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Sat 27 Feb 2010 04:00 AM

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The popularity problem

What's the solution for mobile phone operators struggling with demands on congested networks?

Mobile phone operators around the world are struggling to keep up with demands on their congested networks. The need for further capital investment also comes at a time when revenues aren't keeping pace and the market is reaching optimum levels of penetration. What is the solution ahead?

If a speaker uses an iceberg analogy you know the forecast is not going to be good. So when Rajeev Suri, CEO of telecommunications service provider Nokia Siemens Networks, stands up and says the pressure currently on mobile networks to catch up with the huge rise in traffic from smart devices is only the tip of the iceberg, things indeed are not good.

Speaking at one of the early press conferences at the Mobile World Congress (MWC) in Barcelona - the annual gathering of mobile phone operators, vendors and inventors - Suri says industry reports forecast that mobile voice traffic will increase by 50 percent by 2015 and mobile data traffic will surge by an unprecedented 10,000 percent.

By 2015, Suri says, annual mobile data traffic will reach 23 exabytes, the equivalent to 6.3bn people each downloading a digital book every day. At the same time, he forecasts that revenues will only increase threefold.

This means that mobile operators are left with the dilemma of how to balance infrastructure investment demands with stagnating revenues, all in the midst of one of the biggest global recessions in history.

Back in the boom years, it was all "easy money," Naguib Sawiris, chairman of Egypt-based operator Orascom, says during a well-received keynote speech towards the end of the Congress. Operators set up the network, created the ads, put the shops on the high street and the subscribers queued to sign up, he says.

With around six billion people on the planet and an estimated five billion subscribers, Sawiris is cynical about future prospects and believes that rising penetration rates mean that the industry is "nearing the end" of the days of rapid easy growth and the future is all about obtaining market share through mergers and acquisitions.

Mohammad Omran, chairman of Etisalat - the UAE's biggest mobile phone operator and the 14th largest in the world - is much more optimistic than his Egyptian counterpart and believes that this is "just the beginning" of his company's expansion and that there is still much more growth to be found in the market. The fact that Omran was in the Spanish city to announce that the UAE government-owned operator had passed the 100m subscriber mark adds weight to his argument.

While Omran may be confident he can increase subscribers, he cannot get away from Suri's doomsday forecast and the challenge of balancing revenues and network traffic growth. There are two obvious ways to combat this challenge: increase revenues or invest in faster network technology.

Etisalat is investing in the next wave of network technology and Omran announced at the MWC that it was in the process of testing Long Term Evolution (LTE) systems and is aiming to roll out the service in the UAE later this year.

LTE is also known as 4G or fourth generation and is the latest high performance mobile communication system.

Etisalat's rival du is also investing in its network this year and Hatem Bamatraf, du's senior vice president of network development, told Arabian Business on the sidelines of the MWC that it is upgrading its 3G network and is planning to roll it out later this year.

"We are expanding the data rates of the speed that customers use over the 3G network from the current 7.2 megabytes per second to 21 megabytes per second. That is a big jump and a big revolution and it is enhancing the entire network," said Bamatraf.While he did not outline the amount of investment, it was reported earlier this year that du will invest over AED2bn ($545m) on network expansion and development this year.

The investment by both operators is important as a report by industry researchers at RNCOS says that the number of 3G mobile phone users in the Middle East is forecast to pass the 25 million mark by 2012, a rise of 40 percent in five years.

"The Middle East region is one of the fastest growing regions," the report says, however Tony Gray, P3 Communications' Dubai-based regional business director, says this growth may be even bigger and one of the solutions operators should look at is analysing their networks to optimise performance and to highlight any inefficiencies.

Gray says that such tests have often improved operators' network performances by up to 15 percent. "Mobile networks are creaking at the seams with the burden of such heavy traffic. As a result, quality of service is now a huge threat to the user experience - and not just for mobile broadband customers facing slower connections or service outages, but potentially for phone users too as capacity on the network is squeezed," says Gray.

Another option to close the gap between revenue growth and investment necessities is look at where revenue is being lost. In 2008, research reported at the Fraud Prevention and Revenue Assurance Middle East and North Africa forum event in Dubai estimated that operators in the Middle East and North Africa were losing approximately twenty percent of their revenue due to billing errors, fraud and poor systems integration.

Anandan Jayaraman, chief product and marketing officer at New-York based consultancy Connectiva says Middle East operators have been slow to address this problem and plug revenue losses.

"If you look at the Middle East and emerging markets these problems have not been addressed with the same level of urgency as say in the US and Western markets," he says.

On average, losses due to issues such as billing errors, fraud and poor systems integration are around three to four percent across the globe, says Jayaraman. The previous ambivalence of operators in the Middle East during the boom times is why their potential revenues losses are so high.

Etisalat was one of Connectiva's first customers in the Middle East, but it has also worked with operators such as Zain Group, Cable and Wireless, Bharti Airtel, Qtel Group and T-Mobile. Jayaraman estimates that it has helped to identify and recover more than $500m in leaked revenues for its clients in the Middle East and North Africa.

In the case of the Zain Group, Jayaraman reports that an investigation at one of its subsidiaries uncovered $1.5m in leaked revenue within 60 days.

Zain was at the centre of one of the MWC's biggest stories when the Kuwaiti operator confirmed it has accepted an offer from Indian operator Bharti Airtel to acquire its African assets.

While Zain is expected to make in the region of $5bn from the sale, Jayaraman speculates that it made the sale because its African assets had very low margins, low average customer usage and were plagued with high levels of revenue leakage.

Researchers at Informa Telecoms and Media forecast that revenue from data services in the Middle East will rise from $6.88bn in 2009 to $13.82bn in 2014. Therefore, Jayaraman believes operators need to start combating the issue of fraud and revenue loss.

Google's CEO Eric Schmidt believes mobile applications will be the big revenue generators of the future and he put his money where his mouth is by announcing that all of the search engine's top programmers were now focusing on creating mobile phone specific applications. This increase in applications will of course put more and more stress on operators' already congested networks.

As Arabian Business sets off for the airport to do battle with Barcelona's equally congested road network, Bosco Novak, chief market operations officer at services provider Nokia Siemens Networks, leaves us with some encouraging news for the future.

"Last year, any economy dependent on the oil price was impacted; we are now seeing [the Middle East telecoms sector] bouncing back as oil prices are stronger," he says.

The black stuff comes to the rescue again it seems.

Arabian Business: why we're going behind a paywall