Fixed lines suffer as clients shift to mobiles

Fixed line phone networks are suffering. This is because there has been a shift of customers to mobile services in the Middle East and around the world.

Increasing mobile penetration has caused a 6.9 per cent decline in the number of fixed line subscribers in the Middle East and North Africa (Mena) region from 5.8 million in 2006 to 5.4 million in 2007, says a report by Global Investment House (GIH).

This trend was also seen in Asia, the Americas and Europe where mobile penetration is on the rise. Overall the number of worldwide fixed line subscribers declined by 0.9 per cent to 1.27 billion 2007 from 1.28 bn in 2006.

The availability of very cheap handsets in the $20 (Dh74) range and the relaxation in telecom regulations that has allowed second or third players to start operating in Gulf Cooperation Council (GCC) countries have encouraged mass consumption of cellular services, says the study.

The growth of cellular penetration in the UAE – up 34.6 per cent year-on-year – is the highest in the region. The country's internet user base also registered the highest growth rate of 35 per cent from 1.7 million in 2006 to 2.3 mn in 2007.

Next in line in terms of internet user base is Saudi Arabia, which has reported a 31.9 per cent year-on-year increase from 4.7 million users in 2006 to 6.2 million in 2007.

Overall the GCC region was the global leader with the highest growth rate of 47.7 per cent against the average 19.6 per cent increase registered worldwide in terms of year-on-year growth in 2007, says GIH in its GCC Telecom Sector report. The rest of the Africa region stood second with a growth rate of 33 per cent, followed by Asia at 25.6 per cent and the Americas at 14.7 per cent.

Countrywide cellular markets reached or crossed the 100 per cent penetration level in the GCC as all six member countries registered double-digit compound annual growth rate (CAGR) during the 2002-07 period.

The higher rate of internet penetration and improved infrastructure services as users move from dial-up to cable are helping increase the broadband subscriber base in the region. The analysis of the five-year CAGR of broadband subscribers worldwide indicates GCC is among the top three growth regions in the world.

Figures from Nasdaq-listed comScore show currently the United States accounts for 21 per cent of worldwide internet users, down from 66 per cent in 1996, while North America and Europe have grown at more modest rates. In contrast the Middle East, Africa and Latin America have experienced above-average audience growth during the past year while the Asia Pacific region now has more than 300 mn internet users at least 15 years old accessing the net from work and home computers. This represents an increase of 14 per cent compared to a year ago and makes Asia Pacific the largest of the five worldwide regions.

The high proportion of youth in the GCC region – up to 65 per cent of the total population is under 30 – is driving internet usage.

According to Madar Research the telecommunications and broadband internet sectors in the Mena region will generate $70bn in annual revenue by 2015.

The same report estimates that the GCC countries need to invest $375bn in telecoms in the next 10 years if they are to keep pace with changing global technologies.

With internet penetration and broadband subscription on the rise, industry experts estimate the GCC states will spend approximately 25 per cent of their funds devoted to infrastructure development on the expansion of telecommunications.

The GCC telecom players are therefore on an expansion spree following measures from the UAE, Saudi Arabia, Bahrain and Oman to allow additional service providers.

The companies eyeing for bigger markets are Qatar Telecom (Qtel), Mobile Telecommunications (Zain), National Mobile Telecommunications (Wataniya), Saudi Telecom (STC), Etihad Etisalat (Mobily), Emirates Telecommunications (Etisalat), Oman Telecommunications (Otel) and Bahrain Telecommunications (Batelco). This should result in higher competition and further cuts to the average revenue per user (ARPU) and resultant contracting profitability of players, says GIH, a Kuwait-based investment bank.

"The service providers should aim to increase their market shares by providing differentiated value-added services and providing content-based services like mobile video streaming to enhance ARPUs," it says.

The latest technological developments, including mobile number portability, allows easy churn of the customer base and the loss of customers to better service providers.



FIXED LINE VERSUS MOBILE IN GCC COUNTRIES


- Kuwait

The Kuwait telecom market was the first in the Gulf Co-operation Council region to open itself to competition for cellular services in 1999, though the fixed line market remains under government monopoly. Fixed line penetration declined from 20.4 per cent in 2002 to 18.1 per cent in 2007. There are two listed cellular service providers: Mobile Telecommunications and National Mobile Telecommunications. Cellular penetration has increased from 57.9 per cent in 2002 to 81.6 per cent in 2007.


- Qatar

Qatar is expected to see growing competition this year or early 2009 onwards as liberalisation sets in. Qatar's second mobile licence was granted to Vodafone in June. In early 2009 consumers should be able to choose the company that serves them best. Cellular penetration has risen from 43.2 per cent in 2002 to 143.4 per cent in 2007, the third highest increase in the region after the UAE (166.4 per cent) and Bahrain (148.8 per cent).


- Saudi Arabia

Saudi Telecom (STC), established in 1998, is the largest provider followed by the UAE's etisalat, which won the second cellular provider licence in 2004. Kuwait's Zain began operations as the third cellular service provider last month and Bahrain's Batelco, through Atheeb, is expected to launch the country's second fixed line services at the end of this year. The country's cellular penetration breached the 100 per cent level in 2007 when it clocked an all-time high cellular penetration rate of 101.4 per cent. Increasing competition and slashing prices is driving down the average revenue per user (ARPU) year after year. The cellular ARPU have declined from $57 (Dh209) in 2002 to $35.2 in 2007.

- UAE

The country has the highest cellular penetration in the GCC region. Etisalat was the only fixed line and cellular provider in the UAE from 1976 until Emirates Integrated Telecommunications Company (du) won the second licence and entered the market last year. Increasing penetration in the telecom market pushed down the ARPU from $50 in 2002 to $37.5 in 2007. In contrast to other countries, fixed line penetration has increased from 29.2 per cent in 2002 to 31.6 per cent in 2007.


- Oman

Oman Telecommunications Company (Otel) used to be the only provider of fixed line and cellular services in Oman. In 2005 a second cellular licence was granted to Qatar Telecom (Qtel) promoted entity Nawras. The proportion of prepaid cellular subscribers increased from 40 per cent of the total in 2002 to 72 per cent in 2007 and this caused the ARPU to slide in recent years. The ARPU has declined from $52.5 in 2002 to $34 in 2007. Fixed line penetration has increased slightly from 9.1 per cent in 2002 to 10.3 per cent in 2007.


- Bahrain

Liberalisation has affected the Bahrain telecom market in a positive manner with higher penetration rates. The country has the second highest cellular penetration in the GCC region. The ARPU has fluctuated over the five-year period but remained in the range of $46 to $50.4 as a result of a stable 75 per cent prepaid concentration in the total cellular subscriber base. The competition in the fixed line segment is intensifying with three operators, however the penetration is relatively flat at 25.9 per cent in 2007 compared to 25.1 per cent in 2002 and has not declined as consumers' interest was maintained due to provision of internet-related facilities.

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