Booz Allen Hamilton: Middle East mobile markets are opening up to competition for the first time (page 1 of 4)

New entrants in the Middle Eastern telecommunications industry have been mainly operating in the mobile space, which has witnessed intensifying competition. Existing operators have adopted defense strategies, and as new entrants gained grounds and markets approached saturation, operators have expanded into new markets in search for growth according to Booz Allen Hamilton.

Changes in technology will further influence the mobile communications value chain, creating a new trend of multimedia convergence, which could be the next battleground for operators and media players alike. Mobile broadband and broadcasting will allow more dynamic and rich content to reach a wider audience. Operators will then be challenged to balance the attractiveness of full mobility and practicality of handheld devices on the one hand, and high speed connectivity on the other.

Market liberalization impact

The number of Arab countries gaining World Trade Organization membership is on the increase, exceeding 12 countries in 2005, with the latest member being the Kingdom of Saudi Arabia.

A commitment to Telecom liberalization is a requirement for WTO accession and so the region has seen the rapid emergence of new operators being granted licences. Some markets are more liberal than others, with Jordan and Bahrain offering the greatest choice, and UAE and Qatar being the latest to show signs of open markets.

The mobile sector was the first to benefit, where new operators have emerged within national boarders, and expanded across the region and beyond. The number of mobile businesses in the region stood at over 30 by the end of 2005, compared to just half as many fixed operators, which are still predominantly monopolies. Even more mobile companies are expected in the next three years in countries like Kuwait, Qatar, UAE, Egypt, Saudi Arabia, Morocco, Tunisia, Syria and potentially Lebanon upon the conclusion of the four year management contracts with the two existing operators in that country.

As licenses are issued, direct foreign investment is attracted, such as France Telecom's 35.2% stake in MobileCom in Jordan, but a significant source of funding still comes from the region. Investments across the Middle East and North Africa include Etisalat, who own 35% of the second operator in Saudi Arabia, MTC Vodafone who have large stakes in mobile operators in Jordan and Bahrain, and Wataniya with a 40% stake in Asia-Cell in Iraq.

Regional and global expansions

Expansions have been driven by two main factors: pull from new opportunities and push from increasing competition or saturation in the home market.

Kuwait and UAE, home for MTC, Wataniya, and Etisalat, respectively, had a mobile penetration of over 85% in 2004. MTC and Wataniya have initially expanded into 5 countries each, and Etisalat had acquired operations and licenses in over 10 countries by April 2005. Most of the expansion territories of Etisalat and MTC have been through major acquisitions that took place in March and April 2005. Etisalat added 7 countries in Central Africa, by acquiring a 50% stake of Atlantique Telecom, a West African mobile operator. MTC added over 11 operators in the same region through the acquisition of Celtel.

According to consultants at Booz Allen Hamilton, the situation was different in the case of Orascom.