By Roger Field
With demand for broadband soaring in the Middle East, operators must focus on their customers' needs if they are to be successful amid tough competition.
With demand for broadband soaring in the Middle East, operators must focus on their customers' needs if they are to be successful amid tough competition.The high turnout at the recent Broadband Global Summit event in Dubai was perhaps indicative of the attention that telecom professionals in the region are placing on broadband as a means to continue growing their businesses in the face of falling ARPUs for voice services.
While delegates at the region's many telecom conferences and events have become used to dwindling attendance levels, the Broadband Global Summit was packed with industry professionals eager to share information on how to roll out and manage successful broadband networks.
And their focus on broadband appears to be well placed. Demand for broadband, whether mobile or fixed, is growing at an unprecedented rate throughout the Middle East and Africa, albeit from a relatively low base compared with the rest of the world.
The UAE's internet penetration rate - already one of the highest in the Middle East - increased to 25% in 2008, up from 20% compared with 2007, according to analysts at Arab Advisors Group.
Meanwhile, in Saudi Arabia, the number of broadband internet users breached 1 million users in 2008 for the first time, an increase of about 40% compared with 2007, when the country had an estimated 595,000 users. In 2006, the country had just 192,000 users, according to estimates from Arab Advisors Group.
For Karim Taga, managing director, Arthur D Little, Austria, and chairman of the broadband summit in Dubai, there are some key developments to watch amid this growth in the region's broadband sector.
"There are two developments we have to monitor, one is related to the infrastructure investment, where the train is going at full speed," he says. "Operators are investing massively and you have a lot of competing technologies going against each other, so we expect consolidation at a later stage." He adds that while the sector is "dynamic", it is also "massively over invested".
It is a situation that Ihab Ghattas, assistant president, Middle East region, Huawei Technologies, is also familiar with. Ghattas works closely with operators on deploying their broadband networks, and he points to a widening choice of broadband technologies as just one challenge that operators face when planning to roll out a broadband network.
The first decision the operator has to make is whether deployment will be for fixed or wireless broadband. Then, which technology to use; whether it is from the 3G and HSPA, leading to LTE, or WiMAX.
"One stream that is emerging from the traditional mobile 2G, 3G, HSPA and then LTE, but then the rival of that is the WiMAX, and at some point in time operators will have to make up their mind whether they are going this way or that way," Ghattas says.
"Having said that in some cases it is obvious whereby the operator is already on the track of 2G or 3G and so LTE becomes an obvious choice. Then again if someone is new to the market then maybe WiMAX is a more attractive value proposition, which will create a lot of competition between the different operators."
Supply and demand
One of the most difficult areas for operators looking to make big investments in broadband - whether they are deploying fibre or a wireless network - is how to assess the potential demand for their service to ensure they get the scale of the investment right.
This is more complicated than merely attempting to calculate how many users a service is likely to be catering for. Operators also need to think about the applications that will be used on the network, and how bandwidth intensive they will be.
"There can be a Catch 22 situation where the operators will first have to build the infrastructure and hope that the applications will come so that they can get a return on their investment, or they wait for the applications to be out there and then they start to build," Ghattas says.
Certainly a major challenge for operators is how to make accurate predictions about how much bandwidth their customers will want. For Giancarlo Duella, Orange, director consulting, EEMEA, the safest bet may be for operators to consider offering bandwidths that would be considered huge by today's standards. He suggests bandwidths of about 100 megabits per second per user, mainly because it is almost impossible to comprehend the requirements of customers five years from now.
Duella argues that operators that deploy fibre-to-the-home will have an opportunity to offer bandwidths of around 100 megabits per second, and that by offering such services, they could help stimulate demand for new services. They will also be positioning themselves well for a time when new bandwidth heavy applications start to become popular.
"If you start offering FTTH and the goal is to somehow do a bit more than you can do with DSL than I think we are somehow missing the purpose," he says. "When operators start implementing FTTH they will not do it for a behaviour that is similar to the behaviour of what we do with DSL.
"When they commercialise an offer on fibre it should be done in a different way, pointing out all these new applications that are coming such as local content, high definition content, 3D content. It is a different commercial approach and we can debate whether operators need to be offering 50 megabits or 100 megabits per user, but it needs to be high.
"I have said 100 Mbps because when we ran pilots, this is what we offered to our customers. This will drive new behaviour, new services that are not possible with the current set up of copper DSL."
To be able to offer this level of service, Ghattas recommends that operators stay "on the edge of technology all the time."
"If there is a new technology that offers much greater resilience and adaptability in terms of bandwidth, this is what you should go for. Don't try to sit back and say you don't need this, because you don't know," he says.
"The only thing we know is that the requirement for bandwidth is increasing. The thing we don't know is how much the increase is. You have to deploy the latest available technology and hope that will take you for a few years to come. It doesn't mean the end of it because tomorrow something new will come along and beat it."
