Ringing the changes

The telecoms sector is experiencing a gold rush following liberalisation of the market as new operators move in and the old monopolies flex their muscles

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By  Peter Branton Published  July 30, 2006

|~|comms-focusbody.jpg|~|More competition means telecom operators have to become efficient and offer more services to retain customers.|~|The deregulation of the Middle East telecoms industry has opened several windows of opportunities for both local and international players in the field. For one thing, by freeing the market, many telecom operators are able to expand their footprint in other countries aside from their own. From a financial point of view that is a very good deal as it means more revenue sources for them. On the other side, liberalisation requires operators to rethink their business strategies and evaluate their current offerings. No longer protected by the monopoly they enjoyed for several years, the national operators are now facing competition. The slower-paced introduction of new technology in the past is now being replaced by faster and more aggressive go-to-market schemes. Operators are turning more to technology to give them the business advantage that they need to edge out the competition. “Deregulation has meant there is now competition,” says Stefan Niemiec, engagement manager, telecommunications industry, Sun Microsystems Middle East and North Africa (MENA). “Many companies in the countries around this region are not used to competition. The competition coming in means that they now have to be much more efficient in their operation. They now have to release new services, and when they release new services they can’t wait 18 months or two years to release them. They need to do it very, very fast,” he points out. The number of broadband lines worldwide has just surpassed the 200 million mark, which goes to show the huge potential of the technology to be the next biggest thing. Based on Point Topic’s quarterly report there are about 229 million broadband subscribers all over the world, around 60 million of which were added last year alone. Adoption of broadband technology is quite evident in Western Europe and North America, as well as in the Asia Pacific, where they have achieved double-digit market shares. The same, however, cannot be said of the Middle East and Africa (MEA). In fact, as the Point Topic report points out, the combined region has the smallest penetration rate at 2%, close on the heels of Eastern Europe’s which is at 3%. But don’t be fooled by these numbers. Although the MEA region has the smallest market share, it is, conversely, one of the fastest growing regions. Comparing figures from Q105 to Q106 reveals that the region has experienced an 89.1% upsurge in broadband adoption, with countries like Turkey, Morocco and Egypt doubling or even tripling subscriber numbers by the end of Q106. Meanwhile, the Arab states of Bahrain, Qatar, Kuwait and the UAE are also posed to be at the helm of broadband adoption. While last year’s data shows that penetration rates are relatively small — between 1.23% and 2.25% — Jonas Bengtsson, business advisor, Ericsson Middle East believes the numbers are bound to improve. “Yes, the Middle East has been lagging a little bit in terms of broadband penetration. However, what we see is that operators are becoming increasingly more interested in deploying broadband services,” he continues. “If you look at the financials of some of the existing fixed operators in the Middle East you can see their revenues on the fixed side are not increasing to the same extent that they used to, and they need to find new ways to get further and more revenues in the fixed area and broadband is one way for them to do this,” Bengtsson reasons. For instance, he says, new upscale real-estate developments will induce the use of broadband technology further. “We have seen, for instance in Dubai, operators that are deploying brand new fixed networks to the new deployments, such as the Palm island and Burj Dubai,” he says. “We have an operator that is deploying fibre to homes in these newly developed areas and on that fibre they have the capability on the same infrastructure telephony, as voice over internet protocol (VoIP), broadband internet access and IPTV and there are extensions to video on demand and other things that are in the pipeline,” Bengtsson goes on to add. “With the opening up of the fixed network market in the MENA region, and the offering of second telecom licences in several countries in the region, competition is getting fierce in the telecom sector. Emerging demand for advanced, higher-quality communications poses a paradigm-shifting challenge to telephone operators, forcing them to enhance their service offering and quality of services. Operators are increasingly using broadband to introduce new services and play a major part in differentiation,” adds Wang Jiading, vice president, Huawei Technologies MENA. Compared to global standards, however, the Middle East is falling short in terms of the broad- band services offered by operators right now, particularly when it comes to broadband capacity and pricing. Etisalat, for instance, offers businesses broadband speeds of 512Kbits/s to 2Mbits/s, at prices ranging from US$80 to US$350. Meanwhile, in Japan, consumers