Beacon of change

Bahrain is home to one of the region's most liberal telecom sectors, but challenges persist for the country's many operators.

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By  Administrator Published  September 9, 2008

Bahrain is home to one of the region's most liberal telecom sectors, but challenges persist for the country's many operators.

Compared with most of its regional peers, