Internet ambitions

Broadband use is slowly gaining traction in the Middle East and North Africa and with growing deregulation ISPs are starting to address the obstacles in the way of further market penetration. Christopher Reynolds looks at how the barriers to broadband access are being overcome by the leading ISPs in the region.

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By  Christopher Reynolds Published  November 30, 2006

Internet use in the Middle East and Africa experienced a 479% and 625% growth rate respectively in the last six years. There are now an estimated 51 million users in the region according to Miniwatts Marketing, representing 13% of the total population. This massive expansion has seen internet service providers (ISPs) shift from providing basic internet access to supplying business and residential users with a host of value added services and packages. However the MENA region still represents less than 4% of the world's 100 million-plus broadband subscribers.

DSL remains the dominant means of broadband delivery in the Middle East, but much of that is still in the hands of monopolies. ISPs in the most developed economies have demonstrated caution in rolling out broadband infrastructure beyond the most urbanised areas for fear that demand is too weak. This has been a particular problem for countries in the Middle East and North Africa, where there is a lack of proper fixed line infrastructure suitable for ADSL, and a lack of an alternative fixed line infrastructure.

Technologies such as WiMAX are able to provide a fast and relatively economical alternative technology for broadband internet access and can be more easily deployed in the rural, underdeveloped, areas that have a lack of fixed infrastructure. However, these technologies rely on radio spectrum, which is often regulated, therefore the speed in which they are deployed depends on the regulator's efficiency. Initial steps toward deployment of WiMAX are being taken in Bahrain and Saudi Arabia, where procedures are ongoing to make spectrum available to bidders for a fixed licence, but the process is taking time.

While these infrastructure issues are a serious hindrance in providing extensive network coverage, Rogier van Driessche, senior partner of Delta Partners, a management consultancy and investment house, still sees the lack of deregulated markets and uncompetitive pricing as the main obstacle to the growth of internet usage in MENA.

“More than technology, it has been the lack of competition on the access side, resulting in very high prices and the lack of sophistication in service and offering, which in our opinion has been the main bottleneck. Continuing liberalisation in the region means these bottlenecks will be removed soon,” he says.

The barrier of monopolisation has not prevented UAE's incumbent ISP Etisalat from achieving 50% broadband penetration, with a subscriber base exceeding 600,000 - a 400,000 increase over the last six years. This growth has been facilitated by a close relationship between the ISP, government and regulatory bodies, in order to lay down the required network infrastructure. In the face of deregulation Etisalat also introduced a raft of competitive pricing strategies into the market with its Al Shamil internet packages, which have helped increase broadband usage in the country by 225% from 46,952 subscribers in 2004 to 153,017 subscribers in July 2006.

“Our expectations are to have a growth of 100% year on year in terms of broadband users over the course of the next few years. Our intention will be to reduce price barriers of dial-up users so that they can migrate to broadband and we will also rationalise our existing packages to offer attractive 'value propositions' to potential customers, “ says Abdulla Hashim, VP of marketing enterprise, Etisalat.

However, the UAE is virtually exceptional in the Arab world, with a gross domestic product per capita more than five times higher than average for the region (US$22,000); high literacy rates; and highly developed telecommunications infrastructure. Because of this Etisalat has not had to be as cautious as other regional ISPs in rolling out broadband networks, as demand for the service has been relatively high. However, Egypt, which has a GDP per capita of US$3,600, has had to rely on a whole host of regulatory initiatives in order for generate sufficient demand.

The beginning of 2002 saw the Egyptian government, aided by Telecom Egypt and several private Egyptian ISPs, launch the 'Free Internet Programme'. This initiative was instrumental in the growth of Egypt's ISP market, bringing internet tariffs down to approximately US$0.15 an hour and quadrupling subscribers, from 1 million users in 2002 to 4 million by March 2005. Since January 2002 the government has implemented further strategies in order to help widen broadband and internet usage throughout the country. Spring 2004 saw the Ministry of Communications and Information Technology order that ISPs cut the cost of ADSL connections by 50%, to LE150 (US$25) per month. During the same year the government contracted chip manufacturers Intel and Advanced Micro Devices to manufacture low-cost PCs, affordable for the Egyptian market, and sponsored a 'Smart Schools' programme in cooperation with the United Nations and the Italian government, in order to provide computers and training to school children.

All of this has amounted to a 1,011% growth in internet usage in Egypt over the last five years. The country now has one of the highest levels of broadband subscribers in the region, and over 500,000 internet users; representing 7% of the population.

Jordan has also benefited from government intervention to lower the cost of broadband access. A lack of Arabic content, network coverage in rural areas, and affordable computers are factors that have led to relatively low internet penetration. The kingdom has a GDP of US$3,500, around 100,000 individual internet accounts; and a compound growth rate of 394% over the last five years has seen the estimated number of users rise to 600,000, representing 11.4% of the total population.

Faced with the introduction of competition after the liberalisation of the fixed line market in 2004, Wanadoo Jordan, the kingdom's leading ISP, was able to reduce the cost of its service by integrating almost 80% of its businesses into parent company Jordan Telecom Group. This integration allowed the ISP to introduce two price cuts in the last three years, resulting in an 85% overall price reduction for subscribers. Although the Jordanian government did not enforce price cuts, Sami Smeirat, CEO of Wanadoo Jordan, believes governments and ISPs have to work closely together to allow the Middle East to catch up with the rest of the world.