can avail of 26Mbits/s connection at approximately US$22 per month. In France, a 15Mbits/s connection costs about US$38 per month. Canadians have access to 4Mbits/s connections at less than US$38 per month. However, according to Bengtsson, Middle East consumers should expect bandwidth services to improve, especially as competition further heats up. “With competition it is going to improve definitely. The UAE, for instance, is waiting for the second mobile operator to launch here some time during the next three to six months. The second operator also has the fixed licence to operate so we are also expecting competition to heat up there. With that, both service levels and prices are going to be more attractive to consumers,” he reasons. Indeed, we are slowly witnessing an improvement in present bandwidth packages. Recent initiatives by some of the biggest operators prove how serious the local telecoms industry is about expanding broadband penetration in the region. “The demand for increased bandwidth is being driven by our customers who have started to embrace the broadband culture,” says the assistant general manager of Etisalat’s eCompany internet arm, Abdulla Hashim, in a press statement. “Etisalat’s focus on home broadband users with Al Shamil and small and medium-sized enterprise (SME) businesses through the BusinessOne broadband service has created compelling alternatives for UAE consumers to choose an appropriate broadband service for their various needs,” the statement notes. In Saudi Arabia, some internet service providers (ISPs) have decided to chop end-user broadband internet fees following Saudi Telecom Company’s (STC) move to reduce the prices of the bandwidth it provides to the KACST — which in turn provides bandwidth to the Kingdom’s ISPs. Local service providers, such as Cyberia Holdings, have already lowered broadband rates by as low as 15% to 20%. A 512Mbps Cyberia connection, for example, now costs US$111, down from US$143 previously. Mobile operators are also looking at delivering broadband connectivity wirelessly in anticipation of the massive new opportunity for media, software and services that can be delivered to mobile handsets over the internet. The interest in mobile broadband has helped renew interest in various mobile access technologies, such as 3G, Edge, UMTS and UMA specifications, as well as WiMax. Although there were pilot projects for these technologies that were completed a few years back they were done half-heartedly and generated low interest from the public. But the broadband promise of new, lucrative revenue streams for mobile carriers will encourage a more dynamic take to these access technologies, according to Bengtsson. “Something that has come up here in the last six to 12 months is the use of mobile networks for deploying broadband services. There are new technologies, recent developments in the 3G arena, called high-speed packet access (HSPA) that enables operators to provide end users equipped with a laptop or desktop to deliver broadband services but utilising a 3G network in doing that,” Bengtsson says. “It’s only in the last six months or so that we have seen that operators are starting to move with 3G really aggressively,” he adds. “There were some initial launches a few years back but it is only now that with competition that operators have really, really tried to make the best use of this new technology and offer more advanced services to the end users,” Bengtsson goes on to say. “One of the things that we are doing with regional operators is building the importance of UMA mobile access as an ideal solution. Motorola is carrying out integration between the fixed and mobile wireless to enable dual ringing and other features that are prime for the market,” says Ali Amer, senior director of sales, Motorola Networks and Enterprise, Middle East, North Africa and Pakistan. Last month, Saudi Arabian operator Mobily tapped Ericsson to build its HSPA-enabled 3G network. In May, STC announced the launch of 3G services in the Kingdom, after having started testing the technology in 2005. STC’s Al Jawal mobile operation is planning to roll out the largest 3G network in the Middle East and will activate a full service including voice and video calls, live TV and HSDPA technology, running at speeds of up to 1.5Mbps. The operator claims to already have over 3,000 customers testing and using the service. “Obviously, the Middle East is slightly behind Western Europe and definitely behind Asia Pacific, especially Japan and Hong Kong in this respect. But there has been some major developments lately and the region is quickly catching up,” Bengtsson notes. “There is a lot of interest from operators to source mobile TV, looking further into more advanced types of content offerings,” he goes on to add. Motorola, in the other hand, has won a contract to provide its WiMax technology to Wateen Telecom in Pakistan. Wateen Telecom, which is owned by the Abu Dhabi Group, will use the technology to underpin its rollout of a wireless broadband voice and data network. While Motorola says that the multi-million dollar deal is the first of its kind for the company, it claims to have several more WiMax projects in the works, which it plans to announce in the second half of the year. ||**||Case for content |~|comms-focus-wangbody.jpg|~|Wang Jiading of Huawei Technologies MENA.