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The Middle East mobile market is characterised by some very high penetration rates and continuing healthy subscriber growth rates in most countries. This is putting strain on ARPU rates, which are falling as subscriber numbers increase. 

The six countries of the Gulf Cooperation Council (GCC) all have penetration rates well in excess of 100%, with the UAE, Bahrain and Qatar nearer 200%. This is due to intense competition and to multi-SIM ownership as subscribers aim to maximise special offers and different deals. The large and transient expatriate populations in the Gulf countries are also a factor in encouraging competition, and thus growth and penetration rates – with a fluid population new operators stand a better chance of gaining market share. Inevitably there must also be a significant number of inactive prepaid SIM-cards. 

Growth rates are also high in the less developed markets of Iraq, Iran and Lebanon. Amongst the lower growth countries, Turkey was hit hard by the Global Financial Crisis, leading to a recession and a fall in mobile penetration. Israel has also seen low growth rates, partly due to much a much lesser economic slowdown and partly to saturated markets and perhaps distraction due to considerable industry structural changes. 

The region is home to some very large international players. Etisalat of the UAE and Zain of Kuwait have been particularly aggressive buyers of both new licences and existing operators in Africa, the Middle East and Asia. Qtel of Qatar, STC of Saudi Arabia and Batelco of Bahrain have also taken this route for growth. 

In the more developed Gulf countries and Israel, operators are pinning their growth hopes on persuading their mobile subscribers to take up data and broadband services. Customers want the latest in high-end handsets and have the income to pay for them. 3G services in these countries are well established, together with HSPA. Outside the Gulf countries, Israel and Turkey, no operator has launched 3G or HSPA although Jordan issued a licence to Orange in August 2009. 

Mobile subscribers, annual change and penetration rates in the Middle East – June 2009

(Source: BuddeComm based on Global Mobile data) 

For more information on this new BuddeComm report see: Middle Eastern Mobile Voice and Operators Market

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With $72 billion invested in mobile broadband it would be hard to argue that this market is suffering from a lack of investment.

More than half of this is taking place in Asia. In my discussion with Jai Rajaraman, senior director, services at the GSMA mentioned to me that over the last two years close to 300 mobile operators in 120 countries have launched mobile broadband networks (using the 3G HSPA technology) and some 70 of these are already planning the next upgrade of their networks using the LTE technology – the first $5 billion of investment money has been committed to that technology.

The two countries that are ahead of the pack in this are – where else but in Scandinavia? – Sweden and Norway.

Japan and Korea are also moving in this direction but they are using different technologies.

Within that same short time period over 200 million subscribers have embraced mobile broadband and, as we have reported previously, this has caught many mobile operators unprepared. They were still peddling their mobile portals while the apps available on smart phones almost instantly overtook a market that the mobile operators had been trying to build up for ten years.

Because of the success of this market mobile operators are now scrambling to keep up with an enormous demand for mobile broadband access. They are eager to get at least their share of the access market and competition is driving them to charge ever less for simple broadband access.  As a result of this the margins available for mobile operators are being squeezed more and more.

Does that mean that mobile operators will be relegated to becoming pipe suppliers? Not necessarily. They have a number of very powerful tools that they can use. They know mobile customers better than anybody else and they are able to provide a very reliable and secure service – so much so that banks are using their networks to deliver financial services. This has built a powerful trust relationship between operators and some very key service providers. The mobile operators are the only ones who have a very secure identity management service on their networks that can be used by these financial institutions, and (if the mobile operators permit) by others also.

Furthermore, mobile networks are excellent for mobility applications such as GIS, location-based navigation, etc. Again, the mobile operators are currently the only ones who have access to this user information.

It then comes down to whether the mobile operators will be able this time round to also develop business plans that are going to make it attractive for other providers to utilise the network. This will require open networks, wholesale, MVNOs, etc.  The question is will they indeed this time around do change their business models, or will they again wait for others to eat their lunch.

Mobile operators and their supporters all talk about a range of essential services such healthcare, education, public safety and so on. Lessons learned from the past will hopefully encourage operators to open up their networks to these public sectors. It is not too difficult to predict that, if this does not happen and consumers want to make more use of mobile broadband infrastructure for such services, regulation will be used to force the operators to open up to these new social and economic opportunities.

What might change their attitude this time is the fact that they now nearly all operate in saturated markets. There are very few new users that can be connected – certainly in the developed markets. So today there is certainly more urgency among the mobile operators to change their business models to cater for the new opportunities. Also, it will only be a matter of time before OTT providers such as Google, Facebook, Twitter, Amazon, eBay, Skype and others will have more sophisticated applications in competition with the mobile operators.

One of the main problems still being experienced by operators at the moment is a lack of sophisticated middleware that would allow them to deliver these new applications more efficiently and effectively. For instance, the many BSS/OSS systems within the mobile operators’ organisations are making it very difficult to deliver real-time and on-demand services.

Who will win?

The judges are still out on this. There are the smart device operators like Apple, with their proprietary applications; companies like Google and Microsoft, with devices based on Operating System (OS) innovations; and the mobile operators, who recently formed an alliance to also develop their own apps stores. This broad level of competition will drive innovation and those who are able to deliver the best customer experience are going to be in the lead here.

Over the next few years the mobile market will pass the $1 trillion revenue mark. The stakes are high, the rewards are great, and the future looks very bright indeed. So may the best one win.

