers this means accessing multi-media applications at speeds that deliver a rewarding and enjoyable experience. In this part of the world, we are seeing such high-speed networks become increasingly available as access channels to content/media using these high bandwidths. It is an unstoppable eventuality.” In the Middle East in particular, such content also needs to be available in Arabic and whilst this is increasingly so, it is still not on par with English language content.

“The sector will face the 3 Cs: convergence, consolidation and content partners or competitors. Add commoditization of basic connectivity to get the fourth ‘C’,” said Hussain. “However, trusted branded operators, offering value and service and part of the content ecosystems, will continue to grow and be relevant to customers for many years to come.”

E As convergence continues to take place in handsets with standard mobiles equipped with Bluetooth, a personal organizer, and email capabilities, what is happening to the smart phone and PDA market?

The next challenge, from a corporate perspective, is to consider what other company information assets can be of benefit. Mobile devices today allow access at near broadband speeds and in many cases offer WiFi in addition to cellular support. Mobile teams can access, update and share large amounts of information as though they are connected directly to their corporate network. Operators around the world and here in the Middle East are offering flat rate data plans which enable cost effective access for teams across wireless networks and with the increasing prevalence of WiFi hotspots, this is also a viable mobile access route. As for Nokia, it is the world’s largest manufacturer of converged devices with 14.6 million shipped in the first quarter of 2008.

Enterprise systems such as SAP allow access to inventory levels, production reports, customer sales and credit history. Enabling mobile access to these will allow greater levels of customer response and service.

With access to wider and deeper levels of company information there will also be a need for companies to consider what security solutions they need to put in place. Security solutions will need to be adaptable, scaleable and most importantly, able to manage the idiosyncrasies of mobile communications.

E It has been reported by IDC that sales of PDA handheld devices were down 43.5% globally, is this accurate in your market?

We have experienced great interest within the MEA (Middle East & Africa) for our latest E-series devices such as the E65, E61i, E90 and E51, which have proven to be the new access point for business people that provides them access to corporate data, documents and emails at all times.

A recent TNS survey found that the UAE for instance is one of the countries with the highest users of smartphones — around 32% of mobile phone users in the UAE actually carry a smartphone, or a PDA, compared to an average 13% worldwide.

E How are high-end handsets selling in the region? How do sales for upper-end models in the GCC compare to the rest of the region? Is this region unique in this way?

There has been a very positive response in the region to high end handsets, but not only, as our latest figures show. In the first quarter 2008, the total mobile device volume of our Devices & Services group reached 115.5 million units globally, representing 27% year on year growth. The MEA accounted for 20.2 million devices, marking a growth of 28.7% to the first quarter of 2007. It definitely is a unique region and a challenging one, comprising many different countries, cultures and lifestyles: the region includes some of the world’s poorest countries as well as some with the highest per capita income. The use of a mobile phone device differs completely throughout the region.

E What is your growth in the region for 2007 and your current market share?

Nokia’s mobile device volume for MEA in 2007 was equal to 75.6 million, representing a year-on-year growth of 42%. This was the highest growth of all the Nokia regions.

Based on our preliminary market estimate, Nokia’s global market share for the first quarter 2008 was 39%, compared with 36% in the first quarter of 2007.

E What type of influence do your local partners have on your strategy and products?

Nokia has begun a strategic transition from being a mobile phone pioneer to a consumer Internet services company providing multimedia devices, concepts and services. Within such strategy, local partners will be playing an increasingly important role. We work closely with our partners to offer our customers solutions that meet their needs — be it local music, as in the agreement with Rotana, Ramadan applications, launched last year, along with a Special Edition of the N73, on occasion of the Holy Month, or business solutions — we recently announced with du that the Nokia Intellisync service will be shortly available and will allow customers to receive mobile email immediately via the push email service.

E How important are internet options and mobile browsing features in the region?

