AMMAN, 13 September 2004 — It is estimated that by the end of 2003, there were around 25 million mobile phone subscribers in the Arab region and the number is expected to surge to 35 million by the end of 2005. The total number of fixed lines did not exceed 22 million by the end of last year, with little or no growth projected in the years ahead. UAE has the highest mobile penetration rate among Arab countries of 70 percent, followed by Kuwait (60 percent), Bahrain (58 percent), Qatar (45 percent), Saudi Arabia (25 percent), Jordan (23 percent), Morocco (20.5 percent), and Lebanon (19 percent). The Gulf countries have a larger uptake of the mobile services in line with their high per capita income.
Deregulation in the regional telecom sector has been gaining momentum over the recent past. The countries in the region are currently at different stages of implementing their plans with Jordan recently awarding its third GSM license and Saudi Arabia, Bahrain and Oman their second GSM licenses. Going forward, we believe the pace of liberalization in the regional telecom sector for both the fixed and mobile services should pick up further with significant reforms expected in the near term.
Increasing levels of liberalization and the introduction of competition are anticipated to spur further growth in the region’s telecom market. The sector’s earnings are projected to post an average annual increase of 18 percent, higher than the corporate earning growth forecast for all listed companies.
Convergence between fixed and mobile telephone operators whereby identical services can be offered across both platforms has been talked about for several years, but it is only recently that the leading telecom operators of the world have started to take it really seriously. Not much has been done in the Arab world in this respect, as mobile operators and their fixed line counterparts have been pursuing distinct fixed and mobile only strategies. Nevertheless, this appears to be changing, especially for those telecom companies who have a mobile subsidiary. Few of them are now positioning themselves strategically to make convergence a reality.
For fixed line operators, who are continuing to lose voice market share to mobiles, convergence provides a good chance to stop revenue decline. Mobile operators who are owned by a fixed line company, or have a fixed line arm, believe they could score commercial advantages over their competitors if they provide enhanced services and new technologies that give consumers the best of the fixed and the mobile networks.
For example, customers would receive one bill for fixed and mobile services and calls made at home or at work from their mobile phones are automatically directed over the cheaper fixed line network which has superior voice quality. It is estimated that about 30 percent of all mobile phone calls are made when customers are at the home and where there is usually a fixed line alternative.
Another aspect of convergence is the merging of voice, data and video communications into one seamless system. Fixed and mobile operators are joining their Internet service provider to offer customers access to high speed broadband on their phones at home and on their 3G mobile handsets when they are on the move.
The fixed line telephone operators are upgrading their networks to provide high speed broadband access to the Internet. This is the best chance they have to increase their average revenue per user (ARPU) as consumers appear ready to pay a premium to get broadband services. The world broadband penetration rate is expected to continue to rise to reach the European rate of 25 percent of households and in the long run to match Korea, the world leader in broadband penetration rate of 75 percent and still rising.
There are two key services that telecoms operators and Internet service providers are counting on to drive up average revenues per user and boost demand for broadband. The first, and the one favored by many of the telecoms operators, is video over broadband. For example, France Telecom is rolling out commercial videos over broadband services that allow users to watch live broadcasts of download videos and participate in multiplayer online gaming. Jordan Telecom, Etisalat of UAE, Bahrain Telecom and Qatar Telecom among other operators in the region appear to have similar ambitions.
The second key service being investigated by a number of telecom operators in the region and abroad is voice over broadband, or voice over Internet protocol (VoIP). Telecom operators can benefit by positioning VoIP services among their retail offerings at the earliest opportunity. In this way they get a new source of revenue and reduce the amount of voice revenue they lose to other operators. With VoIP, a whole new range of service enhancing applications moves into reach. These include call monitoring and profiling, as well as, the integration of voice mail, e-mail and other messaging services.
The Middle East, and Africa region will be the main beneficiary of Western Europe’s outsourcing of its call centers. Already, Tunisia and other countries in the region where international calling rates have been liberalized are seeing an explosion in call center employment. Those Arab countries with high international calling rates and outright prohibition of international VoIP have entirely shut themselves out of this growth industry. It has become evident now that having no VoIP strategy is no more an option and we expect most, if not all, fixed line operators in the region to devise one.
To conclude, the region’s fixed line operators are worried of a continued fall in the number of fixed phone households as the next-generation users who have grown up with mobiles increasingly decide to drop fixed line phones when they move into their first property. The fixed line operators hope to reverse this trend by combining the merits of mobility with their own two main advantages: cheaper tariffs and better voice quality.
The way to go ahead is to offer seamless roaming between fixed and mobile telephone services, with customers having one telephone number, one bill and one voice mail for their fixed and mobile phones, and enjoying offers that give customers bundled minutes to be used on both fixed and mobile phones. Convergence will give companies that have a fixed line arm an added advantage.
With the acceleration of broadband usage in the region, another form of convergence that could take place is between media and telecom, where both mobile and fixed line operators will focus on data and content delivery rather than voice. This will allow operators to also benefit from sizeable advertising revenues as they become an important channel for entertainment and distribution. The higher revenue per user generated from the additional services provided should help boost profits of the region’s fixed and mobile operators in the coming few years.
(Henry T. Azzam is chief executive officer at Jordinvest.)