“The price cuts weren't dictated by force but Jordan Telecom gave us incentives to drop our rates,” he says. “There has to be a national strategy, backed up by the government, regulator, telco and ISPs.”

This is a formula that Egypt's leading ISP LinkdotNet has adhered to. A subsidiary of Orascom Telecom, LinkdotNet acquired eight leading Egyptian internet companies in May 2002, making it the largest internet access provider in Egypt and one of only four ISPs that own their own network infrastructure. Despite the mandated reduction of subscription fees and subsequent growth of internet use, LinkdotNet still acknowledges that there are significant barriers to expansion that are endemic throughout the region.

“You have different ways to look at the barriers for internet access in Egypt,” says Karim Zeidan, international operations director for LinkdotNet. “One of the big barriers for us is language and this has been a problem throughout the Arab world.”

Herman Havermann, CEO of European search engine specialist Seekport Arabia believes that the lack of Arabic portals and content on the web is a huge factor in deterring internet use. “If you look at the Arabic speakers worldwide, they represent 5% of the world population, but only 2% of the internet users,” he says. “And then it even gets worse. There are approximately 65% of Arab users who do not feel comfortable with the English language, and only 35% that speak English. The Arab web pages only represent 0.2% of overall web pages. Right now we estimate there are 100 million Arabic web pages but that is going to double every year. It's a huge market.”

Havermann believes that the lack of localised content is slowly being addressed both by global portals such as Google and by local ones, and Seekport is itself planning to launch its own dedicated Arabic search engine to capitalise on this growing market. Zeidan has also been working hard on overcoming the language barrier and is confident that LinkdotNet's partnership with Microsoft to develop MSN Arabia is a strong step towards localisation.

“Thankfully the development of local Arabic content channels is happening and LinkdotNet has been aggressive on this point. We own nine of the largest portals in Egypt and we are a partner with Microsoft in developing MSN Arabia, which delivers all of its content in Arabic to Egypt and the Middle East. So language is an issue - it is not quite as significant as before - and it is still a work in progress as I see it,” says Zeidan.

Another area that is deterring broadband uptake in the region is the relatively low number of affordable PCs available. According to Zeidan this problem has been mitigated somewhat in Egypt by the government's 2004 'PC for Every Home' scheme, allowing families to pay for computers on credit, via a surcharge on their phone bill, and with financial help from local banks. The government also set up IT Clubs in order to familiarise people with the internet in rural areas who are unable to afford PCs. Zeidan believes that the combination of these initiatives will allow the demand for broadband access in these areas to grow, opening the way for further infrastructure deployment.

“Expansion into rural areas is vital for us and the government has been very hands-on lately on launching initiatives that can help spread internet access. It is helping to reduce the overall price of broadband access and is starting to lay down fixed lines into rural locations, allowing network coverage to expand rapidly into these areas over the last two years,” says Zeidan.

With government initiatives driving down prices and infrastructure beginning to roll out industry analysts believe the next step is in installing a culture of internet usage in the region and the spread of e-commerce as an important step toward this. The growth in online shopping has been problematic mainly because of the lack of Arabic e-commerce content, however Zeidan believes region-wide credit and internet card penetration needs to take root before users are stimulated into shopping online.

“People are starting to use credit cards more in the region, which is helping, and we are working on developing e-commerce solutions for the Middle East. We have a branch in Dubai and another one in Saudi, so we are providing e-commerce solutions across the region and this is an area that should grow over the coming years” says Zeidan.

Etisalat's Hashim says ISPs need to host e-commerce infrastructure so that secure hosting of critical applications such as CRM or salesforce applications can be implemented. Though he thinks the biggest overall concern for customers in the Middle East is security over online transactions.

“Etisalat has a security service where it provides the QualysGuard on demand vulnerability management and compliance, which can keep abreast of the latest vulnerabilities in a cost-effective manner without tying up a lot of IT resources. Security is a major concern for customers and something that could limit e-commerce expansion, we are trying to address this issue”

Although the above barriers have meant broadband penetration is far off from European levels, regional ISPs are undeterred in powering ahead with the latest in convergence applications and services in order to grow the market. Delta Partners' van Driessche believes the Middle East is beginning to shift in line with Europe in this field. “Operators are trying to maximise their share of total spend on telecommunications and related products, launching bundled offers between fixed and mobile services while also trying to use their internet connectivity to launch new revenue streams such as digital TV,” he says.

This enthusiasm comes despite the sluggish uptake of convergence and 3G services in Europe, where, so far, a great deal of users have seen little need in using their phones for anything other than making calls and SMS. However, Abdel Meguid, CEO of Link Development, the software arm of LinkdotNet, believes that with the right approach the technology can spread and gain momentum in the Middle East and North Africa.

“We are in an unique position with this technology because we work closely with our parent company Orascom and therefore are able to meet the specific needs of telcos who are moving toward convergence,” she says. “Perhaps we have not yet reached the point where we have the software and hardware which allows a convenient and seamless application experience. But things are evolving. At the end of the day, the user doesn't care about the technology, he cares about the experience. So if the experience is correct, he will use it in his every day life.”

“More than technology, it has been the lack of competition on the access side, resulting in very high prices and the lack of sophistication in service and offering, which has been the main bottleneck”

“Expansion into rural areas is vital for us and the government has been very hands-on lately on launching initiatives that can help spread internet access”

“Security is a big concern for customers and is something that could limit e-commerce expansion, we are trying to address this issue”

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