High speed hopes

The Middle East was undoubtedly late to the global internet party. After breaking into the dial-up access market, the regional ISP's and and telecos are still struggling to take the next step and persuade its subscribers to upgrade to broadband. A number of factors have contributed to this state of affairs, ranging from lack of content, cost of bandwidth to actually building a broadband infrastructure continue to dominate the scenario.

  • E-Mail
By  Maddy Reddy Published  March 7, 2004

|~|Maan_2.jpg|~|“The main challenge is to justify the migration from dial-up or leased line to broadband,” says Maan Al Sabi, marketing manager, internet access solutions at EIM. |~|Although the internet was conceived way back in 1969 by the Advanced Research Projects Agency (ARPA) of the US government, it took some time to make its way to the Middle East. The last GCC country to get online was Saudi Arabia, which held out until 1999 before embracing the web. Since then, the Kingdom and nations throughout the Middle East have been promoting internet connectivity like mad as they push their government bodies and private citizens into the digital age. With a few exceptions, the Middle East has done relatively well and the region boasts approximately 1.4 million internet users. Furthermore, countries such as the UAE have raced up the internet penetration charts and now hold lofty positions on the ITU’s Digital Access Index. Having cracked dial-up access, the focus for the Middle East is now on increasing broadband penetration. Typically available as either DSL (Digital Subscriber Line) or ADSL (Asymmetric Digital Subscriber Line) services, a number of local internet service providers (ISPs) are spending much of their time and a lot of resources pushing higher speed connectivity to both businesses and home users. Emirates Internet & Multimedia (EIM), for example, has been targeting small-to-medium sized businesses (SMBs) with its Business One broadband internet package for some time and saw a 25% jump in adoption early last year to take its subscriber base over the 4000 mark. The monopoly’s Al Shamil broadband offering for home users has also accrued a reasonably high following and was forecasted to have 27,884 subscribers by the end of last year. “The main challenge is to justify the migration from dial-up or leased line to broadband. We are now seeing that more users are moving away from dial-up, because they are only now realising the benefits. In the next two years we expect to see a shift from narrow band to broadband,” says Maan Al Sabi, marketing manager, internet access solutions at EIM. Outside the UAE, other ISPs are also looking to drive broadband adoption. For example, Lebanon’s Ministry of Telecommunications (MoT) has launched a tender for a nationwide, IP-based public data network (PDN) to facilitate ADSL services, while others such as Bahrain’s Batelco, Jordan Telecom and Saudi Telecommunications Company (STC) are further ahead and are currently offering customised broadband packages with more features and lower pricing. Batelco, for example, has borrowed ideas from its mobile business to try and drive broadband adoption and has unveiled a ‘pay as you go’ package, while also increasing bandwidth from 2Gbytes to 5Gbytes, bundling free filtering tools for families and slashing prices by 50% for the education sector. The efforts seem to be paying off, with Batelco currently claiming 12,000 broadband subscribers. ||**|||~|jawad.jpg|~|"We expect that with ongoing liberalisation, 2004 and 2005 will be breakthrough years for broadband internet usage,” says Jawad Abbasi, president of Arab Advisors Group. |~|“The market is hungry for bandwidth and faster internet service. To increase the limited broadband user base, we have launched an initiative called Broadband Bahrain to increase the penetration and make it more affordable,” says Adel Daylami, senior manager for data & voice services at Batelco. While the initiatives of both Batelco and EIM have garnered some positive results, the simple fact is that broadband penetration remains relatively low. For instance, dial up subscriptions still make up approximately 93% of EIM’s total user base. In fact, according to a report published by the GCC IT regulatory committee, aggregate broadband users are estimated at just 10% of the overall web subscriber base in the GCC region. Jordan Telecom, for instance, has just 6000 broadband subscribers while Egypt has recruited only 4500. Other figures from Madar Research Group show that only 1.5% of GCC residents access the internet through a broadband connection. The research firm suggests that the situation is unlikely to change anytime soon and it predicts that penetration will reach a paltry 11.3% during 2004, despite the efforts of the region’s ISPs. A number of key factors are contributing to this state of affairs, ranging from cost, infrastructure and content. In terms of pricing, many ISPs appear to be caught in a chicken and egg situation. Due to the cost of building infrastructures capable of delivering broadband, users have to be charged premium rates if the providers are to recoup some of their investment. Obviously, if subscriber rates are low then this premium increases yet further, but it also means less users are likely to sign up. For example, while the cost of broadband in Lebanon will be unknown for some time, it is unlikely to be particularly cost effective when the network being built to deliver such services is slated to cost a minimum of US$20 million and the cost of servicing it when live astronomical. “Infrastructure is one big factor. Laying the fibre or cable is not expensive, but only when you consider the ancillary elements like continuity, maintenance, service, supervision and support, which are very expensive issues,” says Dissa Jaimoukha, marketing director at Jordan Telecom. “For the pricing to come down, you also need demand to justify building the infrastructure. But the demand is not great enough to justify the supply — it is a vicious cycle,” he adds. Dr Abdullah Al Musa, acting vice president of Saudi Data and vice president of Saudi Net, agrees. “With DSL there are various problems, facility problems and distance problems, it’s not like a normal PSTN line. We are investigating some technologies such as long reach DSL that will help us overcome the distance problem we are facing,” he says. In addition to the cost of actually building and servicing an infrastructure capable of providing broadband, there is also the cost of the bandwidth itself. Virtually every ISP in the region claims this expense is too high and that they can do very little about it as the monies they have to pay to the bandwidth providers means they have little choice but to pass it on to the end user. “Bandwidth from cable connections [FLAG and SEA-WE3] is still very expensive, though we are in the middle of the world in terms of reachability [sic],” says Al