AMMAN, 28 July 2003 — It is estimated that by the end of 2003 there will be around 25 million mobile subscribers in the Arab region, up from 22.4 million by the end of last year. The number is expected to surge to 33 million by the end of 2005. The mobile market in the region has overtaken the fixed line market, with the bulk of cellular subscribers belonging to the Saudi Telecom Company (STC), Maroc Telecom and Etisalat of UAE, where the three together have close to 50 percent of the region’s total subscribers base. STC has the largest subscriber base of 5 million by the end of 2002, expected to reach 7.5 million by the end of this year.
According to the Arab Advisors Group, the Arab countries had a combined mobile penetration rate of 11.45 percent by the end of 2002, relatively low by global standards. UAE had the highest rate of 70 percent, followed by Kuwait, Bahrain and Qatar with mobile penetration rates of 58 percent, 54 percent and 43 percent respectively. Algeria, Syria, Tunisia and Egypt, on the other hand, had the lowest mobile penetration rates with 1 percent, 2 percent, 6 percent and 6 percent respectively. Saudi Arabia, Jordan and Morocco had mobile penetration rates of 23 percent, 22 percent and 19 percent respectively. The penetration rate is an indicator of the country’s degree of market development. The Gulf countries had a higher uptake of the mobile services in line with their high per capita income. However, penetration rates also suggest that the high growth phase of the past few years is now over and that churn will be the decisive effect on competition between the operators in upcoming liberalization drives. Customer loyalty plans, discounts and promotions, creative offers, good service, dependability of the network and the provision of content will be the main determinants of growth in subscribers’ base in the coming few years. The operators who can provide innovative services, superior content, and high speed wireless connection are the ones that will dominate the scene.
There are ample growth prospects and business opportunities for mobile operators and the equipment supply sector in the region. The awarding in April this year of a second GSM license in Bahrain promises to be just the start of a mobile services boom. The coming 18 months are likely to see several billions being poured into regional mobile telecoms and related infrastructure and equipment investment. There is tremendous pent-up demand, planned privatizations, new licenses and increased investment mandates by governments over the next few years. Investment will be made both in the expansion of existing networks, whether monopoly or privately-owned, and in the construction of entirely new networks. In a December 2002 report, Pyramid Research suggested that $3 billion could be invested in mobile network infrastructure in the Middle East & North Africa in 2003 and 2004 alone. That figure does not include license fees for new networks and potential merger & acquisition costs. The really big market that is going to be opening up is Saudi Arabia. A tender for a second GSM license there will be issued in 2004. A very new and potentially interesting development could be the award of a “virtual license” in Saudi Arabia and other countries of the region. Such a license would involve a new operator buying network capacity from existing companies and offering a service without having to build a GSM network.
While markets have been waiting for the “third generation” (3G) mobile networks to be switched on, attention is shifting now to a newer technology called “fourth generation” (4G). This technology that was not expected to appear before 2005 is already here. While “first generation” (1G) was analog networks, and “second generation” (2G) was digital network like today’s GSM (Global System for Mobile), the “third generation” (3G) is high speed digital networks that let your mobile phone do what your personal computer can do today, including for example getting e-mail, sending photos, watching video clips, playing games, video conferencing and reading web pages at much higher speed. An intermediate technology to the 3G is 2.5G commonly knows as GPRS (General Packet Radio Service). GPRS is “always on” and one does not need to waste 20 to 30 seconds to establish a dial up connection to the Internet. The existing GSM networks in the region could be upgraded at relatively low cost to provide GPRS services, including text and multimedia messaging system (SMS and MMS) as many are already doing.
Mobile operators in Europe have spent about $100 billion buying licenses to run 3G networks, only to find that the technology that most had agreed to use was harder to implement than expected. Even where 3G networks are up and running, demand for the video and multimedia services they make possible is still uncertain and is being partially met by the less expensive GPRS service. Expectations are being scaled down and 3G may end up merely as a way for mobile operators to boost their capacity for voice calls in overloaded parts of their networks, rather than a goldmine of new revenues from multimedia services. In the meantime, another wireless technology, called Wi-Fi was developed to provide high-speed Internet access to suitably equipped computers within 50 meters or so of a small base-station. It is being widely used in homes, offices and universities in the US, Canada, Europe and Japan. Several firms offer fee-based Wi-Fi access in airports, coffee-shops and other public places known as “hotspots”. But because of the short range of Wi-Fi technology, it is very difficult to provide universal coverage.
The 4G technology attempts to provide both high speed wireless networks and a wide area coverage. This is why it is nicknamed “nomadic broad band technology”. It is seen as a rival to Wi-Fi because it offers a wider coverage and is considered as a wireless alternative to digital subscription line (DSL) that now provide broadband access to homes and offices. Emphasizing speed first and mobility later, 4G networks may be built initially in regions where cable and DSL are unavailable. The mobile operators in the region should consider skipping 3G and move directly to 4G. Unlike new entrants, they already own the key sites for base-stations, so they are well-placed to build 4G networks fast once they get the approval from the regulatory authorities to do so. 4G would make it possible for mobile operators to attack the broadband market, as well as, neutralize the Wi-Fi threat.
Mobile phones and their text and multimedia messaging (SMS and MMS) have already changed the habits of mobile users. Downloading ring tones and logos had prompted the first tentative use of phone bills to pay for other small services. The next step will be to pay in the same way for Internet content and other goods and services. More than a third of mobile subscribers in Japan have used their phones to buy such goods as CDs, concert tickets and karaoke songs with lyrics that bounce across the screen and there is no reason why with time this trend will not take hold in the region as well.
Mobile operators will succeed if they shift their strategy from being simply a voice channel to becoming an entertainment, as well as, transaction and distribution channel for goods and services. MMS and high speed wireless connection covering a wide area will generate added revenues and give mobile operators dominance over e-commerce. The region needs companies to specialize in providing content to mobile subscribers mainly the young, who constitute more than 50 percent of the population. This will allow operators to benefit also from sizable advertising revenues as they become the main channel of Internet access. The growth in the number of mobile subscribers and the higher revenue per user generated from the additional services provided should help boost profits of mobile operators in the coming few years.
(Henry T. Azzam is chief executive officer at Jordinvest & chairman of MobileCom.)