Extremely important. Today, Nokia is expanding from a focus on mobile devices to offering a range of Internet services with the introduction of Ovi. Ovi is a gateway to Nokia’s Internet services and an open door to web communities enabling people to have all of their content, communities and contacts in one place. The core principles of Ovi are to empower and enable Nokia device owners to realize the full potential of the Internet. Ovi services include our music, navigation and games. We believe this region will highly appreciate these services.

E What are the current trends in mobiles and what can we expect in the future? Will devices continue to converge and what effect does that have on mobiles in terms of new products and services?

During the last years, we have experienced some new trends when it comes to mobile technology, which are likely to continue in the next few years — such as imaging, music, navigation and business-on-the-go.

Imaging is becoming a key phone feature — in 2007 Nokia shipped 200 million camera devices, making it the world’s largest manufacturer of digital cameras. Nokia devices are increasingly being equipped with high-performance cameras and DVD quality recording with wider screens, to enable the best imaging and video experiences. This is evident in the Nokia N95 8GB and Nokia N82, which are enhanced imaging tools with 5 megapixel cameras that deliver the utmost imaging experience. We’ve also recently announced the Nokia N96, which will become available later this year, which is feature-packed for the next level of mobile entertainment, and optimized for exciting video and TV consumption.

Furthermore, Nokia sees that location-based experiences, such as mapping and navigation are to be a fundamental platform in mobile devices going forward. Nokia’s mapping and navigation solutions give people navigation features, local content and world maps directly on their mobile device. Maps and navigation have become a standard feature in all Nokia N-series multimedia computers and in a wide range of Nokia phones. Nokia will introduce a number of GPS enabled mobile devices in 2008 that will offer an enhanced maps and navigation experience. Nokia has introduced the “Navigator” branded devices which are truly optimized for navigation, such as the 6110 Navigator and the soon to come 6210 Navigator.

Music and gaming are also on the rise comprising an integral part of what consumers want from their converged devices. The Nokia N-series range of multimedia devices, such as the N81 and the recently announced Nokia N78, offer high quality music and entertainment experiences. Additionally, the Nokia XpressMusic range such as the Nokia 5310 and Nokia 5610 are optimized for music lovers with dedicated music features.  

On the business front, mobile technology is transforming when and where business is conducted. Devices such as the Nokia E-series can contribute to increasing employee efficiency and productivity, allowing them to better balance work, life and free time. 

The Nokia E-series devices — such as the  Nokia E65, the Nokia E61i, the Nokia E90 Communicator and the recently launched E51 — support the most popular email and business voice and other productivity and leisure time solutions, operate across different continents using the quadband GSM and 3G network frequencies, provide fast broadband data connectivity with 3G WCDMA and WLAN. Each Nokia E-series device features a combination of advanced technologies that will enhance the way people experience work in a mobile world, by allowing faster and better quality access to important information for greater collaboration and productivity.

In late April Microsoft launched in Lebanon its new Microsoft Server 2008, the successor to Windows Server 2003. The server is part of several major innovations by Microsoft in its platforms that have evolved into developer ecosystems. These platforms include the database server SQL 2008, Visual Studio 2008, and Windows Server 2008.

Microsoft intends them to form a cohesive whole, an interconnected platform in which components of each rely on and build off components of the other.

“The main focus of Microsoft is to try, with the new technology it is releasing, and mainly the server launch, to help partners and customers to develop solutions around them,” explained Michel Diab, developer and platform manager for North Africa, Mediterranean and Pakistan at Microsoft.

“Their main purpose is to help customers that are using our applications being able to better manage them and create solutions and better services around them,” he added. Put differently, the server and its components allow simplicity of the data utilization in the system and for complete customization and tailoring to a client’s needs.

“We have a full suite that can drill down all the way to the server level,” he explained. To be able to deal with these challenges, information-worker software needs to evolve. “It’s time to build on the capabilities we have today and create software that helps information workers adapt and thrive in an ever-changing work environment. In other words it should all give us an opportunity to re-imagine how software can help people get their jobs done. This is an important goal not only because the technology has evolved to make it possible, but also because the way we work is changing,” he said.

The server has already been implemented in some places around the country. For feedback, Executive spook with several Microsoft partners and end-users, and the response was overwhelmingly positive.

