By Rob Corder
Jordan’s aspirations to become a regional centre of excellence for New Economy companies got a boost in September as the Kingdom opened up competition in its mobile phone market. Deregulation of the communications sector is touted by analysts as one of the single most important steps a country can make if it wants to improve its global standing. Is it working in Jordan? Rob Corder went to Amman to find out.
Jordan's aspirations to become a regional centre of excellence for New Economy companies got a boost in September as the Kingdom opened up competition in its mobile phone market. Deregulation of the communications sector is touted by analysts as one of the single most important steps a country can make if it wants to improve its global standing. Is it working in Jordan? Rob Corder went to Amman to find out.
When Mobilecom activated its mobile network in September, Jordan became one of only a handful of Middle East countries with competing telecom service providers.
The incumbent Fastlink, which had enjoyed a monopoly for five years in the Kingdom, welcomed the introduction of competition. In fact, a year earlier, Fastlink had actually lobbied for a second operator.
Today, as deregulation pressure from the WTO increases, governments across the Middle East can monitor the situation in Jordan as a case study of an open market. It’s a case study that, so far, is hard to criticise.
Jordan’s mobile phone market has always been unusual. Jordan Telecommunications Company (JTC) decided not to make the move to GSM itself in 1995. Instead, the state operator opted to sell a 15-year license to run a network.
Five international operations bid for the license, with Fastlink (a consortium of local investors backed by Motorola) winning the process with a promised investment of $50-60 million.
The deal also called for a contribution to the Jordanian treasury of 20% of grow revenues; a commitment that hung like a millstone around Fastlink’s neck for the next 4 years.
Between 1995 and 1999, Fastlink’s growth was far from exhilarating. It took four years for the subscriber base to reach 90,000, which represented under 2% of the population.
The reason, according to Fastlink’s CEO, Michael Dagher, was the 20% revenue sharing agreement which pushed the price of running a mobile beyond the means of the average Jordanian.
Dagher had been negotiating with the Jordanian government since 1997 to reduce the revenue sharing percentage, but it took until 1999 for him to make a breakthrough.
His winning argument was that the treasury would receive the same, if not more, revenue because a reduction in the revenue share percentage would allow Fastlink to reduce prices and stimulate the market.
Within those same negotiations, it was Fastlink that raised the subject of introducing a second mobile operator. “Indirectly, Fastlink helped to introduce competition,” Dagher told Arabian Business.com.
He was right. In the nine months since Fastlink reduced the percentage of revenue it paid to the Jordanian government, the company has more than doubled its subscriber base, which stands today at 250,000 active accounts, according to Dagher.
But the growth curve won’t end there. Both Fastlink and Mobilecom believe there is the potential for the subscriber base to increase to at least 20% of the population, or over 1 million subscribers.
Fastlink already has capacity to increase to 500,000 subscribers while Mobilecom says it is working towards 200,000 subscribers by this time next year, and another 100,000 soon after that. “We believe that the market for mobiles here will grow very fast and we have designed the network to accommodate rapid expansions,” explained Jean-Luc Vuillemin, chief executive officer of Mobilecom.
Competition in the Jordanian market is the driving force behind this dramatic expansion. The average income of the Jordanian population is low, compared to wealthy Gulf neighbours, and this was holding back the mobile market.
Fastlink has been cutting its tariffs for the past year, culminating in price cuts of 50% for some service packages the week before the introduction of Mobilecom’s service.
Mobilecom entered with aggressive pricing from day one. It also kicked-off with no requirement for customers to pay a deposit before getting connected; a move that Vuillemin denied was an aggressive move against Fastlink.
“Our main concern is not to attack Fastlink. If we decide to suppress the deposit, it is not to attack anybody; it is just to make it easier for new customers to join us. It is clear that if you ask a customer to pay an upfront deposit, you have put a very big barrier in front of the market and this is not the best way to develop the market,” he explained.
Fastlink believes Mobilecom will regret the decision to suppress deposits because the operator will not be protected if people fail to pay their bills.
“Today we have a deposit policy. The reason for that is that in 1998 and parts of 1999 we had a high [rate of] bad debt on our balance sheet. Too many people were defaulting on their debts,” recalled Dagher. “The competition is storing up trouble for itself,” he added.
Dagher points to the fact that Jordan as a whole has weak controls over credit. The public credit rating lists that exist in mature market have not yet reached Jordan, leaving companies with the task of investigating potential customers’ creditworthiness on their own.
But if the aim of Mobilecom’s suppression of deposits was to grab market share, it worked. Over 20,000 people subscribed to its service in the first week following a media blitz that culminated in near-hysterical scenes at the launch party.
