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Spending on ICT in the GCC is likely to reach nearly $180 billion (Dh660bn) over the next three years, according to a new report by Markaz called GCC Infrastructure – ICT Linking in to a Digital World.
The report highlights that IT spending in GCC countries is expected to grow between eight and 10 per cent driven by the larger countries of Saudi Arabia and the UAE, which account for 50 per cent and 25 per cent, respectively, of total GCC ICT spending.
Elaborating on the biggest economy in the GCC, Saudi Arabia, the authors of the report cite major economic reforms and diversification initiatives taken by the government coupled with record high oil revenues, the main factors behind the increased investment opportunities in country's ICT sector in the past five years.
ICT spending in the kingdom grew 17 per cent year-on-year in 2008 to $24bn, over 75 per cent of which was for communication spending. This is expected to have decelerated sharply to a four per cent growth in 2009. ICT spending is forecasted to grow at a three-year CAGR of eight per cent to $32bn by 2012, versus the 17 per cent CAGR it clocked over the past five years.
As far as the majority of spending is concerned, roughly 50 per cent goes to the consumer sector, followed distantly by energy and utilities at an average of 12 per cent. Government sector stand at nine per cent and services is at seven per cent.
The fixed line network, with a subscriber base of nearly 4.17 million and penetration level of 16 per cent, covers 69 per cent of households in the country.
"In line with the regional and global 'fixed to mobile substitution' trend, the fixed line segment has shown very stagnated growth compared to the mobile and internet segments, growing at a CAGR of just three per cent between 2002-2008.
"The Communications & Information Technology Commission (CITC) issued three new licences in 2008 for the establishment and operation of public fixed telecom networks offering national and international services. The mobile subscriber base has expanded nearly seven-fold from five million in 2002 to 34.8 million in the first nine months of 2009, the majority of which [85 per cent] are in the pre-paid segment. This represents a penetration level of 134 per cent," the report said.
This growth resulted from huge investments in infrastructure in addition to the rapid expansion of telecom operators in the kingdom, which has fuelled developments in service offerings, quality of service, customer care and subscriber growth.
Increased personal wealth in the past decade, coupled with increased IT awareness, has decreased cost of personal PCs and internet access has caused a surge in users across the kingdom. Total internet users increased to nearly 10 million in the first nine months of 2009 with a broadband penetration level of eight per cent.
"The ICT market is expected to see robust spending in Saudi Arabia led by the issuing of entry of new players in the communications segment.
"The upgrading of the telecommunications networks is likely to be a major driver of infrastructure spending. Saudi Arabia is expected to account for more than 50 per cent of spending on ICT in the GCC over the next three years. Of the nearly $90bn expected to be spent on ICT infrastructure by 2012, $22bn is likely to be spent on IT and $67bn on telecommunications."
The second biggest market, the UAE, is well-developed. ICT spending in the country has grown at a five-year CAGR of 18 per cent to nearly $12bn, about 75 per cent of which is for communications. This growth is expected to moderate over the next three years with a CAGR of 10 per cent to $16.5bn by 2012. In 2008, ICT spending grew 23 per cent before decelerating sharply to a five per cent estimated annual growth in 2009.
The majority of ICT spending in the UAE is on the consumer segment, about 50 per cent, while about seven to eight per cent is spent on each of the energy and utilities, government and services sectors, said the report.
"In the telecom field, the number of fixed line telephone connections, which increased from one million in 2002 to nearly 1.5 million in 2008, represents a population penetration of 32 per cent.
"In the first nine months of 2009, this has jumped to 1.56 million, representing a penetration of 35 per cent. Residential lines account for 48 per cent of total connections.
"The mobile subscriber base registered robust growth, rising at a CAGR of 21 per cent from about 2.4 million in 2002 to 9.3 million in 2008.
"Mobile penetration in 2008 touched the 200 per cent mark from 72 per cent in 2002. In the first nine months of 2009, mobile subscribers have neared 10 million, pushing the penetration rate to 221 per cent."
