Liberalised lines

|~|comms-focus-deregulationbod.jpg|~|Incumbents have been swift to improve the quality of their customer services in the face of competition.|~|The inevitable is finally happening in the Middle East. Countries in the region are now abandoning the old model in which telecommunications were controlled by state-run monopolies. The introduction of deregulation is bringing big changes to the industry almost overnight. Deregulation is a big gamble for local operators who, for many years, were used to bringing out the latest technology at a slower, almost lackadaisical, manner. But now, delivering new services to the market — ideally before anyone else in the region — is of paramount importance. “The monopolies, when they were monopolies, they were still business as usual,” says Mohsen Malaki, research and consulting director, communications group, IDC CEMA. “But when competition entered — in most cases it entered in the mobile side — they had to become much more commercially oriented. Marketing became a very important factor and they had to improve their customer service, as well as product portfolio, network coverage, the quality of the price and services, and all the other elements that go into improving the products and services they deliver to customers. They had to essentially run a more commercially-oriented business than what they used to do before the market was liberalised,” he adds. Initially, there was a lot of scepticism when the idea of liberalising markets was first laid down on the table, which was a factor in the delay in introducing deregulation. But as markets face maturity and saturation, incumbents have realised that the only way to grow their customer base is to expand outside their domains. International pressures have further instigated that the industry free up their local markets. “In a lot of countries [in the Middle East] they have been very protective about their domestic industry. The concept of opening the economy and liberalisation were not well entrenched in the overall economy as a whole. But with global trends and globalisation, as well as the WTO [World Trade Organisation] membership and other factors that have encouraged liberalisation — or in some cases forced liberalisation — they have to jump on the bandwagon now and start liberalising,” says Malaki. “It’s a combination of international obligations, such as WTO membership, and also domestic requirements, because a lot of the countries have low GDP [gross domestic product] per capita and they were trying to stimulate the economy so that more jobs are created. So, they looked at other markets and they have seen that telecom liberalisation has generated huge growth as well as job opportunities so they are trying to do that as well,” Malaki adds. The uncertainty that the local telcos originally felt is now being replaced with enthusiasm as deregulation, almost imme- diately, delivered some of its promised advantages. As a result of deregulation, the Middle East has become one of the most vibrant markets regionally and globally, says Andrawes Snobar, senior research analyst, Arab Advisors Group. “This is evident in the number of subscribers increasing and the huge growth in revenues,” Snobar notes, “along with the growing interest of global operators in winning telecom licences or to be part of consortiums operating in the region.” Indeed, when countries started to open up their markets one by one, the region witnessed some sort of buying frenzy as operators tried to outwit and outbid competitors for both fixed and mobile licences. The latest acquisition is by UAE telco Etisalat, which has snapped up Egypt’s third mobile network for US$2.9 billion. Batelco Jordan has also announced that it has acquired Jordan’s third GSM operator Umniah for around US$415 million. While acquisitions — at least for now — are mostly dominated by local players, international service providers have also expressed interest in investing in the Middle East. “Historically, there has always been interest from the European players, but after September 11 and the turbulence that happened in the region, interest from international players dropped,” claims Malaki. “But now, again, we are seeing a revival of interest not just from European players but also from Russian operators. Turkish operators are now also looking at expanding beyond their borders. Some of the Asian operators, such as Telekom Malaysia, have been trying to position themselves in the market as well. Interest is coming from across the board,” he adds. While international operators have more experience working in a free market, Malaki doubts that it would give them significant advantage in the region, particularly if the market they plan to enter already shows strong penetration rates from the incumbent. “It really depends on the level of penetration. If it is a very well penetrated market with a 100% or over 80% penetration rate, then, of course, it is going to be difficult for new entrants, no matter where they are coming from, to gain substantial market share,” Malaki explains. “If the incumbent operator is commercially run and is well ahead in terms of market capabilities and experience, then it makes it that much tougher for any new entrant to penetrate the market. But if the incumbent operator is very weak and it is still government controlled, and it’s not very commercially oriented in its business practices, then any new entrant could find it a bit easier to deal with the incumbent and to gain market share rapidly,” he goes on to say. Deregulation in the region comes in different levels, according to Snobar. “There are a lot of examples in the Middle East and North Africa that clearly show the true liberalisation movements happening lately. We can say that virtually all the Arab telecom markets are processing liberalisation inside their markets, but on different scales,” elaborates Snobar. “You find in Bahrain, for example, with a market that is fully liberalised, in addition to Jordan, which combines its liberalisation movement along with a vibrant market. On the other side, you have Sudan, a fresh market in all its business streams, and containing four operators [although] none of them is anything short of competitive,” he continues. Efforts to further liberalise the industry will continue. We can expect more countries to fully embrace deregulation, Oman is an example, and more licences — particularly on the mobile side — to be made available for acquisition. “In the region, on the mobile side, you have third mobile licences that are being issued. This year, several countries in the Arab region are looking at a third mobile licence. In Jordan, there are about four now. In Algeria there are three, and they just issued a third licence in Egypt,” Malaki notes. “I believe in Q4 this year, Saudi Arabia will follow too. Possibly early next year Kuwait will be issuing a third licence as well. Morocco right now is in the process of issuing 3G licences. So, the next step is essentially third mobile entrants. Some will be deploying 3G in some markets,” he continues. “On the fixed line side it will be basically liberalisation of the fixed line markets because, so far, fixed line has been a monopoly. The next step on the fixed line side is to open up the market for competition for the alternative providers or new entrants that want to enter the market on the fixed line side for broadband and other services,” Malaki adds. ||**||