Despite bordering Saudi Arabia and Oman, Yemen has more in common with telecoms markets across the Gulf of Aden and the Red Sea in Africa. George Bevir looks at some of the pressing issues affecting the country.
Teledensity levels in Yemen are among the lowest in the Gulf, with broadband users measured in the tens of thousands and only a quarter of the country's population of 23 million in possession of a mobile phone.
As a desert country comprised largely of mountainous terrain, there are many geographical obstacles to extending fixed, mobile and internet connections to Yemenis who do not live in built-up areas, and rolling out coverage to the more remote parts of Yemen remains one of the biggest challenges facing operators in the country.
A lot of growth is coming from the female population which is due to a change in cultural norms. - Samer Qablawi, Nokia Siemens Network’s country manager for Yemen
The two leading mobile operators by subscriber numbers - MTN with 1.8 million, and Batelco-backed SabaFon with 2 million - have in the region of 600 sites giving them approximately 75% geographical coverage of the country. According to Samer Qablawi, Nokia Siemens Network's country manager for Yemen, the uncovered rural areas host 10-15% of the total population.
"A number of operators that we are talking to now, their focus for 2009 is to tap those rural areas," Qablawi says. "From a capex and opex point of view it wouldn't make sense to put a traditional GSM site with a population of 2,000 - 3,000 - after all, that market segment has an ARPU of around US$2-$4 which is almost 50% lower than what you have right now."
One solution that is offered by Nokia Siemens Networks (NSN) is currently being rolled out in Africa, where similar obstacles to extending coverage exist. NSN's scheme involves recruiting local "entrepreneurs" to operate and maintain small base stations that are located in their homes.
"It is franchise based where the operator can go to any village and strike a franchise agreement with one of the village entrepreneurs. For example, NSN provides the equipment and the training, and the operator will provide the micro-finance and the franchise agreement with the local entrepreneur, and he will take care of the operation, marketing and distribution within that village.
"The system is not as sophisticated as the traditional GSM system, it's a low cost entry system so there are savings on capex. From an opex point of view, the entrepreneur will do the operation and maintenance of the equipment which will be hosted in his own home," Qablawi adds.
A degree of uncertainty surrounds the future of the two other mobile providers in Yemen. Y, the brand name of Hits-Unitel, is managed by SyriaTel which also has a 12% stake in the operator.
Speculation linking Zain with a bid for SyriaTel was confirmed in March last year when Zain CEO Saad al-Barrak said the operator was in involved in non-exclusive talks with SyriaTel, and that Zain was also interested in entering the Yemeni market.
A source close to Y who spoke to CommsMEA under condition of anonymity, said that he believed a memorandum of understanding that would give Zain a controlling stake in SyriaTel as well as its 12% stake in Y had now been signed.
A spokesman for Zain could not confirm that any such memorandum existed, but he said that discussions between Zain and Syriatel had occurred going back six months, adding that at present there was "nothing decided or official".
The future control of TeleYemen is also unclear; in January 2004 the mobile and internet operator signed an agreement with France Telecom to manage its operations for five years in a deal worth a reported US$11 million.
That contract has now expired, and it is unclear if it will be renewed. A spokesman for France Telecom would only confirm that the operator's relationship with TeleYemen "will be maintained in some form or other", but he declined to elaborate further for "confidentiality reasons"
A source at one of the vendors that supplies equipment to operators in Yemen said that he believed the contract with France Telecom had been renewed for two years, while an analyst familiar with the region suggested that TeleYemen is currently looking for an investor to manage the network.
Despite the absence of an independent telecoms regulator, a reasonably competitive market exists, and with four mobile operators in Yemen consumers in the more populated areas have a level of choice not afforded to consumers in some other Arab states.
15 year GSM licenses were awarded to SabaFon and Libancell (which was later replaced by MTN) for $10 million, with an annual licence fee of $250,000 and a flat rate annual tax of $200,000, according to analysts at research firm Budde.
A low price for the GSM licenses was designed to encourage foreign investment and increase competition, and to make sure that mobile services were offered at affordable prices. Annual growth for the mobile sector in 2008 was strong, at 45%, albeit from an initially small base.
