BuddeBlog

Over the past 18 months this has become one of our most popular reports. Subscribers include not only the ‘usual suspects’ – the members of our beloved telco and broadcasting industry, but government agencies all over the world, various UN organisations, Aid organisations and others.

And so, it is with pride that I present to you this year’s edition. For a full Table of Content see: http://www.budde.com.au/TOC/TOC2973.html.

I would appreciate it if you could pass on this information to interested colleagues in your international organisations and within your industry generally.

I would also like to acknowledge the invaluable work done on the report by our head researcher, Middle East, Christine M Lewis.

Paul Budde

Key developments
Arab country communications are increasingly pan-regional, with cross-border mobile companies joining regional Internet and TV operators;
Both Saudi Arabia and Bahrain have recently established industry regulators and set timetables for the liberalisation of their markets;
There has been very little investment from outside the region and no new outside strategic investment since the start of 2001. Mobile investors in Turkey, Lebanon and Syria are all involved in ongoing commercial and legal disputes;
Saudi Arabia conducted a successful IPO of a minority share in STC at the end of 2002. Both Israel and Lebanon have been engaged in protracted sales of government shares in telecoms companies. Oman and Turkey are also planning privatisation but the plans have been long in gestation;
UAE, which together with Israel has the most developed telecommunications market, is also one of the least liberalised;
Fixed-line teledensity has declined in Israel, Jordan, Kuwait, Lebanon, Qatar and Turkey and is generally steady across the region;
Iraq’s already desperately poor telecommunications were mostly destroyed in the 2003 war;
Internet use, with the exceptions of UAE and Israel, is generally low across the region due to economic, political and social reasons;
Iran has recently increased its control of the Internet and TV with clampdowns on Internet Service Providers (ISPs) and the use of TV satellite dishes;
Broadband use in Israel dwarfs the rest of the region;
There are 150,000 Digital Subscriber Lines (DSL) in Israel at early 2003, 16,200 in UAE, 5,000 in Turkey, 1,800 in Jordan and 500 in Saudi Arabia;
Only Israel and UAE have cable broadband services;
Online banking is one of the more successful areas of e-commerce with reports of just under 2 million regular online banking users in the Middle East at early 2003. In the UAE, adoption rates reached over 40%;
There is very wide disparity in mobile use in the Middle East region, with subscriber penetration rates amongst the highest in the world in Israel but practically non-existent in Iraq and very low in Syria and Yemen. The Gulf states, particularly UAE, have comparatively higher rates;
Until recently, Saudi Arabia had surprisingly low numbers of mobile subscribers but during 2002 growth really took off and subscriber numbers doubled, according to monopoly provider STC. This was in a large part due to its belated introduction of prepaid cards in 2002;
Bahrain has awarded a second mobile licence, the first step in its planned industry liberalisation, to a joint venture of local investors and MTC of Kuwait;
No operator in the region has yet started to deploy a Third generation (3G) network. Only Partner in Israel and MTC in Bahrain have announced any intention to do so in the near future;
Both Kuwaiti mobile operators have bought Orascom divestments, with Wataniya acquiring 50% of a Tunisian operator and MTC purchasing the majority of Jordanian operator Fastlink;
The Arab TV market is pan-regional with free-to-air and pay TV satellite operators having footprints covering the entire the region;
The ratings success of al Jazeera has led to the start-up of competing Arab news channels, notably MBC subsidiary al Arabiya.

Price US$595. (excluding 10% GST for Australian subscribers)
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Exhibit 1 – Countries covered in the report
Afghanistan

Bahrain

Egypt

Iran

Iraq

Israel

Jordan

Kuwait

Lebanon

Oman

Qatar

Saudi Arabia

Syria

Turkey

United Arab Emirates

Yemen

Available in pdf format from Paul Budde Communication Pty Ltd

As always, visiting Europe is exciting, as there are so many different developments happening at once.

We visited quite a few countries in a short period of time – but then, you can do that in Europe. On this year’s agenda were Netherlands, Switzerland, Austria, Slovakia, Hungary and Italy, with a side trip to France, where we had dinner one evening!

Europe is still suffering from an economic downturn and is only slowly recovering Most countries are reporting flat, and even negative, growth for 2003. A few are beginning to see some light at the end of the tunnel for 2004, but the consensus is more of a slow recovery, reaching more positive territory in 2005.

One could certainly perceive envy in an article I read in the Frankfurt Algemeiner. In this publication there was a page on “Das Wirtschaftwunder Australien”(The Australian economic wonder). Not only did they report on our beautiful beaches, weather and lifestyle – they also commented on the continued economic growth in spite of global developments.

There was more positive news in the European press about Australia’s role in Asia and the visit of the Chinese Premier Hu Jintao.

Following is an overview of the various developments that are taking place in Europe, to give you an idea of the telecoms situation in that part of the world.

Deutsche Telekom
On arrival I learned that Deutsche Telekom was frustrated by the irrational negotiations with Poland’s largest, but ailing, mobile operator Polska Telefonia Cyfrowa. Different opinions about valuations seem to be the core of the problem. The deal would have been the largest from DT since it stopped its investment spree in 2000.

