On the Bandwagon

Broadband penetration as a percentage of total phone lines in the Middle East and North Africa region remains in the single digits. Alex Ritman looks to the supply-side and demand-side issues that are constraining broadband uptake, and assesses the markets that are making strong gains.

  • E-Mail
By  Alex Ritman Published  April 30, 2006

|~|Vincenzo_Gulla200.jpg|~|Vincenzo Gulla, marketing committee chair at the DSL Forum, believes that the high broadband growth experienced by Turkey in 2005 will probably continue.|~|In the top league of broadband tables the battle for number one position is on. South Korea is still hanging onto the lead with a penetration rate with respect to the total number of phone lines of over 25% in 4Q05, despite negligible growth. But snapping at its heels are Denmark and the Netherlands, just a fraction of a percent behind and, according to figures from Point Topic, which collates data for the DSL Forum, these countries could soon overtake South Korea as the world leaders. Point Data's latest report indicates that Hong Kong and Finland are also close to the lead, both with a 23% broadband penetration level, and Switzerland, Sweden, Canada, Monaco and Norway complete the top ten countries. Look some way down the list; perhaps several divisions below, you'll see Middle East representatives. The penetration figures in the mid-20s from South Korea and Europe are some distance from the low single digits characteristic in MENA. At the end of 2005, broadband lines in the region made up 1% of the world's total. While this is perhaps a limited way to view the technology, it does highlight a fact: broadband penetration is still extremely low in the region. Amman-based consultants Arab Advisors says Kuwait had the highest internet penetration rate in the Arab world at the end of 2004, with 12.33%. But in terms of broadband, the regional ADSL market was much lower, ranging between 0.12% in Morocco to just 2.25% in Bahrain. But there is promise. Of the seven regions tracked in Point Topic's latest report, the Middle East and Africa is the fastest growing broadband market, gaining 95.9% in 2005. Looking at DSL as opposed to other broadband varieties, figures from the DSL Forum show an increase of 112.5% in 2005, reaching a total subscriber base of almost 3 million from 1.4 million a year earlier. At the end of 2005, Bahrain still topped the table with a broadband penetration rate of 8.9%. Turkey was second with 8.2%, followed by the UAE with 6.5% and Jordan with 5.3%. “There is something moving,” says Vincenzo Gulla, marketing committee chair at the DSL Forum. “I think it's the same thing we had in Europe, where we had slow growth at the beginning, because people were not really enthusiastic as to what was going on.” Turkey was one of the stars of 2005, managing to add over 1 million broadband lines during the year to reach 1.54 million by December, accounting for almost 70% of the region's growth. “The growth here will probably continue,” Gulla predicts. Egypt also managed to increase the number of broadband subscribers significantly during 2005. Telecom Egypt's TE Data subsidiary, which holds around 30% of the Egyptian ADSL market, trebled its customers to over 27,000 during the year. This remains a tiny amount — Egypt's total number of broadband accounts at the end of 2005 stood around 110,000 — but there are signs that it is likely to grow significantly in the coming years. In 2H05, Alcatel landed a contract with TE Data to install 50,000 new DSL lines and another to install 30,000 new DSL lines for alternative ISP Nile Online. Egypt's communications ministry has stated that one of its major objectives in the ICT sector is to push broadband penetration to 2% (1.5 million subscribers) by 2007. This year it is Saudi Arabia that is expected to lead the charge in terms of the development of broadband access points. If the predictions of Arab Advisors' founder and CEO Jawad Abbassi stand correct, the kingdom could springboard into the regional broadband lead this year. The forecasts are based on the testing of new wireless technologies that could drastically reduce the costs of adding subscribers. “New data licensees, as well as Saudi Data itself, are experimenting and trialling and piloting WiMax implementations. Should these wireless-based broadband trials work, we expect the market to rise to be the largest broadband market by far,” predicts Abbassi. Rather than demand-side constraints, broadband penetration in Saudi to this point appears to have been held back by supply-side issues. STC, which owns Saudi Data, rejects a large proportion of broadband activation accounts as users need to be within a five-kilometre radius of the local exchange to receive ADSL, and many prospective subscribers are not. ||**|||~|Jawad200.jpg|~|Jawad Abbassi at Arab Advisors believes that liberalisation will clear up some of the supply-side constraints affecting broadband, but is likely to reveal demand-side hurdles.