As in the rest of the world, fixed-line voice revenues are in decline, partly as a result of substitution by mobiles, and telcos are turning to broadband services to improve profits.
At first glance fixed-line teledensity in the Arab Middle East would appear very low, even in the wealthier countries, compared with teledensity rates of around 60% in the USA for example. However, notice must be taken of the larger household sizes compared with Europe or the USA. Even in Saudi Arabia, which has teledensity at only 16%, around 75% of homes have fixed-line telephones.
Other than in Israel, each country has a national fixed-line operator but no other large players in the fixed-line sector. Even in the more liberalised markets of the Middle East there are no real competitors to the incumbents other than in the area of international calling cards and VoIP-based services. A number of licences have been awarded in both Bahrain and Jordan for fixed-line domestic and international services but none of the alternative operators individually have yet made much impact.
The majority of national fixed-line operators have now been partly privatised. In most cases this has been by means of share sales, usually restricted to the nationals of the home country. Only Jordan and Turkey have sold significant shares to a foreign investor. Together with Israel, they are also the only countries not to have retained majority government ownership.
Telecom infrastructure in the Middle East varies from rudimentary to highly advanced. Infrastructure in almost all cases is the sole responsibility of the incumbent fixed-line operator. There is very little alternative infrastructure in the region. This situation is not helped by the region’s lack of cable TV, which could have potentially formed the basis of an alternative infrastructure.
Israel is an exception and does have a very extensive and developed digital cable TV infrastructure, which is used by HOT Cable Systems Media to compete with incumbent Bezeq. In addition, mobile operators Cellcom and Partner own extensive networks. The UAE and Saudi Arabia also have alternative operators with lesser amounts of infrastructure.
While the Middle East is served by extensive and modern submarine cable networks and has benefited from its position between Europe, India and China, with its exploding need for greater capacity, increasing demand means more are needed. Numerous new cables are planned or under construction.
The Middle East suffers from a satellite capacity shortage, mostly due to the huge regional DTH satellite TV industry. Steps are underway to remedy this and it has been suggested that there are so many planned new satellites that there could be over-capacity by 2011 if all are launched. At present the main satellites serving the region are those of Saudi-Arabia based Arabsat and Egypt-based Nilesat.
In Israel, Bezeq has been working on the development of a Next Generation Network (NGN) since late 2004 and in April 2006 was set to complete the testing of the network. This was delayed but, by 2009, Bezeq is again moving forward with the NGN.
The Gulf countries also have sophisticated infrastructure. Bahrain’s Batelco completed the migration of all services from its original network to an NGN in January 2009. Kuwait began FttH network developments back in 2005 and further contracts have been awarded since. In the UAE, Etisalat’s FttH project is being completed in phases, with the first being completed in January 2008. UAE alternative operator du serves all residential units within its ‘footprint’ via FttH. In Saudi Arabia, Mobily, ITC and Bayanat Al-Oula reached agreement in 2006 to build and operate a fibre optic backbone network covering most of the country. The first stage of the 12,600km network was completed by early 2007 and the entire network was completed in May 2009.
Internet and broadband penetration rates remain low in many countries of the Middle East, access speeds are often relatively slow and tariffs are relatively high compared with other regions in the world but the region is making a strong push towards higher broadband penetration. The young population will be a driver for growth as they grow up with Internet use as the norm. In addition liberalisation and increased competition are producing a greater variety of services and mediums.
Broadband prices in the Arab countries are generally high compared with costs in the USA or Europe. While broadband growth has taken off in the small, oil-rich and developed countries of the Gulf, wide income disparities across the Arab Middle East region as a whole are echoed by wide disparities in Internet and broadband penetration rates. Computer penetration levels are generally low. Qatar, Bahrain and UAE all have high household broadband penetration, particularly among nationals. The largest country in the region, Saudi Arabia, has low broadband penetration but it is rising quickly.
ADSL is the prevailing broadband Internet technology in the region. Only in Israel does cable have a significant market share. Services are provided by HOT Cable Systems Media, which is subject to the same broadband universal service obligations as is DSL network operator Bezeq. This has resulted in broadband being available to 99% of all households. Much is being promised by WiMAX across the Middle East region but projects have still to come to fruition.
All the GCC and Israeli operators, with the exception of recently launched Vodafone Qatar, offer HSPA mobile broadband services. Mobile broadband prices in most countries remain relatively high but the introduction of some affordable, flat-rate pricing plans has encouraged higher take-up rates. Saudi Arabia’s second mobile operator, Mobily, said it could not cope with the level of demand when it introduced flat-rate price plans. It claimed to have 600,000 subscribers in June 2009. This subscriber number is very high when compared with a total of just over 1 million Saudi ADSL subscribers at end-2008.
One of the reasons for slow Internet and broadband subscriber growth in Arab Middle East countries has been a lack of sufficient content in Arabic for users to need a high-speed broadband connection in their daily lives. There has been too much emphasis on hardware and the latest must-have gizmo and not enough on creativity. This is beginning to change with the increasing digital content produced by the flourishing Direct-to-Home satellite TV sector, including entertainment, educational programming, news and sports. At least 60-70% of homes across the Middle East have access to multi-channel TV, much of it Free-to-Air DTH satellite. Around 70% of the 400+ channels are privately owned.
While DTH satellite TV booms, other digital media have been slow to develop in the Arab Middle East, but this is beginning to change as broadband penetration increases. The population of the Arab Middle East is young and growing fast, many of them with high incomes. In the GCC countries, 65% of the population is under 30. Young consumers tend to be enthusiastic consumers of all types of digital media and users between the ages of 15 and 29 are said to form nearly 70% of all Internet traffic in the GCC countries. A survey in early 2009 found that young people in Saudi Arabia spent more time interacting with Internet media such as Facebook and YouTube than watching TV.
Across most countries of the Middle East, including even some of the most highly penetrated, growth rates are surprisingly high. This is often due to an increase in competition – a second or third operator has entered the market or a new investor has bought a share of an existing operator – causing a subsequent drop in tariffs or improvement in services. Highest growth rates are in the relatively undeveloped markets of Egypt, Iran and Yemen. The large number of expatriates in many countries is 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.
In recent years the region has become home to some 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.
HSPA services are now offered throughout the Gulf region and in Israel. Speeds are increasing, with HSDPA USB modem broadband packages commonly up to 7.2Mb/s. There are several regional factors that favour mobile broadband. The populations are very young and there are very large numbers of expatriates. Fixed-line penetration levels are generally low. In addition there are several dynamic regional mobile operators whereas fixed-line operators are generally state-owned incumbents accustomed to little competition.
For more info on this new BuddeComm report (tables only) see:
Middle East – Telecoms, Internet, Broadband and Mobile Statistics – tables only