OD2
Very few have heard about them but this European company is the hottest player in town in the burgeoning music download industry. Totally legal the company sells its technology to most major players who brand it with their own labels (Virgin, Tiscali, Microsoft, Wanadoo, Karstadt and Prisa). OD stands for On Demand and that’s what they are offering. There latest a non subscription based a-la-carte service allows for the downloads of single numbers for 99 euro cents. In a sign that after years of legal battles, the e-music industry is maturing, Napstar remerged offering legally approved music downloads and also MTV indicated it would enter this market.

Mobile explosion
While in the Netherlands the newspapers reported on a Nokia phone that exploded in somebody’s pocket. The person only received some minor injuries, however, it was another health scare that the industry could do without. The Dutch government indicated that it will investigate the matter.
While in Geneva, Nokia announced counterfeit batteries had been the culprit. The company blamed independent electronics manufacturers for violating security requirements, which should prevent the battery heating up after short circuiting – for instance, after the phone is dropped. Contraband and counterfeit mobile phone batteries are widely available at about US$2-$3 each, compared with US$20 for genuine product.

Free broadband from KPN
KPN Telecom the incumbent telco in the Netherlands announced it would offer free broadband Internet access for Dutch schools for a period of three years. While it created significant unrest amongst its competitors it seems that KPN operates within the legality of the regulatory environment. While it is not allowed to offer services below cost, it can do so within a limited period. Newspaper articles also highlighted the public benefit of the activity, surely another very powerful argument. Also here it is daunting on the industry that on an infrastructure level (access) and in relation to basic services (voice) it will be an ongoing uphill battle to compete with the incumbent.

ADSL through milk pipes
Situated in the north of the Netherlands are a number of small islands straddling the Dutch coast. With a population of as few thousand each there is little hope for state of the start broadband infrastructures. That was until three KPN Telecom employees discovered the existence of old milk pipes that were used to pump milk from the islands to the mainland. With the decline in farming these pipes ceased operation well over a decade ago. A recent inspection shows that most of the pipes are still in good condition, especially the stretches that are going through the very environmental sensitive sand dunes. It was concluded that the pipes indeed can be used to ‘pump’ ADSL to the islands. The three employees earned themselves a ‘creativity price’ from their boss.

Swisscom
This is perhaps the most conservative telco in Europe, and most probably the reason why is also one of the most profitable in Europe. With revenues of around E5 billion, they were lucky that a E4 billion takeover at the end of the dotcom era didn’t eventuate, otherwise they would have been in big trouble. They recently looked a merger with neighbouring Austria Telecom, but different opinions on the valuation of both companies failed to see the merger going ahead.

Swisscom provided a Wi Fi service at the conference in Geneva and after an initial hick-up they got me online and I fully enjoyed the service during the duration of my stay in Geneva. It was one of those small joys in life that most people won’t be able to understand where you can use your own laptop accessing your own emails and sending files across without any major problems.

Telecom Austria
Another small, but solid, performer in Europe. After the talks with Swisscom collapsed Telecom Austria began to concentrate on buying into some of the Eastern European telecoms operations. Its subsidiaries in Croatia and Slovenia are performing well and they are now looking at Bulgaria’s MobilTel. So far, however, talks have failed to produce results.

Telecom Italia
This operator is also reporting positive developments. They are one of the few European operators that have moved forward in a big way. They have almost completed a total rebuild of their core infrastructure, which now runs on Internet equipment. By the end of this year they expect this to result in cost savings of 60%. This, in turn, will assist them in keeping their operating margins around 44%, despite a severe decline in voice revenues.

Like everywhere else in the world, the key focus is on the development of broadband. While the promise of more mobile growth still lingers on, and a few diehards are still flogging 3G and mobile data, most agree that up to 50% of their new growth over the next five years will have to come from broadband. One by one the operators are becoming more serious about this and are slowly abandoning the protection of their lucrative corporate data services (ISDN, frame relay and ATM).

The threat of VoIP is certainly recognised, as is Wi-Fi – not so much perhaps for the generally small companies that are currently involved in these new developments, but more because of the disruptive nature of these technologies.

Paul Budde

By Paul Budde
There are always interesting sights to see at the event in Geneva. For most visitors the show will still be mind-blowing – only those that were there four years ago will notice a difference. I actually quite liked this year’s event. Very stylish, lots of new companies, lots of classical performances and fewer dancing girls. While I am writing this I am listening to a violinist playing from the Tandberg Stand in the background – a good example of the atmosphere in 2003.

I was very impressed by the booths from China, Russia and Eastern European companies. They were present last time also, but the standard was very poor. This year, however, they were fantastic. The stands from ZTE and Huawei were most impressive; the Russian stand featuring classical Russian folk music was superb; Latvia, Ukraine Telecom were excellent – the list goes.

Having been in Latvia last year, I was not surprised by the creativeness of their stand. They got my vote for first prize, closely followed by Egypt, whose stand was a Bedouin tent – very nice indeed.

