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The payphone is dead, long live the payphone. Operators across the world have shown many of their public terminals the door, having seen voice revenues fall sharply. But suppliers and service providers in the Middle East and Africa say payphones still have a future — either in rural areas or as a platform for interactive services

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By  Richard Agnew Published  February 4, 2004

|~|payphone1.gif|~|Payphone operators are combatting declining voice revenues|~|The death of the payphone has been widely reported over the last few years. Faced with the inexorable rise of mobile usage worldwide, the traditional voice-centric business model of public terminals has been predicted to go the way of the dinosaurs. According to official figures, there were 1.5million payphones in operation in mid-2003 in the US, compared to 2.1million in 1999 and 2.6million in 1996. But while operators in developed countries have steadily taken payphones out of operation, suppliers and service providers are turning their attention to areas without high levels of mobile penetration, including many parts of the Middle East and Africa. Providers in more mature telecoms markets are also looking to offset that reduction by turning public terminals into platforms where users can access new services, including high-speed internet and recharging of mobiles. “If you look at Europe, there is a similar reduction happening [to the US]. Operators are seriously looking at their traditional payphone service,” says John Marshall, Marconi’s regional sales director for the Middle East. “But in developing countries, there is clearly still a market. There’s a very large digital divide and where there is not a great penetration of mobiles and mobiles are very expensive, there’s still considerable demand,” he adds. There is a similar story within the region, with operators in the more mature markets paring back their payphone operations. Qatar Telecom (Qtel), for example, is looking to outsource its payphone division, while other providers have seen revenues drop. “The advent of mobile phones has significantly reduced the popularity of payphones,” says Serene Zawaydeh, research analyst at the Arab Advisors Group. “In Jordan, the payphone service has come to an end, while in Bahrain and UAE, it is a struggling service,” she adds. But in countries without wide availability of other forms of communications, payphones are still very valid. In Morocco, for example, low-cost voice calls via public terminals still prove popular in areas without fixed line coverage, and according to Arab Advisors, the number of units increased to 77,000 by the end of 2002, from 47,000 in 2000. Licensed payphone provider, Itissalat Al-Magheb, is also gradually replacing its coin-operated booths with cabins functioned by chip-based cards. This trend is also apparent within countries themselves. Outside metropolitan areas, many operators still have legal obligations in place to compel them deploy payphones as a means to extend access. Terminal suppliers have also focused on rural areas as demand for traditional voice solutions in cities has decreased. But deployments in rural areas also present the obvious challenge of installing payphones where landline and power networks don’t reach. “We are trying to provide turnkey solutions [in rural areas,]” says Bocar Ba, deputy general manager of payphone supplier, Intracom Middle East. “For many of those, we are providing solar panels for power. In Senegal, we have installed some GSM payphones where they don’t have electricity,” he adds. Despite these challenges, new players have recently attempted to tap into rural payphone demand. UAE-based satellite operator, Thuraya, for example, launched its public telephony solutions (PTS) last year. Through a joint venture announced with Intracom in May 2003, where the Greece-based vendor has adapted its terminals to connect to Thuraya’s network, the satellite operator is attempting to bring affordable communications to populations without GSM or landline coverage, or the income to pay for one of its mobile phones. “The payphone solution is aimed at serving remote areas most in demand of telecoms services,” says Yousuf Al-Sayed, Thuraya’s chief executive. “Users will benefit from cost effective satellite services throughout Thuraya’s coverage area. We have successfully launched pilot payphone units and tested them in various climactic conditions in many countries,” he adds.||**|||~|satellite1.gif|~|Satellite operators have entered the payphone market|~|One prevailing view is that the future of the urban payphone will be a story of gradual replacement as mobile coverage expands. But payphone operators in built-up areas have also shifted from their traditional, voice-centric model towards new revenue streams for vertical sectors, such as tourism. In Egypt, mobile operator, Vodafone Egypt, is installing interactive kiosks in cruise boats on the Nile to cater to holidaymakers, while in Saudi Arabia, the majority of payphones are located in the western province to serve pilgrims to the holy cities of Makkah and Madinah. According to Arab Advisors, monopoly operator, Saudi Telecoms Company (STC) had approximately 60,000 public payphones in 2002, of which around 4,000 were coin-operated, 21,000 used magnetic cards, and 35,000 were private cabins. Following liberalisation in North Africa, the payphone market has also been targeted by smaller, specialist players, developing new business models to take on the established telecoms operators. In Egypt, for example, fixed operator, Telecom Egypt has retained its payphone operation, but according to Zawaydeh, its coin-based and magnetic