On the other hand, the internet subscriber base recorded strong growth, increasing at a CAGR of 21 per cent from 300,000 in 2002 to 1.17 million in 2008.
Penetration by year-end 2008 stood at 59.5 per cent. Internet subscribers grew 14 per cent in the first nine months of 2009 to 1.3 million, a penetration of nearly 65 per cent.
In terms of households, 83 per cent of UAE national households have internet, of which 95 per cent is broadband. A young population (60 per cent of the population in the UAE is under the age of 25), along with a literacy rate of 90 per cent for the 15-24 age group, is driving the impressive growth of UAE's ICT sector.
Spending on IT – which includes capital expenditure on hardware and software – in the UAE has at 18 per cent led by the expansion in industry. IT spending is expected to moderate, growing by 10 per cent over the next three years to a total of $45.8bn. The majority of the spending, $36.4bn, is expected to go to communications, while the remainder is for the IT segment.
Kuwait, on the other hand, is the only GCC country yet to establish an independent communications regulator.
Penetration rate in the fixed line segment is around 16 per cent. Penetration rates are expected to remain at the same level due to high household tele density (around 95 per cent) and increasing use of mobile phones.
Kuwait's mobile subscriber base increased five per cent to 2.9 million (84 per cent penetration) in 2008, a deceleration from historical growth. However, the number of subscriptions is not the same as the number of customers in the market. There is a trend of more than one SIM being bought by an individual subscriber.
Approximately 30 per cent of the mobile subscriber base owns more than one SIM. This could effectively lower the penetration rate to around 70-75 per cent.
Together with a considerably high average revenue per user of approximately $60 enjoyed by Kuwait telecom companies, this scenario leaves room for further growth and more capital investment in this sector, the report puts it.
The internet subscriber base stood at one million by the end of 2008, up five per cent from 2007. The internet penetration level was at 34 per cent and is poised to improve in the next few years due to increasing usage by individuals and commercial units.
ICT spending in Kuwait reached about $4.8bn in 2008; the majority of which is on the consumer segment amounting to roughly 50 per cent of spending.
Around $16.5bn is likely to be spent on ICT infrastructure over the next three years. More than $12.7bn is expected to be spent on the communication segment.
Demand surge in Qatar
Qatar is seeing huge demand for ICT services as its population grows. The country's population was 1.45 million in 2008 and is expected to grow 5.3 per cent per year to three million by 2016, thereby creating huge demand for ICT services.
In 2008, mobile subscribers grew 34 per cent to more than two million, pushing the penetration rate to 143 per cent from 126 per cent in 2007.
Residential fixed line penetration in Qatar is one of the highest in the world. Internet user penetration stood at 38 per cent in the third quarter of 2008 versus 31.4 per cent in 2007. Broadband internet subscriptions (per 100 inhabitants) was at 5.4 per cent towards the end of 2008 versus 5.3 per cent in 2007.
Spending on ICT in Qatar is expected to grow 10 per cent over the next three years. Around $15bn is expected to be spent on ICT infrastructure in the country by 2012. This includes $3.5bn of spending on IT infrastructure and $11.4bn on telecommunication infrastructure.
In Bahrain, the ICT market saw considerable growth from 2002 to 2008. Mobile phone subscriptions increased substantially during 2002-2008, growing at a CAGR of 25 per cent to 1.44 million. Fixed line penetration remains stagnant at 20 per cent down from 25 per cent in 2002.
Bahrain is expected to spend $5bn on ICT infrastructure over the next three years.
In Oman, fixed line subscriber base continues to decline due to mobile subscriber growth. The number of internet subscribers increased from 43,000 to 86,000 in 2008, a 15 per cent CAGR. This has declined to 75,000 in the first nine months of 2009 due to declines in the pre-paid segment. The penetration rate remains exceedingly low at three per cent providing ample room for growth in the segment.
Given the emphasis on building ICT infrastructure, expenditure is expected to grow 10 per cent over the next three years. Around $0.9bn and $6.7bn are likely to spent on IT and telecommunications infrastructure, respectively, said the report.
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