Sabi. ||**|||~||~||~|However, the cable operators are less convinced that they are to blame for the high price of local broadband access. For instance, Flag, which resells bandwidth from 2Mbits/s to multiple STM-1 lines (155.52 Mbits/s) to local ISPs and incumbent operators in the region claims it tries to protect pricing levels. Furthermore, it argues that it is dedicated to providing better services to the region and not just fob it off with second-rate connectivity. As such, Flag is planning to build a self-healing 15,000 km Tbits/s capacity Falcon network in the Gulf region, which loops from the Middle East to Hong Kong via India. Telcos from Oman, Bahrain, Kuwait, Iran, Qatar and Iraq have already signed up for the initiative, which is scheduled to be functional in early 2005. “Falcon will dramatically change the global communications infrastructure balance. We have recognised for some time that the exploding market demand from major growth economies could not be served by the bandwidth connectivity serving the Middle East. It [Falcon] will provide access offering customers direct connectivity from any metropolitan centre connected to the Flag global network,” says Patrick Gallagher, Flag’s CEO. While the debate over whose fault high broadband prices are continues, local ISPs are keen to point out that they also try and protect their subscribers from them as much as possible. For example, Batelco says its pricing is not much more than that of services in the US. “We are second in terms of lowest broadband prices [in the GCC] after the UAE, and our pricing is comparable to global standards. The monthly subscription price of DSL connectivity in America is US$60 — we charge US$80. Owing to our low scale of operations, smaller country size and controlled environment, we are able to roll out services faster and control costs,” says Daylami. Elsewhere in the region, ISPs in Saudi are also looking to cut costs. “We are studying restructuring our business model in the Kingdom. I believe there will be major reductions in the cost of ADSL prices and we are planning to introduce DSL LANs for SMBs that cannot afford leased lines,” says Dr Al Musa. Although these cost cutting initiatives are to be encouraged and, as in the case of EIM, have had some success, the one area still to be addressed effectively is that of content. After all, if local subscribers had a valid reason for switching from dial up to broadband, they may be more inclined to do so. “There is not sufficient content that suits our culture, language or context,” comments Daylami. EIM has taken the lead in attempting to address the content issue and is currently rolling out project after project in an attempt to persuade users that broadband is the way forward. While its past portal projects may have boosted subscription levels slightly, the ISP is currently pinning many of its hopes on e-learning. As such, the ISP teamed up with Element K late last year to offer its educational content over its LearnOnline training portal. Most of the 900 courses available contain Shockwave files and videostreaming content and are best accessed via a high-speed connections. EIM believes by providing high quality content at affordable rates — courses are priced from Dhs95 — it will encourage the uptake of its Al Shamil service. ||**|||~||~||~|“One of our motivations for the low pricing [of courses] is to increase broadband penetration in the country because broadband has little or no value without content. If users don’t have [broadband level] services, why should they adopt broadband? LearnOnline provides a good reason for people to upgrade,” says Ashraf Jameel, EIM’s internet services marketing manager. Looking forward, EIM plans to build on the Element K partnership to expand the number of courses available through the portal. Phase two of the project, which is starting now, will see a number of courses aimed at K-12 level schoolchildren and EIM says it has a further deal in the pipeline with a potential partner that has access to more than 20,000 educational video clips. Phase three of the project, which begins in 2005, will involve EIM looking to sign up universities in an ambitious scheme to make degree courses available online. “We are positioned in a different way [to other e-learning providers],” explains Jameel. “We can subsidise courses because we make revenues in different ways. We were a little bit worried about people’s willingness to pay for content, because there is this perception that everything on the internet is free. But, judging from the excellent early response to LearnOnline, it seems they are valuing this content and are willing to pay for it,” he adds. However, while EIM and other ISPs strive to deliver content to persuade users to pay the high prices associated with using broadband services, there may be another factor that means broadband will never take off in the region. While difficult to pin down exactly, it revolves around the region’s preference for voice rather then data. “It [the Middle East region] still remains a voice market. Internet and broadband are data driven and there is not much data usage because the boom is in the voice segment. Besides, there is less marketing from the ISPs to avoid cannibalisation of existing investments by new technologies,” explains Jawad Abbasi, president of Arab Advisors Group. Although difficult to prove, the fact that many of the region’s broadband providers continue to function as business units of government-run telco monopolies means Abbasi’s observation may hold water. For instance, in Saudi Arabia, cellular service revenues account for 33% of STC’s margins while wireless services make up over 65% of revenues, which makes voice more lucrative. Perhaps the only solution to increasing broadband penetration in the Middle East is liberalisation. After all, more competitors will mean lower prices, and value added services and worthwhile content will become key as providers clamour for subscribers. While the vision of open markets has been long mooted, it does finally appear to be happening. For example, IDC predicts that the year will be one of major structural and strategic shifts for telecoms operators in the GCC as the key markets take their first steps towards liberalisation. While this focus is very much on the GSM sector at the moment, it may not be long before each of the GCC’s markets have truly opened their ISP sectors. When this does happen, Abbasi suggest that broadband internet penetration will receive the boost it needs. “Egypt and Kuwait have no monopoly for broadband access; Bahrain already has a blue print in place, the UAE is very competitive though it’s a monopoly; Jordan and Saudi Arabia are in the process of moving to a competitive environment later this year. We expect that with ongoing liberalisation, 2004 and 2005 will be breakthrough years for internet usage,” he says. ||**||

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code