Competition sees Middle East telecoms go global

The landscape of the Middle East telecom market has changed dramatically in recent years.

A sector that was once dominated by state-controlled monopolies has now given way to a liberalised market that allows for open competition among regional and international operators.

The fierce competition for access to these markets has led to soaring prices for licence fees, but it should be a boon for consumers, who are likely to benefit from improved quality, greater services, and better value in the long run.

The Middle East telecom market is by no means homogenous, as some markets are more liberal than others. But the regional market as a whole has become more open to competition, driven in part by the requirements for joining the World Trade Organization.

Most Arab countries have gained accession to the Organization, which requires its members to agree to liberalise their telecom markets.

'All Middle East and North African markets have now passed primary legislation along with secondary and tertiary regulations to liberalise their telecom sectors in general and the mobile segment in specific,' said Booz Allen Hamilton, Vice President Karim Sabbagh. 'The only exception is Libya, where the deregulation thought process is underway.'

More Operators

The liberalisation of the Middle East market has led to a proliferation of operators in the region. Overall, there are more than 30 mobile operators in the Arab market, with many countries such as Jordan, Egypt, and Saudi Arabia having three or more operators offering mobile services, according to a recent survey by the Arab Advisors Group.

Until recently Qatar was the lone remaining country in the region with a single incumbent operator, but Vodafone and its partners Qatar Foundation Consortium recently outbid six other companies for the country's second telephone licence.

As Middle East markets have opened up, western companies, with saturated markets at home, have been eager to gain a slice of the rapidly growing Arab sector.

The UK's Vodafone has a large presence in the Middle East, owning 55 per cent of Vodafone Egypt, which is the largest mobile operator in country, and the Vodafone brand is used in Bahrain and Kuwait via a partnership with Zain. The company also has recently bid for a licence in Qatar.

Meanwhile, France Telecom (Orange) is a 71 per cent shareholder in Egypt's Mobinil and the majority shareholder in Jordan Telecom, while French media conglomerate Vivendi is a 53 per cent shareholder, and operator, of Morocco's Maroc Telecom.

But while there are no barriers for foreign operators to move into the region, they face challenges as they try to compete with local firms, which have a competitive advantage due to language similarities and cultural commonalities, according to Stephanie Pettit, a principal analyst at Gartner Research.

Western operators also tend to be more price sensitive than their Middle East counterparts, making it more difficult for them to compete as the costs for licence fees skyrocket.

Indeed, UAE-based Etisalat, the second largest telecom operator in the region, has recently said it is willing to overpay for licences in order to establish a major footprint in the region.

Not surprisingly, many Western operators have fallen short in bidding for Arab telecom licences, Sabbagh noted.

Looking Overseas

As markets in the region have become more saturated and competition has grown increasingly fierce, some of the big local players have set their sights beyond their borders.

A few, like Egypt's Orascom, have entered mature markets like Europe, but for the most part, the emphasis of operators from the region has been mostly on emerging markets.

Local operators initially focused on opportunities that arose throughout the Mena region, but they have increasingly set their sights on Central Africa and South East Asia, Sabbagh said.

One example is Etisalat, which enjoyed a monopoly in the UAE's domestic market until February 2007, and now owns major mobile licences in Egypt, Saudi Arabia, and Pakistan, along with a 70 per cent stake in pan-African operator Atlantique Telecom. The company, which altogether has interests in 15 markets, is also bidding for a licence in Qatar and recently lost out to Saudi Telecom in Kuwait.

In late November, Etisalat announced its intention to pump another $5.5bn in African markets, which would be in addition to the $4.5bn that the operator has already invested in international expansion.

Kuwaiti mobile operator Zain, formerly known as MTC, has also rapidly expanded internationally, and now has interests in 22 countries in Africa and the Middle East.

It has invested over $9bn in Africa over the past two and a half years, and its subsidiary Celtel, which has operations in 15 African countries, has seen its customer base grow from five million in mid-2005 to over 24 million today, a figure that represents two-thirds of Zain's active customer base of 36.5 million.


Saudi Telecom, the largest Arab telecom firm by market value, has also plunged into the overseas market, agreeing in June to buy 25 per cent of Malaysia's Maxis and 51 per cent of its Indonesian unit in a $3bn deal to gain access to Indonesia and India.

In late November, the firm won a 26 per cent stake in Kuwait's third mobile company with a $907m bid, beating out Etisalat in the process.

Not to be outdone, Qatar Telecom (Qtel), where an auction for licences is underway after its home market was opened to competition earlier this year, purchased a 51 per cent stake in Kuwait's Wataniya for $3.7bn in March in the largest-ever Gulf Arab telecom deal. The firm, which already had operations in Oman, Indonesia and Singapore, now has almost 12 million customers in 11 countries.

MVNO's On the Horizon

Another development that could spur competition in the region is the potential emergence of Mobile Virtual Network Operators (MVNOs), which are companies that provide mobile services but do not have their own frequency allocation of the radio spectrum, or the infrastructure required to provide mobile telephone services.

Jordan and Oman are the most likely countries to pioneer this new market in the region. 'MVNOs are indeed around the corner, and they would certainly heighten the level of competition in the short to medium run,' Sabbagh said. 'They may emerge in different shapes and forms, ranging from basic resellers to full MNVOs.'

So what impact, if any, will there be for consumers as a result of the increased liberalisation and competition in the Middle East telecom market? Analysts say customers will benefit by having greater choice of providers, more innovation, improved quality of service, and better value for money.

However, a non-regulated all-out laissez-faire approach could destroy value in the market and make it difficult for operators to keep investing in services and innovation, leading to a negative spiral like the one that occurred in many European and U.S. markets. 'Cases in point are the numerous operators that surfaced in the late 1990s and are now all but gone,' Sabbagh pointed out.