The year ahead offers operators in the region opportunities for greenfield investment, though interested parties should be weary of the scarcity premium that many of the concessions are likely to attract. CommsMEA flags up a number of the significant licence awards in the region scheduled to take place over the next 12 months.
The Saudi Arabian government appears determined to open up its telecoms sector more widely as it recently issued a mandate that states any prospective mobile or fixed-line entrant would be required to float 40% and 25% of the operator's equity, respectively, for subscription by the public.
The government also declared that the state-owned pension fund and the General Organisation for Social Insurance (GOSI) would each claim a 5% stake in both the new mobile and landline enterprises, following the endowment of the kingdom's third GSM concession, and second fixed-line licence, the application deadline for which has been extended to February 24 and March 10 respectively by the Saudi regulator.
"Any company licensed to provide land phone services will float 25% of its capital for public subscription and allocate 10% of its shares to the Pension Fund and GOSI (5% each). It will have the choice to float additional shares four years after its formation," read a statement issued by the Saudi government.
Saudi based, and Etisalat-backed cellco Mobily along with Integrated Telecom Co (ITC) recently announced their intentions to bid for the kingdom's fixed licence, according to released company statements. There have also been unconfirmed rumours suggesting Telecom Egypt will also play a part in the fixed-line tender process.
Eight international players are lined up to bid for Saudi's third GSM licence, including Orascom Telecom, MTC, Oger Telecom, MTN and Singapore operator SingTel. Industry insiders speculate the mobile licence could fetch up to SR15 billion (US$4 billion).
There certainly appears to be strong growth potential left in the Saudi mobile market. Over a third of cellular users in Saudi Arabia have more than one mobile phone connection and often select a different network operator for the second, according to a new report by the Arab Advisors Group.
Research into the mobile phone use of residents in the kingdom found that 39.6% of people had more than one mobile connection, with the need for separate business and personal connections being cited as the main reason for having multiple connections.
Cost savings was another factor, the survey showed. The report was compiled by face-to-face interviews in various parts of the kingdom, which counts around 16 million mobile subscribers in a population estimated at 25 million.
Jawad Abbassi, general manager of Arab Advisors Group, said the report indicates that actual penetration rates for mobile usage are lower than reported by mobile operators.
"A good one-fifth of individual subscribers are subscribers of both operators, and over 39% have multiple mobile lines," Abbassi claims. "This trend seems to stem from the ongoing promotions in the Saudi market that include free credit, no connection fees and lengthy validity periods for prepaid subscription numbers."
By strict definition of the number of individuals using a mobile service, Saudi Arabia's cellular penetration rate at 3Q06 is likely to be nearer the 60% mark, rather than the 74.5% indicated by subscriber number estimates offered by the two operators.
The licensing process in Iraq can be described as opaque at best. The three temporary licences have been extended several times, and the latest extension keeps them valid until the end of March 2007. Expectations were that a process was set to happen in 2H06, though this time-line came and went.
The regulator's decision to delay the licensing process further is a sign that the already overdue auction of four 15-year mobile licences now faces even more problems. The process was scheduled to get underway in December 2005, with the aim of replacing the three temporary concessions in force at that date. This deadline was missed and was put back to June 2006; existing licensees were granted a six-month extension to their licences. By that date there was still no firm timetable for the auction and a further three-month extension was granted.
At the Iraqi Telecoms Conference in early September 2006 it was announced by the Minister of Communications that one of the four concessions had been procured by the government of Iraq, although this has not since been confirmed by the regulator, whose original proposal was that no licensee may have more than 10% ownership by any government entity, foreign or Iraqi. In the meantime Iraq's three mobile operators - Asia-Cell, MTC Atheer and Orascom (Iraqna) - have each received a series of extensions to their temporary licences.
There is also no doubt that the persistent and increasing levels of violence in the country have served to restrict investment in the country's telecoms sector to date. The instability has slowed the rollout and investment rates of the current operators. In the case of the mobile players, progress has been hampered by restricted access to facilities caused by fierce fighting. Facilities, especially generators, have to be constantly guarded to counter theft attempts. And, most gravely, insurgent groups have directly targeted staff, kidnapping and threatening personnel for either political or financial gain.
Negotiating these challenges has cost operators time and money, to the detriment of capital investment in Iraq. And while it would appear from the growth of mobile subscribers that the market is receiving substantial investment at least in this area, comparing capital spending across markets tells a slightly different story.
At the end of last year the Kuwaiti cabinet decided to establish a third mobile operator in the country. According to an official statement issued by the cabinet, 60% of the anticipated enterprise will be publicly owned, 24% will be held by state-owned authorities and the remaining 16% will belong to a core local or international investor.
Kuwait's current operators are Mobile Telecoms Co. (MTC), established in 1983, and National Telecoms Co. (Wataniya). Wataniya was established in 1996 in the face of initial government opposition.
