High cost slows down broadband

(DENNIS B MALLARI)   

Despite the upward trend in IT spending, the Middle East and North African region still lags behind the developed world in the usage of broadband internet connections. Estimates show broadband penetration stands at only one per cent of the total population due to late market liberalisation, poor infrastructure and high prices.

In comparison, broadband has achieved mass-market penetration in Western Europe with France, Germany and the United Kingdom leading in terms of absolute numbers. Denmark, the Netherlands and Switzerland had the highest consumer broadband household penetration rates in 2005.

The mature market segment of Asia-Pacific and Japan continues to account for nearly 40 per cent of worldwide broadband connections.

“The Mena region is still a far cry from mass broadband adoption when taken as a whole,” said Javier Alvarez, partner at Delta Partners.
 
“In developed broadband markets in the Mena region, the main challenge for players will be to create a compelling value proposition that will enable the previously unconnected to jump on the broadband bandwagon immediately, bypassing dial-up all together,” he said.

High broadband price is one of the reasons for slow adoption, Emirates Business has learnt. The cost of broadband services in the UAE compared to Europe is relatively high.
 
For example a two mbps (mega bytes per second) connection would cost Dh349 per month from either etisalat or du, compared to approximately Dh70 per month for up to eight mbps in Europe.

“I don’t understand why broadband is so expensive here, considering this is a modern country with a new telecom infrastructure,” said an expatriate who did not wish to be named.

“The basic broadband price here is approximately 170 per cent the price of basic broadband in the UK, a country known as ‘rip-off Britain’ because of its high prices and taxes.”

This issue has been raised by a number of high-level IT executives in the region, including Abdulrahman Jarrar, Intel’s regional manager for government affairs for the Middle East, Turkey and Africa. Jarrar has urged UAE telecom firms to reduce broadband prices to help increase the technology’s domestic penetration rate.

“The region needs to bring down the cost of broadband by a factor of 10,” he said. “As prices drop, the usage will increase. Today, companies charge a lot for broadband. If prices were lowered they would make more money because they would be selling to more people.”

According to the World Economic Forum 2007 Arab Competitiveness Report, internet bandwidth increased by 2.5 times from 2003 to the following year, while the UAE has the highest internet bandwidth in the Middle East.

Although PC and internet penetration is much higher in the UAE, compared to the 10 per cent level in the Arab world, it is still lagging “halfway” behind Western Europe, the US and other advanced countries, Samir Al Schamma, Intel’s GCC general manager told Emirates Business.
 
He said the other piece of the puzzle is the price of broadband connection, which needs to drop to allow more people to gain access to the internet.

“As competition in the telecoms market continues to increase in the region, it will hopefully help in driving prices to a reasonable level,” Al Schamma said. “It’s all supply and demand – if more people access the web, then prices will come down, too.”

There are two main reasons for the high price of broadband in the UAE, according to Alejo Duque, IT manager at Dubai-based Reflex Publishing and Events.

“First, there are only two providers, which offer relatively the same restrictive services and people actually have no choice but them,” Duque said. “Second, the prices are dictated by market forces,” he said.

“There is still a small user market in the country as well as in the region, making the cost of providing broadband services expensive. We’re still half-way compared to the West. Once the number of users increase, then sooner or later service providers can also afford to offer lower prices.”

But price is not the only factor that should be addressed to increase broadband penetration. IT research and advisory firm, Gartner Inc, said broadband service providers should reduce their focus in consumer markets on price cuts.

Gartner urged them to develop additional services within their offerings that address new user needs. These include additional download bandwidth and storage for online music, photo storage, wireless connectivity, firewall protection and security services.

“Without value-addition, providers have to resort to price as a short-term differentiator, which leads to price reductions,” the Connecticut-headquartered firm added. “With service differentiation, the competition is no less intense, but by giving the customer more value wrapped into the price they already pay providers can maintain their revenues.”

Gartner said the rapid rise in consumer broadband penetration in recent years has been largely driven by price cuts of more than 10 per cent a year as well as increased service speeds. In that time it has become one of the key revenue generators for operators, helping to counter declining revenue from services such as traditional voice and legacy data services.

However, as penetration in some markets heads towards saturation point, telecom carriers are facing up to the fact that a continued focus on acquiring new customers will not be enough to make price-cutting profitable in the future, Susan Richardson, principal research analyst at Gartner, said.

Richardson said developing partnerships will become more important, particularly for regional providers looking for a national presence or for vertical integration with content or service partners.

In emerging countries, such as the GCC, the lack of regulation is another problem. The wide broadband penetration in Qatar, which stands at 50 per cent, has led to challenges. Qatar Telecom (Qtel) is now under pressure to manage its bandwidth as more consumers shift to peer-to-peer and streaming applications, Qtel COO Sheikh Fahad bin Jassim Al Thani told the Global Wireless Broadband 2008 Summit last week.
 
He said the world has witnessed huge growth in both internet and broadband penetration. However, the past few years have seen a steady decline in broadband internet adoption mainly due to infrastructure constraints.

Getting connected

The number of worldwide consumer broadband connections will reach 364 million by 2010, said Gartner Inc.

At the end of 2005, 12 per cent of households worldwide had a broadband connection and by 2010 Gartner estimates the figure will nearly double to reach 21 per cent. Gartner predicts in the mature market segment of Asia-Pacific and Japan, three-quarters of households will have broadband connections by 2010 compared to around half of North American and Western European households.

While the Mena region represents a very small share of the global pie, the growth for the past two years has been remarkable.

A recent report by Booz Allen Hamilton has found most Mena countries recorded double or triple-digit growth rates in broadband subscribers in 2006.
 
Last week, the Bahrain Telecommunications Co announced its $57 million (Dh210m) plan to extend its broadband services would be completed by the end of September. The project is to deliver automated broadband access to all residences in Bahrain to make it the first country in the world with countrywide broadband.drivers for increased demand in the menA region

DRIVERS FOR INCREASED DEMAND IN THE MENA REGION

Digital Content

Satellite TV services have proliferated in the region, as opposed to traditional state-run television, causing a surge in the creation and distribution of various types of content, including entertainment, educational programming, news and sports.

Youth Market

In the Mena region, the population is young, with 33 per cent under 12 years, who are generally technologically savvy. Most have grown up with the internet and expect to receive high-quality digital pictures on satellite television and high-quality sound from their MP3 players. These are the consumers driving the adoption of broadband.

Regional Prosperity

The region is an emerging market, with many countries liberalising what were traditionally government-controlled sectors of the economy.

Competition

The liberalisation of the telecoms market is facilitating the use of broadband. A deregulated telecommunications sector ushers in competition leading to improved services and reduced costs.

Technology

It is becoming more possible to provide high-speed broadband economically using different solutions as network technology improves, which is reducing the barrier for entry into the broadband market to new operators and making the market increasingly profitable for operators. (Source: Booz Allen Hamilton)