Telecoms in Jordan - Third generation or third operator?

One if the countries in the Middle East that has been gaining a reputation as being fastest-growing and forward-thinking in terms of the comms industy is Jordan. An open minded-view of deregulation led to the launch of a second mobile operator last year, and here CommsMEA talks to its chief executive, Jean-Luc Vereille. So what does the Mobilecom boss make of 3G, GPRS and companies looking for “subscribers at any cost?”

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By  James Thornton Published  March 1, 2001

Introduction|~||~||~|CMEA: With the speed at which the GSM market has grown in Jordan, such as the opening of the market into a duopoly and the future introduction of GPRS, and terrestrial services such as ADSL, is the market trying to move too fast?

Jean-Luc Vereille: Competition without a need from the people doesn’t mean anything; I think the first point is that there was a need for telecommunications.
When we speak about GSM we speak about communication between people, and this is just that need. There was a real need for it.

Until last year, a huge percentage of people didn’t have access to mobile [services]. As soon as the price started to decrease, they started to come.

Now another interesting question is the question of service. We can make a distinction between two kinds of service; there are some basic services like SMS, like voice mail; all these kinds of things. They are not revolutionary, but a response to a need of the people, so they are used naturally. After that there are also services which are more linked to an evolution to 3G, with 2.5G on the way; that’s GPRS, EDGE and after that UMTS/3G.

This is a big question mark not only for Jordan but also from a worldwide point of view. Everybody is convinced that one-day everyone will have a UMTS handset. I read in the newspaper a very good definition; it said it will be remote control of your life. And this will come one day, but for the time being, nobody sees clearly what will be the immediate application, which can create an added value linked to the existing network. We are surmising, we have some ideas, but nobody really knows.

So I think it’s a trend, and we’ll follow this trend, but probably not as a worldwide leader. We want to clearly see what happens in other countries, but as soon as the market is a little more defined, we will follow the trend.

We will also open our WAP service in the very near future; that will be the first WAP company in Arabic. We believe that this kind of service must fill a need. After that, you can provide other services, but if there is not the need to start, it will not work.

CMEA: Mobilecom is known for pushing down the barriers to entry. With aggressive pricing, how strong is the company’s financial footing?

Jean-Luc Vereille: Let’s look at it from another angle. When we arrived in Jordan, there were about 80,000 [mobile] subscribers. If we had wanted to share them evenly, that wouldn’t make and sense from an economical point of view.
You cannot cover a country and have a return on investment on a national network with 40,000 subscribers. So the only acceptable strategy from an economical point of view but also from a sociological point of view was clearly to be as accessible to as large a number of people as possible.

That means of course that our return on investment will be a little bit slower than if we had focussed only on rich people, but in the country there are not so many rich people, so if you decide to address only those, I don’t think you can be in mobile communication for long!

CMEA: So how strong is Mobilecom financially at the moment?

Jean-Luc Vereille: We’re very strong. With shareholders like France Telecom and JTC, you know JTC is making a turnover of something like JD 450 million, on this they’re making [investment in mobile] of JD 120 million. We can build something with that! And last year we have negotiated a financial facility with a syndicate of international banks for nearly JD 100 million.

What we would like to do on an economical point of view. In the past market of mobile on an economical point of view was a little bit crazy.
The strategy of some operators was to buy subscribers at any cost.
Ultimately, you lose money. It doesn’t make any sense with the evolution of the market. We’re looking more at the revenue value there and the customer acquisition value there, which means that definitely we don’t want market share at any price. We’re carefully looking at our costs, of course we will consider investing to grow customers, but not in a crazy way.

CMEA: So does that mean there is a segment of the population that will never receive services? That doesn’t offer a high enough return?

Jean-Luc Vereille: I will not say that. I will say that you cannot offer the same services to everybody. There is segmentation of the market. We are a bit like a car manufacturer. You cannot propose the same type of car to everybody.
You have to have high-end options with high quality of service, with a lot of additional services like WAP and mobile Internet and so on, but you must also offer more basic services, with a very accessible price for the rest of the population.

But we have to be clear and not to dream; the penetration rate in Jordan according to the economics, I don’t think we’ll get to 50% in the next ten years. It’s possible, but not likely. About 20% penetration until 2004 seems reasonable to me, but after that, according to what I know of Jordan, it will be a little bit uncertain.

CMEA: How fast is the rate of churn between yourselves and FastLink?

