The Middle East mobile sector: A battlefield or a land of opportunity?

With mobile penetration rates of well over 100 per cent in several countries and deregulation still a thorny issue in some parts of the region, you could be forgiven for thinking the Middle East offers precious little in terms of opportunity for ambitious telco operators and yet, in reality, it is one of the industry's fastest-growing markets.

The UK based research and consulting firm Analysys estimated the region's mobile sector generated revenues of $22bn last year, while the figure should grow at a rate of 10 per cent per annum over the next five years, reaching almost $40bn by the end of 2012.

Setting an example

A number of countries, most especially in the GCC, retain minimal competition in their mobile telecommunications sectors, with Qatar remaining a monopoly for Qatar Telecom (Qtel) until a second operator finally comes into the market next year, but Jordan very much sets the regional benchmark for an open market largely free from governmental restriction.

Daniel Jones, a Research Analyst with Analysys, said, 'Liberalisation of the industry has been occurring gradually across the region in recent years but, of the Middle East's main markets, Jordan, with three GSM operators since 2005, certainly stands out in terms of the level of competition.'

There is no doubt the Jordanian market is fiercely competitive with the three GSM operators - Zain, Orange and Umniah - fighting for market share in a nation of just over six million people and with a fourth operator, Xpress, providing services via an integrated digital enhanced network (iDEN).

The kingdom's Telecommunications Regulatory Authority, displaying its continued desire to liberalise the mobile industry, has also approved the establishment of mobile virtual network operators (MVNOs), which do not own their own networks but lease wireless capacity from operators that do.

The possible presence of even more service providers might seem a step too far in a nation with a population of around 6.3 million, but the Jordanian based research firm Arab Advisors calculated that the country had an effective mobile penetration rate of just 47.9 per cent in July of this year.

A gulf in the Gulf

Jordan's liberalised mobile telco sector sits in stark contrast to the situation found in several Gulf countries but deregulation is slowly beginning to have an impact and long-standing monopolies are beginning to turn into duopolies.

Alan Sinfield, the CEO of the Qatar based telecommunications and media entertainment retailer Starlink, believes the region not only requires more operators but also offers obvious potential.

'Markets such as Qatar definitely need competition now and others, such as Oman and the UAE, would similarly benefit from further competition, whether that is in the form of greenfield start-ups or MVNOs. Competition is only just starting in markets like Saudi Arabia, which due to its size, can easily accommodate more than three mobile operators and MVNOs.'

The Gulf provides some of the highest penetration rates around and Analysys estimated that Bahrain, with Batelco and Zain as its two operators, had a registered subscriber penetration rate of 135 per cent in June.

It is a daunting prospect for any new start-up operator to muscle in on what might appear to be a fairly saturated market but a mobile telco service is much more than simply the sale of cellular phone plans.

Jones commented, 'More mature markets offer the possibility of good rates of growth through the provision of a wider range of services. Wireless broadband using HSPA or WiMax networks may be a good opportunity for mobile operators where the fixed line broadband market is underdeveloped.'

Potential for growth

While some markets may have penetration rates of more than 100 per cent, there are still plenty of countries within the region where GSM take-up is still extremely low, offering incumbent telcos and new operators great opportunities for growth.

Indeed, Analysys has calculated that penetration as a whole across the Middle East stands at a mere 34 per cent. Jones has identified one particular market where the mobile sector should take off in the near future.

'We have forecast the highest growth potential over the next five years to be in the Egyptian market. With penetration currently very low compared to many countries in the region, Egypt will experience very high subscriber growth rates. We expect active subscriber penetration to reach over 65 per cent by 2012 and total mobile service revenue to shoot up, growing almost 170 per cent between the end of 2006 and the end of 2012.'

Egypt has three mobile operators with Mobinil and Vodafone, which between them have more than 20 million subscribers, being joined this year by Etisalat Misr. The new firm racked up more than one million subscribers in its first two months of operation and is gunning for a total of three million by the end of this year.

But Egypt represents merely the tip of the iceberg and several other countries, some affected by conflict and geopolitical tensions, offer equally promising growth scenarios. Iraq, for instance, recently sold three 15 year licences to regional powerhouse Zain, Asiacell, which is part owned by Qtel, and local firm Korek Telecom. Iraq's population totals more than 27 million, appreciably higher than most GCC members, while its GSM penetration is estimated at only 40 per cent.

Iran's population, meanwhile, is more than double that of its neighbour Iraq and its mobile sector is heavily dominated by the state-owned MCCI. But IranCell, by far the biggest of two additional operators in the Islamic Republic, has seen its subscriber base leap by 81 per cent between June and September alone, from 1.9 million to 3.7 million, which indicates the tremendous potential in the country despite the shadow of increased economic sanctions hanging over the country due to its nuclear policy.

Lebanon, another country beset by political instability, will auction two mobile licences in the new year, as it seeks to raise around $7bn. Some of the region's biggest players such as Egypt's Orascom Telecom, Kuwait's Zain and Bahrain's Batelco are all intending to bid, while the government will issue a third mobile licence to present fixed line operator Ogero Telecom to significantly crank up competition in a nation of 3.9 million people.

Another country in the Levant, Syria, which presently has two operators in Areeba and SyriaTel, is yet another market ripe for expansion and development. The country has three times the population size of its neighbour Jordan and so could surely support at least one more mobile operator as well as MVNOs. It is thought Syria has one of the lowest penetration rates in the region at below 25 per cent.

Looking ahead

There is no doubt the Middle East's mobile sector will change hugely in the next five years as more operators are licensed and deregulation continues. For Sinfield, the development of new technology will also be a major feature.

'The evolution from 3G services to 4G will undoubtedly occur and this will factor into the region's mobile landscape, leading to a greater convergence of services. Full quad play service offerings will develop and mobile will cease to be a term synonymous with cellular phones only.'