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Thu 6 Sep 2007 03:21 PM

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Life in the slow lane

GITEX boots up this week but is the Middle East stuck in the wrong lane on the information superhighway?

There are lies, more lies, and statistics. Look at the figures. Today, the Middle East and Africa is the fastest growing region on Earth with regards to the number of internet users. According to comScore World Metrix, the Middle East and African internet population grew from 29.3 million in May last year, to just over 35 million in the same period this year - a 20% increase. Yet while the MEA region remains the fastest growing, in total it hosts just 4.5% of the world's internet population of 772 million.

Tightening our focus, the Middle East accounts for 2.9% of world web users, with over 19.5 million online, which represents growth of 494.8% since 2000. According to the latest figures from industry tracker, the region registers 10.1% internet penetration among its population of just under 200 million. However, that figure still only defines its internet audience as anyone aged 15 or above, who has been online in the last 30 days. Does one-in-ten, perhaps just once-a-month usage indicate that the region is in the fast lane of the information superhighway?

"Penetration rates are well below international benchmarks, and in some cases the rates are particularly bad," Phil Reynolds, chief legal officer of virtual network operator Friendi Mobile, and former head of technology at international law firm DentonWildeSapte, tells Arabian Business.

According to Reynolds, this weakness is largely a result of the region's high prices, which are "way, way above the European, US and Asia-Pacific benchmarks," and kept there by a lack of real competition in Middle East telecoms markets.

"The bottomline is that there's now scope for further competition in the market - however, the reality is that prices have not fallen, and operators are admitting that prices are relatively stable at the moment," he explains. "That indicates that full competition is not happening, as in a fully competitive environment, prices do tend towards cost."

Reynolds argues that as a result of a dearth of true competition, innovation has suffered and services have not advanced as quickly as they were expected to. Governments have focused so closely on introducing second or third operators into the market, that the region has merely seen the introduction of "cosy oligopolies, with a lot of price following occurring". Consumers are not getting the deal they deserve, and it will take the intervention of regulatory authorities around the Gulf, to kick-start the revolution.

"The next phase of competition has to occur where service-based competition comes in, as a layer underneath facilities-based competition," Reynolds suggests. "What we will see is regulators becoming frustrated with pricing and services, saying ‘we want some more competition, so you guys need to open your networks now to independent service providers, so we can get more innovation, and get the prices down a bit more'. The key is to move towards services-based competition, as opposed to network and facilities-based competition.

"The problem with all the operators at the moment is that they are trying to be all things to all people," he continues. "You don't have the niche players in the market, for example a DSL provider who is focused on the internet and provides a highly competitive data service. The regulators have really got to get themselves into gear, and facilitate some more competition."

Last week, there were encouraging signs in this direction, as the UAE's Telecommunications Regulatory Authority (TRA) warned that it wanted to "open the door for competition" between the country's two operators, Etisalat and du. Currently, Etisalat does not have access to internet or fixed-line customers in Dubai Internet City and media free zones and nearby residential districts, while du is largely restricted to these areas.

"From now until the end of the year, both operators are obliged to cover the whole of the UAE and customers will have the right to shift from one to another," a TRA spokesperson said. It is at least a step in the right direction, and perhaps a hint that the regulatory body is warming towards the benefits of effective competition.

Reynolds' views are echoed by Jawad Abbassi, general manager of the Jordan-based Arab Advisors Group, a consulting firm focused on the communications, media and technology markets. However, Abbassi also identifies another issue that may have more long-term repercussions for the Middle East internet market. Put simply, does the region really need high broadband penetration?

"If we want a success story similar to the cellular story, we will not have it," admits Abbassi. "The internet market is a harder nut to crack, because unlike the cellular market where illiterate people can use the technology relatively easily, you have to have certain prerequisites to get the internet.

"You have to be able to afford a PC or a laptop, you have to have some level of English, and you have to be computer literate," he continues. "You have to have some level of disposable income to spend on the internet service, and you have to have the need for it. For many people there isn't the need - what need does a poor street vendor in Egypt have for email?"
Abbassi does note that a number of Arab governments are enhancing internet, and specifically broadband, penetration. For these governments, broadband represents a prerequisite for a knowledge economy and for services and companies that will generate employment for the future.

"This issue is strongly linked to the take-up of computers, so there could be a lot more activity with regards to making computers more affordable, and putting them into schools and other places," offers Reynolds, picking up the education theme. "Prices need to come down, and governments can provide subsidies and schemes, to educational institutions in particular, to encourage further take-up of PCs."

This element of the Middle East opportunity has not escaped the notice of the IT giants. Earlier this year, Arabian Business met Microsoft CEO Steve Ballmer in Qatar as he signed an agreement that will form the basis of a strategic partnership with ictQatar, the country's policymaking and regulatory body for information and communication technology, to transform the emirate into a successful knowledge-based economy and increase the impact ICT has on its GDP.

"We're serious about this region and want to showcase what technology can do to improve services within government, education, healthcare, society and the business world," Ballmer told this magazine, adding that Microsoft was preparing to invest "significant effort" into the Middle East.

The company is busy creating jobs and creating entrepreneurial opportunities in Kuwait, Qatar, Oman, Yemen, Egypt, and the UAE. In addition, it is working with the KSA government to try and promote the development of entrepreneurship, and has established a three-year programme with the Egyptian government that will generate and create 100,000 small businesses. In addition, Bill Gates' unveiling of the Microsoft Student Innovation Suite - a US$3 package of software for students - means that PC technology is more affordable than ever.

Meanwhile, earlier this year Intel signed a Memorandum of Understanding with the Jordanian Ministry of Education to develop an advanced online training programme as part of the company's ‘Intel Teach' scheme. The target this time is teachers; the logic that Intel-trained educators are more likely to foster Intel-friendly pupils.

Of course, all this PC-pushing may prove incidental in the long run. Mobile penetration in the region is enjoying strong growth, and as Reynolds points out, the future is not on the desktop, but in the palm of your hand. "All of this technology is coming together in one device, and it happens to be a mobile device," he notes.

"WiMAX wireless data transfer is having a big impact, and governments should start developing sophisticated policies and programmes in relation to how WiMAX is introduced."

In 2007, it seems that fixed-line internet is already on the way out. Yet in the Middle East, did it ever really arrive?

"You have to fragment the Middle East," insists Abbassi. "Countries like the UAE, Qatar and Bahrain are already in the fast lane with regards to internet access.

"However, in the Arab world, we will always have much lower internet penetration than cellular penetration," he predicts. "In the Gulf markets of the future I suspect internet penetration will be quite high, approaching 50 or 60% of the population. In countries like Egypt or Morocco where basic literacy is a problem, the internet is definitely not a priority and many people will not have the prerequisites needed to be internet users for a good number of years," he adds. "That's a problem not just for the internet, but for participation in the labour force at large."

Abbassi sees Saudi Arabia as the broadband giant of the region - albeit one that has been waiting to fulfil its potential. Now, the wait is almost over.

"Because we've been behind for a bit, we'll be able to deploy new technology to leapfrog many countries," he insists. "Some countries in this region will never catch up, but there are a number of bright spots and we should not be pessimistic."

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