|Topic:||Diversity and growth in the Arab telecom markets|
|Author:||Jawad J. Abbassi|
|Title:||General Manager, Arab Advisors Group, a member of the Arab Jordan Investment Bank Group|
|Organisation:||Arab Advisors Group/The Arab Jordan Investment Bank Group|
Jawad J. Abbassi is the General Manager of the Arab Advisors Group, a member of the Arab Jordan Investment Bank Group. Before founding Arab Advisors Group, Mr Abbassi was a Senior Telecommunications and Technology Consultant at the Economist Intelligence Unit (EIU) in Boston, USA. There Mr Abbassi produced comprehensive research reports on, among other things, the markets for African wireless, Middle East communications and Egyptian communications. Working as a EUI Consultant to the World Bank, he quantified the ‘information economy infrastructure’ in Morocco, Egypt, Jordan, Saudi Arabia and the United Arab Emirates. Previously, Mr Abbassi worked as a Corporate Accounts Manager for Jordan’s leading Internet service provider (NETS), worked for an Apple Computers’ dealership, and was a weekly Information Technology columnist for Jordan’s leading English weekly. Mr Abbassi is a frequent guest speaker at conferences and seminars related to technology and communications in the Arab World. Mr Abbassi received a BSc in Engineering from the American University in Cairo (Egypt – 1993) and his MSc in Information Systems from the London School of Economics (United Kingdom – 1998).
Telecommunications penetration in the Arab region is surprisingly high. In eight of the 16 countries studied, total penetration, because of users with multiple lines, is greater than 100 per cent; and in only two is it less than 50 per cent. Although high penetration is typically associated with competition, the UAE and Qatar, where total telecom penetration exceeds 200 per cent, are still monopolies. ARPUs, however, vary widely from US$9 to US$69, depending upon rates, income and usage.
The Arab telecommunications landscape is strikingly diverse. The regional diversity stems from the underlying diversity of the Arab countries themselves. The differences in income levels, demographic makeup and market regulatory structures translate into very different telecommunications markets. While a picture may be better than a thousand words, numbers are sometimes better than both! Every year, we calculate a measure called the Total Country Connectivity Measure, TCCM. We calculate the TCCM by adding the household fixed line penetration, cellular penetration, and Internet users’ penetration rates in each country. The household fixed line penetration is measured by dividing the residential fixed lines by the number of households in each country. The TCCM shows the extent of connectivity of individuals in a certain country whether via fixed lines, cellular lines and/or Internet. Of course, there will be an overlap since many individuals will be using these three communications technologies at the same time. However, the measure still yields an accurate and informative picture on the level of ICT services penetration in each country. For example, if a country has a TCCM measure of 60 per cent, this means that at least 40 per cent of the population are not users of any of the three services constituting the measure. While a TCCM score of more than 100 per cent is very positive, it does not mean that all the population uses the services due to overlap of usage Exhibit 1 below shows the results of the TCCM 2005. The 2005 results revealed that Qatar, Bahrain, UAE – the United Arab Emirates, Kuwait, Saudi Arabia and Oman – the GCC, Gulf Cooperation Council, countries – lead the Arab countries in TCCM scores. Lebanon, Jordan, Tunisia, Syria, Algeria, Egypt, Palestine and Morocco follow. Yemen and Sudan had the lowest ranks on the total connectivity measure. Comparing the TCCM scores of 2004 (see Exhibit 2) with TCCM 2005, reveals the progress for the year. Algeria, Yemen, Saudi Arabia and Jordan showed significant improvement in their TCCM 2005 score compared to that of 2004. In 2004, only six countries had a TCCM score of more than 100 per cent, a number that rose to eight in 2005. The cellular boom in most Arab countries is the main driver of total connectivity growth. Still, the cellular boom numbers should be closely examined. The Arab cellular markets are predominantly prepaid markets. In countries like Egypt and Morocco, prepaid usage is very much lower than post-paid usage, and a substantial number of prepaid GSM users use their cell phones mostly to receive calls or, even, as pagers. Indeed, according to our new survey of 700 GSM users in Morocco, some 80 per cent of Moroccan GSM users are still using payphone services for national calls. The average monthly minutes of usage for prepaid GSM users in Morocco is less than 20 minutes compared to more than 350 minutes for GSM post-paid users. As Morocco prepares to award new 3G cellular licences in 2006, the upcoming cellular operators, and the GSM incumbents, must address the low usage levels of prepaid GSM users in the country to enhance the prospects of success. Revenues and ARPUs are also widely different. Public switched telephone network, PSTN, monthly ARPUs in Arab countries range from a low of US$10 to a high of US$77. Cellular monthly ARPUs range from US$9 to US$69. The disparity stems from differences in rates and usage levels. Interestingly, the top ranking countries in the TCCM are the least liberalized markets. While Bahrain has indeed progressed far in an ambitious full liberalization of the market, UAE and Qatar remain monopoly markets. This reveals a small paradox; in the Arab World, monopoly markets are ahead of competitive markets in terms of adoption of telecom services. Yet the paradox is easily explained: competition may resolve a good many of the supply bottlenecks, but it cannot fully transform the underlying demand situation. High poverty and illiteracy levels in many Arab countries limit the potential demand for telecom services. While in the small gulf markets of Bahrain, UAE and Qatar, a slew of factors enhance demand regardless of the monopoly nature of the market. These include high income levels, elevated educational standards and the presence of large numbers of working age expatriates. Despite the region’s pockets with monopoly markets, liberalization is progressing in many Arab countries. Arab fixed voice markets are moving towards a more competitive era. The PSTN market remains a monopoly in 11 out of 16 Arab countries. Five countries, namely Algeria, Bahrain, Jordan, Morocco and Sudan; have licensed new operators; these started operations in 2005 and early 2006. During 2006, fixed voice services competition is expected to arrive in the markets of Egypt, Saudi Arabia and UAE. The Qatari cellular market is the only monopoly market out of 16 cellular markets covered in TCCM 2005. In the UAE, the new licensed operator ‘du’ should start operations in 2006. Of the markets covered in the exhibit below, nine Arab markets have cellular duopolies. Five countries have full competition in cellular services, namely Algeria, Jordan, Saudi Arabia, Yemen and Palestine, whose national operator faces unlicensed competition from Israeli operators. On the Internet services front, Qatar, Oman and the UAE are the only Arab countries that still have monopoly Internet markets. Oman has plans for liberalization and the UAE will have competition when the new second operator launches its service. Far from being similar – uniform – markets, the Arab Telecom markets present a story of diversity and heterogeneity. These markets offer massive growth potential for operators and vendors alike. Targeting the regional potential requires a deep understanding of every country’s specific conditions.