“After five years from the launch of the previous version, I can say that it was worth the wait. We are impressed by all the powerful new tools, like Internet Information Services (IIS) 7.0 and Server Manager. They really provide us with more control over our servers, and streamline web, configuration, and management tasks,” said Robert Madi, CIO, Lebanese Broadcasting Corporation International (LBCI).

The wonders of the new server

He continued to highlight that “Windows Server 2008 eases administration, management and automation. My IT team is very happy with the new Server Manager and PowerShell. We loved the idea of having a single, unified console for managing a server’s configuration and system information, displaying server status, identifying problems with server role configuration, and managing all roles installed on a server. Server Manager allows the IT team to complete tasks with fewer clicks without having to navigate between multiple tools and interfaces. Server Manager also interfaces directly with PowerShell, the command line shell and scripting language for automation. All Server Manager functions that can be used in the interface are available to PowerShell scripts.”

Soft Flow client Khaled Dankar, head of Internet & Portal Services at FRANSABANK, said “FRANSABANK realized that Microsoft implemented in Windows Vista what they thought as best practice while in Windows 2008. Microsoft Windows 2008 Server provides virtualization, advanced remote desktop management, and application publishing along with the new Network Access Protection (NAP) feature that performs a health check on computers prior to allowing network access. With over 1,200 PCs and 50 servers, the environment is hybrid yet simple and we are trying to centralize management and enhanced security.”

Maral Topalian, presales consultant, Midware Data Systems, concurred. “Windows Server 2008 delivers powerful improvements to the base operating system. New web tools, virtualization technologies, security enhancements, and management utilities help save time, reduce costs, and provide a solid foundation for our customers’ information technology infrastructure. The major highlight is the Hyper-V and the new wave of server virtualization offered by Microsoft,” she said.

“The key aspects are the security features and roles in Server 2008 such as Network Access Protection, Server Core, the Read Only Domain Controller, Powershell, Windows Deployment Services, and the Rights Management Services. Server 2008 has been hardened to help protect against failure and several new technologies help prevent unauthorized access to our customers’ networks, servers, data, and user accounts. NAP helps ensure that computers that try to connect to the network comply with customers’ organizations’ security policies. Technology integration and several enhancements make Active Directory services a potent unified and integrated identity and access (IDA) solution,” she explained.

“We, as an Application Service Provider and Hosting Service Provider, found the features in IIS 7.0 and the enhancements in Terminal Services very promising for our environment. In addition, if we compare it to other possible modules, we will find that it is definitely worth our investment,” said Patrick el Khoury, infrastructure manager for Capital Outsourcing

What’s different?

Windows 2008 has also merged features and technologies from UNIX and Windows 2003 R2. “These additional features give this operating system the ability to offer the majority of the third parties solutions in one bundle. Because in our line of business it is very important to offer the most available features, we found that Windows 2008 gave us the competitive advantage we need,” Khoury explained.

Microsoft Gold Certified Partner, Soft Flow is also one of the main LARs (Large Accounts Reseller) in Lebanon. Ziad Abdullah, Sales Manager at Soft Flow, said that “as a result of working back to back with Microsoft, our marketability and client base is growing continuously based on Microsoft trusted products and Soft Flow’s know how and expertise.”

Helmi Aloulou, deputy general manager of ICC explained the Microsoft Partnership. “With the mission to provide our clients with the most state-of-the-art technology, we have aligned ourselves with international technology venders. Being a Gold Partner means that we maintain a qualified environment of certified team members. Whenever needed, Microsoft provides support in human resource, additional training, or exposure to technical materials available only to the Gold Partners,” he said.

Aloulou continued in noting that “whenever there is a new launch, some people would like to wait and see. But with the new version of Microsoft products, the time lag is measure only in weeks. Price is actually where the importance of working with a good partner or Gold Partner of Microsoft, with Microsoft it is not always a direct cost issue. If you invest a bit now, and in software assurance, you will get the upgrades for free.”