I have been to Geneva four times. In 1991 there were only a handful of Asian companies, they now occupy at least a third of the exhibitions. With the exception of Nortel and Cisco none of the big western telco vendors were present at Geneva, clearly outmanoeuvred by Samsung, LG, ZTE, Huawei and a dozen or so other Asian vendors.

Talking to representatives from the various western vendors, there is general agreement that the Chinese are now their major competitor – they are now the only full-services vendors providing the full range of telco products. I am sure that their presence at the next show in four years’ time will be even bigger and better. I don’t want to predict what this might mean for the seriously wounded western vendors. At best they may be able to hold onto the considerably depleted incomes that they are earning today.

China itself is also the biggest investor in the world, this year spending US$40 billion. They are the economic engine behind the Chinese telelcoms success story. While the others remain flat the Chinese companies will continue to enjoy double-digit growth for years to come.

The Chinese are not alone. The Korean vendors are also profiting from a burgeoning home market. They are leading the world in both broadband and mobile, and are going to give the Nokias of this world a real run for their money.

While the absent western companies all have good excuses for not being here, clearly the men are beginning to be separated from the boys in the industry. A few years ago I predicted a consolidation in the vendor industry and I indicated that one or two players would disappear. This didn’t happen, but most companies have shrunk by 40% or more and are starting to look more like niche players, with new Asian companies taking over their leading positions.

In a typically Asian way, big changes are made quietly in the background, until suddenly everybody realises that, within the space of a few short years, they will have changed the telco vendor’s world beyond recognition.

See also our 14 China reports: China.

The aeronautical IT and communications group SITA’s annual IT Trends Survey says direct ticket sales through airline-branded web-sites have doubled during 2003 to be worth US$50 billion a year and account for about 10% of total airline ticket sales.

Reservations through all Web channels reach about 16% of total sales, growing from 10% last year and 6% in 2001. Ten percent of airlines, mainly budget carriers, sell most of their tickets online and traditional airlines aim to achieve this within the next two to three years.

Electronic ticketing now accounts for nearly 15% of ticket sales, compared with 11% last year. North America leads, selling almost 40% of all e-tickets. Almost 60% of total US sales are now e-tickets.

The effect of this on the cash situation within the airlines is overwhelming. Instead of air travel being a credit business, with carriers getting most of their income monthly via the IATA clearing house, revenue is now generated at the time of booking.
Source Computer Daily

See also:
Australia – Computer Reservation Systems & Electronic Ticketing
Global – E-Commerce – B2B Market
Global – E-Commerce – Revenue and Marketing Trends (Archived)

With a 121% increase in customers from June 2002 to June 2003, GSM has the highest annual growth of any wireless technology in Latin America and the Caribbean according to EMC World Cellular Database. Five years ago, GSM was operating in only four countries in the region and has rapidly extended to 36 countries today, making it the fastest growing technology. There are currently 66 GSM wireless networks operating in the region.

So far, some 32 TDMA operators in Latin America and the Caribbean have chosen to migrate to GSM, while only six have migrated to CDMA technology.

According to the Director of Latin America and the Caribbean for 3G Americas, “The GSM/GPRS/EDGE migration path has proven to be the best technical and business choice for both new operators and existing TDMA operators evolving to 3G networks and will support the many consumer and corporate wireless data applications available with the GSM technology. The 66 Latin American and Caribbean operators supporting the de-facto standard GSM have the advantage of capitalizing on GSM’s global footprint and 72% market share by providing their customers roaming coverage throughout the Americas, Europe and the rest of the world.”

GSM first entered the Latin American market in 1998 in Chile with the majority of new GSM operators entering the market in the past few years. GSM is expected to emerge as the most popular wireless standard in Latin America and the Caribbean by the end of 2005 with more subscribers than CDMA, according to Pyramid Research. In the past three years, GSM has caught up with CDMA in Latin America and the Caribbean in terms of number of operators and network deployments.

GSM’s success is clearly demonstrated in Brazil and Mexico, the two largest markets in Latin America.

In Brazil, the largest market in the region, nine of the 12 TDMA operators who have announced a migration strategy have selected GSM technology. GSM accounted for a 27% market share of new Brazilian subscribers in 2002 and new customer share doubled to 54% by March 2003. According to Brazil’s telecom regulator Anatel, CDMA operators in Brazil lost nearly 55,000 customers during May and June of 2003.

In Mexico, significant changes have occurred over the past year. Telefonica Movil (MoviStar) recently initiated a transition from CDMA to GSM in order to become competitive in the market. Mexico’s Grupo Iusacell’s CDMA network reported a decline in its subscriber base of 11% over the last year, in strong contrast to Telcel, which reported a 13% increase in subscribers during the same period. Telcel launched its GSM network in October 2002 and has exceeded expectations in new GSM customer growth.

See also:
Latin America – Wireless Communications;
Grupo Iusacell;
Brazil – Wireless Communications – Key Players;
Brazil – Wireless Communications – Market Overview;
Mexico – Wireless Communications.