Ghattas adds that the way broadband services are marketed is also vital to their success. "Planning the network is the easy part," he says. "The important thing is you need close co-ordination between the marketing department and engineering department because the engineers roll out the network and run the network but actual usage of the network is handled by the marketing department.
"If marketing do their homework properly and segment the market and find the usage of the different segments, find business cases for each of these segments, then they can advise engineering on the technology that they need...not that they have to define the technology but they can define the parameters of the technology." Content is king
Duella points to services such as high definition TV for individual household members, an increasing volume of user generated content and high quality video conferencing as just some of the potential drivers of demand for bandwidth in the coming years. But there will also be new services that take the industry by surprise, in the same way that the popularity of social networking sites caught many web analysts by surprise.
"You might see more people producing their own content to be picked up on the web and we could see more use of applications like YouTube and social network sites which are bandwidth heavy," he says.
Higher bandwidths could also allow more household appliances to connect to the internet, perhaps through a home server. For example, smoke detectors and surveillance cameras, as well as more obvious applications such as TV, could feed into a home networking server.
"More and more content will be placed on some kind of a server, or a disk in the household which will be accessed from the different members of the family through a number of appliances - it could be a PC or a TV. But of course this content might become critical and you might want to back it up somewhere," Duella says.
"This incremental back up might represent several gigabytes of data, further driving bandwidth demand."
In stressing the importance of content as a driver of broadband, Duella points to the experience of European operators. When broadband services were first launched in Europe, it was "received with mixed feelings", he says. People were questioning why they should give up their dial up service, which would have been cheap, to purchase broadband mainly because they failed to see a clear reason to use broadband, according to Duella.
"Broadband is something that will come when you have benefits of using it, and this is related to content. Accessing appropriate content is a very important element."
Arthur D Little's Karim Taga agrees that raising awareness of the benefits of broadband is vital to increase its use. "It is not about infrastructure, it is about using a service so you need to satisfy the needs," he says. "There is a lack of awareness and a need to make people understand why they should need internet at all."
But in some areas, the signs are encouraging, even compared with more developed markets. Taga points to a growing demand for education and e-learning in the region and suggests that users might find more constructive ways to use broadband in the Middle East than in many Western countries, where many people simply access the internet solely for the purpose of entertainment.
"I see much more consciousness around that compared with Europe or the United Stares where we only talk about social networks and consuming free TV," he says.
"So that is not so much in the foreground here which eventually could lead to a more healthy broadband market development."
Playing catch up
But despite the huge growth experienced by broadband in the Middle East in the past few years, the sector still lags behind most Western European countries, with far lower penetration rates and also a less developed market for services and applications that depend on broadband internet.
"The mindset is not there yet in the Middle East to use the internet as a base for many services and applications," says Ghattas. "We still lack in this area. Many people are not feeling comfortable to run their business over the net, and that is a setback because a lot of the applications, even though they are developed, are not used to the extent where they start bringing the revenue back, substituting the capital investment which has been put in."
But the situation is changing and broadband is gaining momentum in the region among operators, vendors and regulators, according to Ghattas, who adds that when one or two governments decide to launch initiatives to promote broadband, it will help push other countries in the region to do the same.
Duella agrees that additional support from government agencies could help speed things up, whether in terms of investment, regulation, or raising awareness of the benefits of the internet. With PC penetration quite low in the Middle East, efforts by governments to ensure that PCs are installed in households and schools are also helping to drive broadband growth.
However, Duella also points to broadband pricing and PC penetration as important factors in internet penetration, particularly in the current economic climate. While hard up consumers may cut back on internet use more readily than mobile use, Deulla stresses that operators can continue to encourage broadband use and take up by offering packages such as triple play, although he concedes this might depend on how competitive the country in question is.
"An appropriate package in terms of pricing and an appropriate bandwidth that will make customer searches easier with broadband could encourage take up. If you can combine the internet access with the voice and content, offering triple play packages, that is certainly something that would be appealing to customers."
As one of the people responsible for the huge increase of broadband users in Saudi Arabia, Saad Dhafer, VP home business unit, STC, has a clear view of what operators need to do to strengthen their broadband business.
For Dhafer, it is vital that operators put the customer experience at the centre of their broadband offering.
"Globally, establishing business models in a changing broadband ecosystem is a growing challenge," Dhafer says. "Ever changing trends, different lifestyles and different forms of media are challenging operators to rethink and reposition their business model.
"Operators need to look at important elements in that. Operators have to monitor trends every quarter, and communication with users is vital." He adds that the way broadband services are marketed is also important and "plays a big role in adoption of services" and that after sales support is equally important.
In particular, operators need to ensure their broadband service is always working at maximum efficiency and that the customer experience is seamless, from installation to billing, according to Dhafer.
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