A pre-launch registration initiative, named Ahlan, added to the momentum. If customers registered for the Ahlan offer, they would receive one hour of free talk-time until 2002 once they subscribed to a Mobilecom service.
The response to this offer was overwhelming, recalled Vincent Brunet, marketing manager for Mobilecom. “By the week of the launch, the Ahlan scheme had drawn over 200,000 registrations. This rose to 250,000 three days before the network’s launch,” he added.
If Fastlink is panicking about Mobilecom’s momentum, it isn’t showing it.
Dagher dismisses the one-hour of free talk-time as little more than a publicity stunt. “I don’t think the market cares,” he said.
20,000 people subscribing to Mobilecom in its first week of operation seems to be just as easily shrugged-off by Dagher. “We added 35,000 subscribers in September,” he claimed; a reflection of the pent-up demand that was unlocked by Fastlink’s 50% reduction in tariffs and the general public interest in mobile services.
He also suggested that Mobilecom’s first 20,000 subscribers might not be the cream of Jordan’s customer base. “70% of Mobilecom’s subscribers were on hard disconnect because they had not paid their bills to us,” he claimed, although he gave no details on how this claim could be substantiated.
Setting aside the inevitable skirmishes that a new launch will generate, Jordanians can now look forward to a future where it can compare services, prices and support from two operators racing to build and maintain customer loyalty.
The stakes are high. Mobilecom with its target capacity and subscriber base of 300,000 users has to win and maintain those customers as it strives to recoup the massive investment it has made in the Kingdom. Fastlink will be aiming to increase profit margins on its existing customer base at a time when competition looks certain to put pressure on margins.
The potential pie should be big enough in Jordan to satisfy both, and their differing strategies may see the market segmented.
Fastlink’s offering looks geared towards high value customers (although the company denies this). Mobilecom’s looks more focused on mass-market appeal (a charge it denies just as strongly).
You be the judge.
Fastlink is already offering WAP on its network, and has signed a deal with Info2Cell that makes locally relevant WAP content available to subscribers.
The company is also already trialing GPRS, a network technology that will deliver high bandwidth Internet access to mobile devices. Commercial services are expected to be launched in the first quarter of next year.
While data services do not necessarily have to be expensive, they will require new handsets, which are typically at the expensive end of the market.
Another key marketing message from Fastlink is that it already has 59 roaming agreements secured with other countries. This fact is obviously of more interest to the lucrative business customer than the cash-strapped student.
The deposit that Fastlink requires customers to pay certainly looks like a barrier to a sizeable proportion of the Jordanian population.
The minimum deposit of JD 34 (US$45) for even a pre-paid package would make any manual labourer or student wince. In a country where 60% of the population is aged 16-32, the chances of alienating customers is high.
Mobilecom’s fundamental strategy is to remove barriers to entry for the mass market.
No security deposit and a uniform pricing structure for all calls are central to that goal.
“Our main goal is to give the opportunity to the student, for example, who has a small income, to become a customer. But if you ask that student to pay JD 100 for a handset, JD 100 for a deposit, and JD 100 for a connection fee, you are making it very difficult for this person,” said Vuillemin.
On the uniform pricing structure, he explains: “It is very clear that mobile telephony would not be attractive to people if the call charges are difficult to manage and difficult to control. We want to convince our future customers that mobile telecoms is very simple, very easy to manage and if you have some problems with money, it will not cost you more than your fixed line. We have tried to make an offer that is as simple as possible for people to understand.”
Neither operator will admit that it wants the market segmented in a way that puts high income customers in Fastlink’s camp and low income customers in Mobilecom’s camp. After all, if Fastlink’s phones became viewed as status symbols to aspire to, Mobilecom would suffer.
If at the same time if Fastlink gets a reputation for trampling low-income groups in its race to serve the wealthy, it would face a public relations disaster.
Time will tell how the two operators evolve their strategies to win and maintain loyal customers at all levels.
Jordanians should expect enticing offers from both sides and switching mobile service providers could become as common as switching mobile handsets.
And that is really the bottom line. Jordanians have choice. That choice is driving the operators to offer better services, better support and better prices.
Mobilecom, Fastlink and most of all the Jordanian population, all look certain to benefit.
Oh, and by the way, the Jordanian government is making more money from mobile phone license revenue than ever done before without selling a single subscription. Deregulation benefits all.
What do you think of the Jordanian example of deregulation? Is it a model for the rest of the Middle East, or is it an example of the private sector gone mad?