Paul Budde

See also:

• Global – Key Telecoms, Mobile and Broadband Statistics
• Global Mobile Communications – Statistics, Trends & Forecasts
• Global – Mobile Media – Mobile TV & Video
• Global – Mobile Broadband – HSPA, LTE, WiMAX & IMS
• Global – Mobile Broadband – Key Trends, Products & Services
• Global – Mobile Broadband – Statistics and Trends

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Because of Mexico’s geographical position and its strong trading connection with the USA, the economic climate of the country follows that of the USA. Mexico’s principal import and export partner is the USA; hence, when the USA is in recession, Mexico tends to follow. The US economy contracted by approximately 3% in the Q3 2008, by more than 5% in Q4 2008 and by a further 6% in Q1 2009. As expected, the Mexican economy followed suit with negative growth of 1% for the fourth quarter of 2008 and negative growth for each of the first three quarters of 2009 at around 7%, 10% and 6% respectively. By the end of 2009 Mexico’s economy had contracted by 6.5%, its worst recession since 1932. 

In relation to the telecommunications industry specifically, industry growth has long outpaced broader economic growth. Annualised growth for the nine months to 30 September 2009 was a healthy 13% compared to a GDP contraction of 9%, yet this was around half the sector’s growth rate for the previous year. In fact, in 2009 the telecommunications industry grew at its slowest rate since 2002. The outlook for 2010/11 is for the industry to remain in double digit annual growth in the mid-teens and it is expected to take between 24 to 48 months before the sector returns to the robust twenty-something percentage points growth rates which it enjoyed in 2004/05 and 2007/08. 

The planned wireless spectrum auction in mid-2010 is expected to boost growth and competition in the mobile market and facilitate the launch of next generation mobile technology. The predominance of mobile phones over fixed lines, prevalent in all of Latin America, is expected to continue in Mexico. The satellite TV broadcasting sector will continue to enjoy robust growth in 2010/11 with recent entrant Dish Mexico enjoying rapid subscriber growth and regulatory approval for a third competitor to enter the market. Similarly, the cable TV companies will continue to drive the growth in VoIP and triple play services. 

This report contains overviews, analyses and detailed statistics of the Mexican fixed-line, mobile and broadband markets including developments in emerging technologies such as wireless broadband and VoIP and scenario forecasts for the fixed-line, mobile, and broadband markets. 

Market highlights:

• During 2009 and early 2010 Mexico’s telecommunications industry maintained double figure annual growth despite the deep economic recession.
• Mexico remains the last country in the OECD yet to unbundle its local loop. Thus despite liberalisation, Telmex still dominates the fixed-line market with around 90% of lines. Thus Mexico’s growth in fixed lines has been steadily declining for the past eight years, from 13% annual growth in 2000 to negligible growth in 2009. Accordingly, teledensity in early 2010 continued to languish at approximately 18%, around average for Latin America. Moreover, there are significant disparities in fixed-line penetration between urban and rural areas.
• The mobile sector remains one of the main drivers of telecom industry growth. Driven by a booming GSM sector, Mexico’s mobile industry grew at approximately 17% per annum, achieving more than 80% penetration by early 2010.
• By early 2010 Telmex’s sister company, América Móvil (Telcel), still accounted for around 72% of the mobile market. However, 2010 promises to bring a shift in the competitive landscape with 3G and WiMAX spectrum auctions offering the chance for new entry and the strengthening of competitors such as Telefonica’s Movistar. In addition, the proposed acquisition by the media giant Grupo Televisa of a stake in Nextel de México would, if it proceeds, add significant strength to the fourth placed competitor.
• Broadband is the other principal driver of growth in Mexico’s telecommunications market. Both cable modem and ADSL continued to enjoy strong subscriber growth in 2009 at a combined average growth rate of around 35%. Telmex’s ADSL product, Prodigy Infinitum, posted very high growth rates for the year and is expected to continue to do so during 2010/11.
• The main cable TV providers, Megacable, Cablemás and Cablevisión, were making strong gains by successfully incentivising the purchase of triple play bundles of cable TV, broadband and telephony. As a result their broadband subscriber base and in particular their VoIP subscriber numbers witnessed healthy growth during 2009 and into early 2010.
• Despite the economic downturn, it is expected that during 2009 broadband growth will remain in double figures as there is still significant scope for additional growth given Mexico’s broadband penetration is still only around one-third of the OECD average.
• During 2009 the DTH satellite TV market enjoyed some of its highest growth rates for the decade, following the entry in November 2008 of Dish Mexico. During 2010 sectoral growth is expected to remain strong, particularly if Axtel utilises its regulatory approval to become the third provider of satellite TV.
• On the regulatory front, the CFC declarations of Telmex and Telcel as dominant players in the fixed line and mobile sector respectively, pave the way for more stringent regulation of those companies. However, regulatory gamesmanship continues to typify the sector. For instance, in early 2009 when Cofetel published new interconnection regulations (known as PTFII) requiring all operators to provide third party access, Telmex responded by cutting planned investments in 2009 by a third.
• Thus Cofetel still requires greater independence and regulatory power in order to be able to properly foster a more competitive market. Calls for increased competition in the sector continue to mount. This appeared more likely than ever when, in early 2010, the Calderon government reiterated its willingness to pass legislation to strengthen the power of regulations and regulators. 

Forecast mobile subscribers and penetration rate – lower growth scenario – 2011 – 2016

(Source: BuddeComm, forecasts)

Notes: BYE is Base Year Estimate. 

BuddeComm’s annual publication, ‘Mexico – Telecoms, Mobile, Broadband and Forecasts’, profiles the fixed-line, mobile and broadband markets in Mexico. The publication also examines the convergence of these technologies with each other and with digital media such as digital TV and the emergence of new telecommunication services such as VoIP. For more information:

Mexico – Telecoms, Mobile, Broadband and Forecasts

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