card payphones have been losing ground to the more nimble, private payphone operators, Menatel and Nile Telecom. Menatel, which began operations in 1998, now holds the highest market share in the country with 30,000 units, although it has shelved plans to expand this by a further 5,000 due to the downturn in the economy. It is also planning to launch a range of value added services via its terminals, including internet access and credit card payment, and is making preparations to roll out more units in rural areas. “We used to operate our payphones with an online management system, [providing] a permanent connection between payphones,” says Mohammed Safaa, marketing and commercial director of Menatel. “But now, we are [moving] to an offline system which will allow us to divert payphones to rural areas,” he adds. In Algeria, smaller, private operators are also ramping up their payphone operations. Incumbent telecoms operator, Algérie Télécom, currently provides licences to private operators of multi-service kiosks, which are mainly run by young Algerians. According to Arab Advisors, there are around 14,000 multi-service kiosks across the Algerian wilayas, providing phone, fax and telex services. Each has five or six telephone lines — the customer makes the call, and then pays the price of the call which is measured by a meter in the kiosk. But the fixed operators have not yet given up. The research group says Algérie Télécom still has almost 3,000 of its own coin-operated public call boxes, called ‘taxi-phones’, which are distributed across the country. While card operated payphones were previously limited to hospitals, universities and airports, the operator also expanded the terminals to other areas in the middle of last year. This also reflects a gradual shift by operators from coin to card-based payphones to terminals offering multiple payment mechanisms, although the former are not expected to be phased out completely. “Coin-operated phones are relatively expensive but it depends upon your location. Where people plan their calls, cards are a better option, but where you are going to hit spontaneous users, you should probably go multi-pay,” says Marshall. ||**|||~||~||~|While the trend is perceived to be downward in terms of payphone voice revenues in developed countries and many operators’ payphone divisions have been scaled back, suppliers have also been pushing for adoption of terminals with a range of value-added services. These would use up spare capacity left behind by retreating voice traffic, and secure growth for operators once they have rationalised their terminal base. Marconi, for example, is targeting the GCC countries with its smart terminal, the Neptune 800, which includes email, SMS, telephony, internet access, video conferencing, screen advertising and a range of information services. It is also pitching them to public organisations as a means to roll out access to e-government services in key areas, and a means to reap additional revenues from advertising. “If you look at where operators are taking payphones now, the trend is to take them towards interactive services plus voice, but with a fewer number of payphones. Operators are [removing] some of their payphones and saying revenues are down, but they are keeping the ones that are in good locations. If the operators and service providers get together and create attractive services, there will be a business case for [smart payphones],” says Marshall. Even so, the market for interactive payphones is yet to be guaranteed, and confined to areas where implementation costs do not prove a barrier and there would be return on investment (RoI). “We planned to buy internet and SMS accessibility through our payphones. But because of the huge cost, we postponed this plan for a little while,” says Menatel’s Safaa. “SMS and web enabled payphones would be a tough sell in many countries [in the region]. In addition to infrastructure costs, current cellular users and internet users would not be interested in using a payphone in the street to send their emails or SMS,” adds Zawaydeh. “A main sector for the service is the tourism sector, which in many countries has a small market. But the SMS and Web-enabled payphone could have a sizeable market in Saudi Arabia, which received millions of pilgrims, and Egypt, which receives large numbers of tourists," she says. Operators are also expected to confine the more valuable payphones to positions where they can guarantee their security. “The payphones [should be] provided in areas under surveillance,” says Ba. “But you could have web phones in places like airports and shopping malls, because people want to have access to the web and it's a protected environment,” he adds. Nevertheless, adoption of interactive payphones in more developed countries shows that operators are willing to experiment with new business models in order to ensure ongoing revenues from payphones. “I have not seen any operator saying that that payphones are out completely,” says Marshall. “Is the trend down? Yes, it is, on traditional calls. But there will always be a market for them if the economics make sense, and that’s down to the operators locating them well and how they price the different services,” he adds. And while mobile coverage remains patchy outside the most populous areas in developing countries, providers say the payphone’s obituaries will prove premature. “In Europe payphones lasted for around 15 years before becoming obsolete,” says Safaa. “We have been [in operation] for five years, so we still have ten years left. The GDP per capita for the bulk of the 70million people in Egypt, and other countries, is still very low,” he adds. ||**||

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