|~|“STC does not (seem) to see economic value in deploying fibre to communities with a population lower than 1,000 inhabitants,” claims Alcatel's vice president for the Middle East region Vincenzi Nesci. Such a remark suggests that there is scope for alternative technologies such as WiMax to gain a significant footing in the country. Fibre deployments do continue in Saudi and in December last year STC commissioned Alcatel, Lucent Technologies and Cisco Systems to deploy a further 250,000 DSL lines by the middle of this year, extending coverage to 75% of the kingdom's population and offering increased network capacity. “So basically 2006, could be the boom year for Saudi broadband,” says Abbassi. “If not 2006, then early 2007 and beyond.” But Sherif Rizkalla, Alcatel's architecture solutions director for fixed communications in the Middle East, is not convinced of the extent of Saudi's broadband potential. Rizkalla points to the fact that in the past Saudi has adopted the monopoly supplier approach to providing broadband services, though this has since modified with the licensing of an additional two data communications providers. “In Saudi, and also in Jordan, the government direction had been not to fragment the supply market, so you had only one supplier of broadband, which is often the incumbent,” Rizkalla says. In other countries, such as Egypt, the approach has been to introduce competition early on, allowing a number of ISPs to operate. According to the DSL Forum, there were six ADSL broadband providers in Egypt at the beginning of 2006. “It's not yet clear which model is better — to promote competition or to promote a single service provider,” says Rizkalla. Others countries have also begun to introduce competitive policies. A number of new ISPs have started operation in Bahrain and Jordan has opened up its broadband access, allowing infrastructure-based competition. “The new ISPs can now have their own infrastructure rather than relying on the ADSL from Jordan Telecom.” As in most monopoly markets, the presence of monopoly broadband providers has often resulted in an artificially high price for end-users. In late 2005, for example, monthly ADSL prices ranged from around US$24 in Egypt to US$135 in Syria. However, Abbassi explains that it is not always the fault of the operator that high access costs exist. “Sometimes it's a chicken and egg situation. Because prices are high, there isn't enough demand, and because there isn't enough demand, the incumbent pays more for its national bandwidth,” he suggests. “Regulators in liberalising markets try to transform this vicious cycle into a virtual cycle where there is more demand and lower costs.” Within the MENA region, the Gulf boasts the highest broadband penetration, helped by strong economies, high-income levels and a high percentage of international expatriates. However, outside the Gulf there are significant demand-side hurdles. “(Broadband penetration) is constrained, not just by supply issues, but by education standards, literacy levels, computer literacy levels and income levels,” claims Abbassi. It appears as if in order to properly assess what strategy should be adopted to boost broadband figures, it is essential to establish whether the constraints are from the demand side or the supply side. Some supply side constraints will be the result of liberalisation issues, which is why Abbassi believes the liberalisation process in the region needs to run its course before the real situation regarding broadband penetration can be accurately assessed. “The broadband situation in the Arab world will be clarified much more towards the middle of 2007, if not the end of 2007, because by then competition in many major markets will have done away with some of the supply-side constraints. Then let us really examine how much pent-up demand there really is, and what are the demand-related problems,” Abbassi reckons. Should it emerge that the problems are on the demand-side, as Abbassi predicts it will be in some countries, the outlook for the industry will be a generally negative one. “If the constraints to broadband uptake are found to be demand-related it means people are too poor, too uneducated or too ill-equipped for such technology.” It will then be the responsibility of governments in partnership with service providers to chart a course that raises the market's appetite for broadband access and its by-products.||**||

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