Given that, he explained he still considers his company’s role to be as a consultant to Microsoft, stating that “If I am not convinced of a solution, I wouldn’t present this to our clients.”

When asked how his clients have been responding to the Microsoft Server 2008 and its performance, Aloulou said, “In one word, ‘marvelous’.”

ICT is not just creating better solutions for the upper echelon of the income spectrum. It is also finding itself as an unlikely solution for a class normally left out of the high tech market — the unskilled guest workers. In April 2008 California-based outsourcing firm InfoSpan began its operations using m-commerce (i.e. “mobile commerce”) for UAE migrant workers to transfer money to their home countries.

InfoSpan aims to help the UAE government in its efforts to enforce formal bank accounts for all employees and moving the participants of the cash-in-hand culture, the “unbanked”, into the banking system.

In June 2007, the UAE passed a new labor law on how companies have to pay their employees, which went into effect in January of 2008. Under the new regulations, employers must pay their workers — including all 3.2 million foreigners — on time and directly into bank accounts held in the employees’ names. Companies that fail to comply will now face suspension of their activities by the Ministry of Labor.

InfoSpan is offering to help employers comply with the new regulations by handling employee accounts. At this point, companies are facing several obstacles on their path to comply with the new law. One of the greatest is on the part of banks. “For banks, it would be expensive if they were to offer branch service to less than fully literate customers,” explained Larry Scudder, senior vice president of InfoSpan.

The new system can release banks from having to offer their full range of services by getting backing from one of the five card programs — Visa, MasterCard, American Express, Discover, and Japanese-based GCB — that issue pre-paid debit cards, which guest workers can then use at any ATM or Point of Sale. In this program, the debit cards are associated with mobile telephone numbers, covering 95% of guest workers. M-commerce comes into play by alerting the guest worker by SMS when their salary is deposited and allowing them to transfer funds via mobile phone to their home countries.

“With InfoSpan, these workers can pick up a phone and place a phone call and talk to an operator or voice response system in their own language to conduct money transactions,” Scudder added. In the continuing evolution of the process, it is set to later on also include voice recognition to free the workers from having to remember pin codes. “What is important is not to change the lifestyle of the end-user,” Scudder pointed out. With nine data centers worldwide, the development costs of the system are estimated at $35-50 million.

Once implemented, employers pay a fee for this service of handling their payroll. For international transfers, the service fee is dependent on the partnerships with the guest workers’ home countries. For example, in Pakistan the transfer would be paid not by the worker but the Pakistan Central Bank because of its need for hard currency. For the end-user, this translates to a free product. And Scudder is confident that “other nations with the same dynamics would possibly do this as well.”

Remittances have changed with the times, from previously fully going to consumables to now being saved for purchasing property and homes in their home country. By formalizing the remittance system, transfers would also go toward establishing credit on the part of the sender as well providing the receiver of the remittance with a credit history.

By the end of 2009 all residents in the UAE will have to have an Emirates Identity Card that includes three forms of biometrics as a part of an overall strategy of “One Card One Nation”. The smart chip-enabled cards will also be employed by InfoSpan, through an agreement with the Emirates Identity Authority, for use as an ATM card.

The market for this service is certainly massive in scale and likely to grow, as Saudi Arabia will also require all its 13.2 million guest workers to have bank accounts. According to Scudder, migrant workers make up part of the 75% of the world’s population that do not have bank accounts and spend approximately $10 trillion per year in cash — or one-third of the world’s economy.

Servicing this population is a golden business opportunity for tech companies, but one that also provides tangible benefits for the customers, who will no longer have to remain “unbankable.”

Dubai Internet City (DIC), which clusters companies from many industries and targets emerging markets throughout the Middle East, India, Africa and the CIS countries, is the benchmark in technology free zones. Sheikh Mohammed bin Rashid al-Maktoum, crown prince of Dubai, had never made a secret of his vision to make the emirate a premier ICT hub, not only for the UAE and the Gulf, but for a much larger region, and as a result, DIC was launched in 2000. It is part of TECOM Investments, a subsidiary of the state-owned Dubai Holding, and built to be a knowledge-economy ecosystem to support ICT businesses in a free trade zone.