Those opposed to the entry of a third operator argue that the introduction of Wataniya failed to cut prices and improve services in the country. Wataniya's subscriber base increased to over 1 million active customers at the end of September 2006, with revenues amounting to KD45.9 million (US$159 million) compared to KD39.6 million in the same period of 2005. EBITDA for the 3Q06 was KD20.7 million, representing a 45% EBITDA margin. Net profit amounted to KD16.8 million, a decrease of 8% year on year, as portfolio income was lower as compared to 2005.
Incumbent operators MTC and Kuwait have been understandably concerned about the potential arrival of further competition. According to Jukka Paasivaara, Wataniya Telecom's director of sales, the market does not need a third operator and could suffer as a result.
"Kuwait currently has around 107% penetration. How can (a third player) squeeze in? Most likely the only way it could enter the market is through price. It would lose. Both MTC and Wataniya have deep pockets. It would simply destroy the value of the two operators and decrease the size of the cake," Paasivaara comments. He suggests that the third operator would probably be required to build a third network rather than use the two already in place.
It has been suggested that the non-commercial reason for the third operator is that the profits generated would be owned Kuwaiti pension funds. "Pension funds would likely be the parties to invest considerable sums of money. I don't think the structure of the ownership would attract regional or international investors. It would be Kuwaiti investors," Paasivaara continues.
Given that mobile penetration in Kuwait does exceed the 100% mark, there does indeed appear to be little room for another entrant. Wataniya's subscriber base grew from 946,000 at the end of 2005 to over 1 million at the end of 3Q06, hardly a dramatic rise considering its subscriber base stood at 847,000 at the end of 2004. MTC remains market leader but has also witnessed a slowing in subscriber growth, experiencing a 9% growth in the year to end-3Q06 to 1.51 million, the slowest growing market within the operator's vast portfolio.
Two GSM licences should be awarded sometime during the first half of 2007 - part of the government's privatisation plan in the telecoms sector. It is worth mentioning that MTC and Alfa are now operating the two existing networks under a management contract signed with the Lebanese government in June 2004.
Qtel's position as the Gulf's last remaining monopoly operator is soon to come to an end given moves by Qatar's Supreme Council of Information and Communication Technology (ictQatar) to devise and publish licensing procedures that will effectively open the market up to competition this year. Qtel's monopoly licence was originally set to end in the year 2012.
"Once we are done with the licensing procedures we will start distributing the licences," commented ictQatar secretary-general Hessa Al-Jaber.
Al-Jaber has not detailed whether or not licences would be issued to service providers across all telecoms services and dismissed rumours that a regional operator had already approached the regulator for a licence in the country. "We are not looking at names now. Once we issue the licensing procedures, bids will be invited and licenses distributed thereafter," she said.
Qatar is the last country in the Gulf to operate a monopoly telecoms market and ictQatar was established in 2005 with the aim of heralding the deregulation of country's telecoms sector.
IctQatar views the forthcoming deregulation as beneficial, not only in terms of improved call rates and services for customers, but also in terms of the health of Qatar's economic and social development in general.
"This is just the beginning. We can look forward to investment from an array of new industries, brand new jobs across our economy and innovative ways of doing business in public and private sectors," Al-Jaber said.
The incumbent operator Qtel says it is ready to adapt its operations to competition. "We have been preparing for the entry of competition for over four years," Nasser Marafih, Qtel CEO asserts. "We launched a programme within Qtel called Q-Turn in 2002 that is aimed at improving our service offerings across mobile, data and fixed products," he adds.
Marafih has good reason to be confident of his company's long-term prospects even in the face of competition. Mobile penetration in Qatar already stands at over 100%, and broadband penetration is amongst the highest in the region, representing 30% of all households with an internet connection. The 15th Asian Games, which were held in Doha from beginning of December, also offered Qtel an opportunity to invest in some state of the art communications systems in its role as the Games' communications provider. Marafih estimates that QAR500 million (US$137 million) was invested in improving Qtel's telecommunications infrastructure ahead of the Games, much of it on the deployment of a 3G network.
The government in Iran is expected to detail plans for the award of a third GSM licence in the country later this year, despite the second player, South Africa's MTN Group having only announced the commercial launch of operations in October 2006, following the purchase of a 49% shareholding in Irancell.
MTN Irancell's coverage extended to Tehran, Mashhad and Tabriz, and was extends to Sari and Karaj shortly after launch. The network will expand to more than 70 cities by March 2007.
On October 21 MTN Irancell released 350,000 SIM cards into the market and 1 million subscribers were expected by the end of December 2006.
MTN Irancell subscribers benefit from mobile telecommunications that is available immediately upon purchase of a SIM card. Products were made available at over 200 stores in Tehran, Tabriz and Mashhad, and the distribution network is set to increase to 7,000 national points of presence by December 2006.
"MTN is very pleased to be able to provide a quality cellular network service to the people of Iran. Economic fundamentals support Iranian mobile market potential and we are confident that we will reach our subscriber target by the end of this financial year," commented Phuthuma Nhleko, MTN Group president and CEO.
MTN Irancell's launch follows a successful pilot phase in which all systems were tested and proved ready for roll out.