|~|Having the infrastructure to support broadband services is an all-important requirement but is just one element necessary to further assimilate the technology. To balance the supply and demand equation, operators and other service providers need to instigate the need for such a service. “The rapid development of broadband access lacks substance without the equal development of its corresponding services. When fixed network operators develop broadband access services, they are concerned about the ways of expanding their subscriber base and increasing traffic volume, and therefore revenue,” Huawei’s Jiading notes. To stir up demand for broadband, Mahmoud Mounir, NSSP industry manager, HP Middle East, thinks that operators need to look towards the media industry for the answer. “Content and media is the key because it is the key for attracting new customers and getting customers from competition,” Mounir says. The availability of multimedia-rich services, such as online gaming, streaming media, e-mail and web surfing can help boost demand for broadband, he adds. “One of the very interesting things in this region is the ability for high-speed internet access over wireless, access to multimedia content on handsets. That is a very strong area especially if you look at Qatar with the Asian Games coming up. There is a lot of content there that people want to stream to their mobile phones; news content, for instance,” Sun’s Niemiec says. In the content delivery space, market segmentation is important, Mounir says. He suggests operators should segment the market to make sure they target the right content to the right audience. “Market segmentation is key. Whoever from the telco operators are having market segmentation as a strategy will be the ones who will definitely succeed. Why? Because if you segment the market and identify the interests of each user, you will be able to select the suitable content or subject for them. You will be able to direct new services that will effectively target specific segments,” he explains. “There are some layers in this market that are heavily requesting more content to download and to share. This is a very important factor. For some market segments, the operators should immediately make available the content, and ensure that it is easily accessible to these subscribers, in order to increase their revenues,” he continues. Localising content is also a must to attract more Arabic-speaking customers, says Niemiec. “The regional culture has some very strong requirement about what is available. It is important to be able to deliver Arabic content as well,” he notes. According to Bengtsson, the media industry in the Middle East is fully aware of the business potential broadband can bring and is gearing up new content offerings in the space. “There are media houses in the Middle East who are definitely into this space. We have companies like Showtime, who are definitely very, very well aware of it and very advanced with what they are trying to do on IPTV, mobile TV and more advanced mobile content,” says Bengtsson. To encourage content providers to develop more content, Etisalat has launched a new service delivery platform that makes it easier for these providers to segregate and distribute content and services according to its compatibility with different mobile handsets or other devices. With the new service, the telecoms giant hopes to increase customer usage substantially, and with it revenues for both developers and Etisalat. IPTV and video on demand are two new services that providers are looking at introducing in the market. Gert-Jan Schenk, vice president of operations at Juniper Networks, claims the region is ripe for the deployment of TV over broadband. “There are lots and lots of opportunities for telcos,” he claims. “There are plenty of foreigners here, either living here or having bought holiday homes. They may well want to watch television programmes from back home and with the time differences IPTV could have large demand, ” he goes on to add. Alcatel’s Steve Hope, technology centre director for the fixed communication group, agrees. “There is now a demand from users and as the Middle East telecoms market becomes more competitive, operators will have to use things like IPTV to either retain customers, or attract new ones. It is all about making the end user the master of his or her communication,” Hope says. Of course, one existing service that operators can fully exploit using broadband is voice over internet protocol (VoIP). Internet telephony could be crucial in promoting the adoption and development of broadband. At the moment though, VoIP’s usage is limited in most countries in the region to internal business calls only. Such a service is being deployed right now by Saudi-based National Commercial Bank (NCB). The bank is using VoIP to connect its offices and branches that are spread across the Kingdom. Avaya, in a recent survey, claims that around 71% of local businesses have deployed or are looking at deploying VoIP within their organisation. Such findings, says Roger El Tawil, channel and marketing manager, Avaya MENA, are is encouraging service providers to beef up their VoIP backbone. “They are looking at it as a future business. Service providers are going back into the converged private branch exchange (PBX) markets