“Our whole idea in developing the cluster was to attract development and a knowledge based economy. This fell very well inline with the overall Dubai strategy,” explained one of DIC’s officials. “At the time that Dubai Internet City was created, the cluster development idea was not well-known to the world. We emphasized the fact that we are a purpose-built city that can accommodate certain segments of the industry, or cluster certain segments of the industry, which help in developing a stronger base for that segment.”

The DIC boasts the most sophisticated and largest ICT infrastructure in the Middle East and North Africa region. This competitive advantage has attracted multinational leaders such as Microsoft, HP, IBM, Dell, Siemens, Canon, and Cisco that base their operations from DIC along with many other medium and small enterprises. For foreign companies, DIC offers 100% tax-free ownership, 100% repatriation of capital and profits, no currency restrictions, stringent cyber regulations, and protection of intellectual property.

By 2007 DIC had expanded its premises and saw an additional 112 companies locate which resulted in 84% growth in rented areas.

“Today, we have 1,200 companies residing in the DIC and that is growing at a very rapid rate. There is approximately 33% growth in the number of companies that have joined DIC in 2007 against 2006,” the official pointed out.

Notable additions to DIC environment were Qualcomm, Google, and British Telecom.

“From our end, we are focused on maintaining the [growth] curve by maintaining our base and diversifying our main core areas. Our main core areas are software development, IT services, networking, etc. For us to keep this momentum going, we are looking at attracting new companies into the region.”

In the initial stages, instead of relying on the UAE’s only telecom at the time — Etisalat — DIC provided its own telecommunications infrastructure, du, launched in 2006 as the UAE’s second telecom provider. DIC holds a 20% share of du and therefore maintains control and leverage over its services.

As a free zone, DIC remains outside the country’s censorship proxy that filters and blocks material deemed ‘inappropriate’, and also blocks Skype and other voice-over-IP (VOIP) functions.

Until the expansion was completed in 2007, DIC’s major challenge was available space for new partners wanting to join. In March 2008, DIC announced a 25% rent increase for leases signed after June 2008, although prices are still below market. However, now the main challenge is to maintain the consistent growth it has seen since its launch.

For the city’s managers, the sustainability of growth for the DIC is still possible by attracting more ICT firms from around the globe. As the official pointed out, “With a huge number of global players around the world, not everyone is aware of the potential that the region can offer to them. Also as part of TECOM’s strategy, our goal for the future is to diversify into main areas of development. So we are entering into areas that can benefit and compliment what we are already doing for the industry.”

DIC is also expanding abroad in partnership with Sama Dubai to take its cluster model internationally. Plans for a new development in Malta were launched in 2007 and there is also talk about a cluster in the southern Indian state of Kerala.

The Middle East and Africa will be one of the world’s leading regions for technology investment in 2008 after China and India, according to the International Data Corporation (IDC), a US-based market intelligence and advisory firm.

Total regional ICT investment this year is estimated at more than 15% over 2007, reaching $40.5 billion while global growth is expected just over 5%, Jyoti Lalchandani, vice president and regional managing director of IDC MEA, told Executive, with the GCC receiving a quarter of the region’s total, or around $9.1 billion. New initiatives in technology and infrastructure will get 40% of investment funds. This contrasts sharply with mature markets in the US and Europe, where investment largely goes to upgrading and replacing existing technology.

This enthusiastic investment atmosphere is drawing greater international interest in the potential of the region. Frank Gens, senior vice president and chief analyst of IDC, explained, “Set against the relatively flat growth of the US market, and the much lower growth levels of Europe, the Middle East will be a bright spot in the world market.”

Growth estimations from last year are helping the sector with 5.6% for Kuwait, 7.8% for Qatar, and 8.5% for the UAE.