"Growth should continue into 2009, but a little more slowly, with penetration levels reaching around 30% by the end of 2009," says Tine Lewis, Middle East analyst for research firm Budde.
The Arab Advisors Group, meanwhile, projects a compound annual growth rate of 15.7% from 2008 to 2012, which will equate to a total of 10.5 million subscribers.
"One thing to keep in mind is that a lot of this growth is coming from the female population where due to a change in cultural norms the female population is actually taking on this service more and more and are contributing to this growth," explains Qablawi.An additional incentive for telecoms operators is the high proportion of young people in the country. Yemen has a very young median average age of just under 17, which is even lower than the young average age of neighbouring countries Oman and Saudi Arabia.
Qablawi says that he thinks networks will be well equipped to deal with the growth rate. "[NSN] just recently signed a big expansion deal with Sabafon which covers them for the next 3 million subscribers and although we're currently rolling out that expansion we're already talking about the next two million, taking them to five million. They are doing the planning early on, and they are matching their forecasts with the analysts forecast well," he says.
Most of the operators are focusing on voice; the fixed network is not yet deployed properly in the country. Gaby Abou-Zeid, Ericsson’s country and key account manager for Yemen
Despite the impressive mobile growth rates, it will be difficult for Yemen to match the overall teledensity levels of other Middle Eastern countries. According to the International Monetary Fund, GDP per capita in Yemen is US$1,453 and analysts agree that together with underdeveloped rural areas it is one of the biggest inhibitors to growth in the region.
"Whilst there is great disparity of wealth amongst Middle East countries, Yemen's GDP per capita is only half that of even Syria or Egypt, the next lowest in the region," says Lewis.
Arab Advisors' senior research analyst Issa Goussous suggests that one way for the mobile market to attempt to tackle the problem of such low spending power and grow even further is by offering lower rates and cheaper mobile handsets.
"The handset from ZTE which was recently introduced to the Yemeni market cost $20 and was a hit," he says. "Another aspect is the distribution channels: 65% of the Yemeni population - or let's say potential mobile subscribers - live in rural areas with primitive infrastructure. They don't think of getting a mobile phone because they do not have electricity to recharge the battery!" Goussous says.
Extracting a higher spend from customers remains a challenge that appears to be almost insurmountable. In its last set of results, MTN reported that ARPU had declined by 1% quarter-on-quarter to $8, and with only half of the population above the age of 15 able to read and write, it presents another challenge to operators who could look to drive ARPU through increased data usage with SMS and mobile internet services.
The launch of 3G networks may help operators to sell additional content and services, but it is not clear when the technology will be licenced.
"Maybe as early as 2010 we will see a licensure for 3G services," says Qablawi. "I think by the second half of 2009 we will have more clarity about when and how 3G will be tendered and subsequently offered to subscribers. It is a fast growing low ARPU market but on the other hand having the opportunity to tack on 3G services is something we're looking forward to," he says.
Lewis describes internet penetration levels as "very low, with very hazy statistics". While research firm Budde estimates internet penetration to be 1.4% of the population, Arab Advisors suggest it is "less than 6%". The disparity between the two figures is due to confusion over the number of subscribers versus the number of users.
Lewis thinks that internet penetration is unlikely to change greatly over the next year, with analysts at Budde suggesting that 50% literacy levels and low incomes are major reasons for the lack of growth. PC ownership is low, with "the majority" of users accessing the internet via internet cafes, according to Budde.
The internet was introduced to Yemen in 1996 under brand of Ynet, which offers ISDN and ADSL services. According to Ynet's website, the monthly fee for a 512kb connection is YR65,000 (US$320). Such high costs, combined with low literacy levels do not create an environment for large scale take up.
Figures from the ITU show that Yemen had 320,000 internet users as of March 2008, which represented 1.4% of the population. Only Iraq, according to the statistics, has a lower penetration level in the Middle East region.
"Most of the operators are focusing on voice," says Gaby Abou-Zeid, Ericsson's country and key account manager for Yemen. "The fixed network is not yet deployed properly in the country. There is a network capacity of 1.5 million, but they did not reach yet 1 million in the whole country, so that means that penetration of the cellular network is growing much better than the fixed," he says.
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