to start reselling and creating a channel into the market so that they are in control of reselling VoIP and IP telephony PBXs to their current base and new prospects in the market,” El Tawil says. “They are opening it up and looking forward to going down this road with new revenue streams as customers demand this type of technology today in the Middle East,” he continues. Part of the reason why enterprises in the region are keen to use VoIP is the business advantages it delivers when it comes to cost cutting and increasing productivity. “Currently, VoIP is offered within companies. Most of the benefits today are not only about cost reductions. VoIP is bringing in many applications for productivity and having the enterprise and the resources more productive where it helps companies generate more revenues from the same amount of people that they have,” El Tawil explains. Outsourcing initiatives of certain countries, such as Jordan and Egypt, are also driving the adoption of VoIP, he adds. “The adoption is also based on countries’ drivers. Different countries have different drivers and different business industries. You would see countries like Jordan, which wants to come out as a call centre services hub for the region, for Europe and the US, so they are adopting that. Egypt is another country offering outsourcing and call centre services and being a hub in the region. Pakistan is another one. We see Oman, the UAE and Saudi following through,” observes El Tawil. For consumers, VoIP may seem like a pipe dream, but HP’s Mounir believes that in time, and with competitive pressures building up, operators, particularly fixed line providers, will consider offering the service to home users. “I can say that it is subject in all operators’ table today. Some of them have already started deploying the technology to their business users and are considering it for their consumer segment. The regulators as well are working hard to do the necessary rules for the introduction of VoIP. It is being discussed and considered as a crucial factor that is affecting the future expansion of each and every operator. It is a very important element today. It is on everyone’s table. If they haven’t deployed it yet they are absolutely considering what to do about it,” Mounir states. Going one step further, operators are developing triple play services to jack up broadband demand even further. Triple play, which combines three services — high-speed internet, television and telephone service over a single broadband connection — supplies operators with an even stronger business proposition to customers. “Currently, telecom operators are eagerly seeking new services to attract new subscribers and ARPU, such as voice and video services,” states Huawei’s Jiading. “Together they enable operators to provide triple-play services by bundling video, voice and internet access services in order to increase ARPU, cultivate customer loyalty and reduce logistical problems,”he adds. That is particularly vital to fixed-line service providers who, for the past few years, have been witnessing a gradual decline on wireline adoption, says Motorola’s Amer. “In terms of operators, wireless operators today have been attracting more and more subscribers from the wireline network. Some people don’t even have fixed telephones. With broadband, we are seeing wireline operators getting geared up more and more towards meeting the competition,” Amer says. “Some operators in the region are pretty sophisticated and looking at triple play. It is actually one of the key elements of the boom in the region. We are talking to several operators from a triple play standpoint. We have been involved in some trials. We have been involved with working with operators to come up with a business model for their networks. There is a lot of effort going towards triple play,” he reveals. Amer expects triple play to be widely deployed in the region within the next 18 to 24 months, although he admits that deploying triple play right now is not advantageous to operators from a financial point of view. “Does the business case make sense today? Honestly, not completely, but we continue to work with the operators to try and identify what is best in terms of technology solutions for the market. There is a heavy appetite for technologies such as 3G, WiMax, and all of those will contribute to lower cost and boost their data connectivity, and in return help in their revenue streams,” he says. “The Middle East is a market where requirements for new services are a must. Operators are using these new technologies to differentiate themselves from the competition and continuously provide the value-add services that the consumers are demanding,” Amer adds. As with any other deregulated markets, competition can bring out the best in the telecoms industry. One thing remarkable about the Middle East telecoms industry is that despite the years of being confined as monopolies, they are able to swiftly turnaround and replace traditional business practices with avant-garde strategies comparable to international standards. While deregulation came a bit later for the region, it is encouraging to see the efforts the telecoms industry, in general, is showing in order to elevate the quality of service in their respective markets. ||**||

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