Middle East Internet usage and population statistics

Middle East telecom services revenue

A racing market

IDC has forecasted that for 2007-2011 Egypt, Saudi Arabia, Kuwait, and the UAE will emerge with the highest compound annual growth rate in double digits. Egypt is set to see 14.1% over the five year period, Saudi Arabia 12.8%, Kuwait 11.9% and the UAE 11.3%. This is compared with India at 17%, China at 8.6%, Western Europe at 5.7%, the US at 5.1% and Japan at 1.7%.

The growth that we are witnessing in the region is also beginning to mature in the GCC. “What has been taking place in the last 12-18 months has been quite unprecedented. What we have seen is not just growth in the ICT market but the types of investments that are taking place,” explained Lalchandani. “If you look at spending over the last decade, it has been centered around building infrastructure such as buying PCs, networks, peripherals, as well as looking at storage, servers, etc.”

With this, the sector is turning its focus now to strategy and utilizing technology as opposed to simply gaining performance.

In the US and Europe, 70-80% of IT investment is spent on services and the rest on hardware. This means that most of the spending is on utilizing the infrastructure as opposed to building it. In the GCC, 60-65% is spent on hardware. In the Levant and Egypt, the average spending on hardware is around 70%, meaning that between the two sub-regions there is a 10% gap in the IT maturity index. In other words, the Levant and Egypt are still in the build-up phase and trying to catch up with the Gulf.

Fixed versus mobile spending

ICT penetration

IT spending as a share of GDP is currently 1-1.5% in the UAE and the GCC, compared with the worldwide average of 3-3.5%. However, Saudi Arabia is below the 1% mark. In Europe, businesses spend 2-4% of their budgets on IT while in our region it is less than 1%, though Lalchandani is optimistic, “We have a lot of catching up to do but I think that it will come.”

The Internet penetration rate can be used as a guide to ICT levels. The global average hovers around 20%. The Middle East currently has a rate of 17.4%, with the UAE at the top with 38.4%. Qatar has made strides in its efforts for greater ICT infrastructure seeing 866% growth in the last seven years yielding a current penetration rate of 32%.

According to studies by the OECD, investments in technology at a macro level are needed to boost GDP growth. And Fadi Moubarak, general manager for the Levant and Iraq at Cisco Systems, stated that: “We truly believe that ICT is the key enabler for businesses to compete and grow. There have been studies done on the micro level whether in advanced economies or emerging economies that has been no significant economic growth and GDP growth detected without total alliance and investment in ICT.

“Take the US, Europe, Eastern Europe, and Asia, where you had normal economies that were aggressive and increased their investments in ICT both the public domain and the private domain were growing at the same pace.”

However, according to a report by Booz Allen Hamilton, the Middle East is still far from realizing the full benefits of ICT, and the path to true advancement will continue to be tortuous unless the topic receives full attention. A number of challenges must be overcome to get ICT development on a sustainable path.

The report identified the lack of a holistic ICT development agenda at a national level in most Middle East markets as one of the greatest hurdles. It also stated that a definition of a development plan at a market level across the main facets of ICT is mostly non-existent throughout the region.

This position does not undermine the successful formulation and early implementations of sector specific ICT plans, such as e-government, e-education, and broader e-commerce activities in markets such as the UAE and Jordan. Nevertheless, it does underscore the prevailing state of fragmentation across the region at large.

The accumulation of these problematic initiatives is creating an inefficient allocation of resources and provoking substantive delays in delivering meaningful services to end users that can truly improve their lives, according to the report. Recent research in the Gulf reinforces this point of view, with nearly 60% of respondents agreeing that ICT development is important for the government, while 55% of the poll rated the related government efforts as, so far, being unsuccessful.

Further, ICT development continues to suffer from an over-emphasis on telecommunications development at the expense of most other elements in the ICT spectrum. The emerging view, however, from most Middle East markets is that policy makers and regulatory authorities should continue to strive in democratizing access to all telecommunications services and encourage further innovation in the sector.

This will require a shift over time from defining licensing regimes to stimulating accessibility and affordability of services. Past the priority of communication accessibility and affordability, policy makers should create an environment for the development of digital-services in a number of domains such as education, health, media, general government activities as well as other commercial transactions.