Jean-Luc Vereille: I don’t think it’s too much for the time being. Because the number of subscribers has increased in the same proportion; I think we’re getting 50% of the new sales, which is nice. So I think we are more increasing the size of the market rather than really affecting each other. We will have some process of churn, but that will happen when the market reaches its final target. Before that it’s more of an expansion phase. Of course you will always have some people that aren’t happy, which want to change, but I don’t think it’s a majority of the market.

||**||Future Services|~||~||~|CMEA: WAP is under a cloud in the international market. How is it doing in Jordan?

Jean-Luc Vereille: As you know there is a lack of mobile information technology services in Jordan. One of the wishes of everyone here [at the Convergence 2001 conference] is to increase the penetration of the Internet here. WAP is not very user-friendly technology; screens are not large enough, not in colour, it’s not as fast as we want.

But on the other hand, a WAP-capable handset is something that lot of people can buy in Jordan, which is not the case with a PC. A PC costs a lot, when you add the line to make it a communication enabler.

So I think that WAP, even if it’s not perfect, could be a first step to a lot of people to access what we call telematic services. After that it’s clear that WAP will become much more user-friendly, with the introduction of GPRS and so on, but before doing that we have to educate our customers and make them more familiar with this kind of service.

CMEA: Do you think there is room in the market for a third GSM operator?

Jean-Luc Vereille: That’s an interesting question. We were discussing this issue this morning with the Minister of Communication, and I told him that from my point of view, and according to the level of price we have reached in
Jordan (our prices of mobile communication are the lowest in the region), I don’t think there is room for a third entrant.

A third player makes sense when you have a real duopoly; where you have a gentleman’s agreement on price, and that they remain quite high. So you can have a third entrant, who comes in and attacks with low pricing, and everybody tries to follow. But with our competition, the level of price we have reached, will not allow a third entrant from an economical point of view. The political point of view is another issue.

CMEA: Looking ahead, what about 3G? Where will that fit in to Jordan?

Jean-Luc Vereille: Nobody in the world has any idea about the services that will really make UMTS work. The only service on which UMTS can base its penetration for the time being is voice service, and for the user a voice service is a voice service; whatever it is, GSM or UMTS. A new UMTS user will not be ready to pay more for a voice service than a GSM user. So, unless we see a killer application that will make UMTS really a totally different from GSM, I don’t think we can make UMTS work. Don’t forget also that GSM operators have some options like GPRS and EDGE, so you can do a lot with the [existing network].

CMEA: If the Minister decided to hold auctions for a 3G license tomorrow, would you bid?

Jean-Luc Vereille: That’s a good question. We would have to consider it. We are definitely interested in becoming a 3G operator; as I said, it’s a trend of the future. But even in Europe, operators are realising that paying a huge amount of money for a license is not a good solution. You just kill the market and kill the operator. I think the user can already see the benefits of two operators in Jordan. It would really be a disaster to kill one of the two operators. But I’d definitely like to do UMTS in the future.

CMEA: What do you think of satellite services trying to target low-end users in regions like the Middle East? Is there a role for them in Jordan?

Jean-Luc Vereille: No, I don’t think so. Frankly speaking, I don’t think so. I’m not very optimistic about them. Their projects were designed when the penetration of GSM was not very high. So now the penetration is very, very high, and what we can see is that their target, the market share they can address, is very small. Of course if you are in the middle of the desert, it would be very useful, but there are very few people making calls in the middle of the desert! And rural people there, like the Bedouin, can’t afford to pay for telecommunications. So I’m not very optimistic. There is a need, and a market, but I think it’s a very specific one and I don’t think it will ever be a mass market like GSM.

CMEA: Will GSM eat into the satellite niche?

Jean-Luc Vereille: Absolutely. As far as mass market is concerned, GSM will eat them. But I think they will remain in their niche markets.

CMEA: How much further do you want to push GSM coverage in Jordan?

Jean-Luc Vereille: When we opened the network we had already 94% coverage of the population. We have launched phase two which will be finished in March that will cover 99% of the population. Of course the population of
Jordan is a concentrated; there are not a lot of people in the desert and so on. We don’t intend to cover the uninhabited areas of Jordan. So
I think we will reach our final target [in this phase].

CMEA: Jordan Telecom is due to deregulate in 2003; how will this affect Mobilecom?

Jean-Luc Vereille: Liberalisation is always nice because it increases the size of the business. Even if you look on the fixed line business, the penetration rate in Jordan is not very high. We have only 600,000 phone lines in Jordan. I think that competition will provide, as for mobile, more services and will increase the size of the market. Which is good.||**||

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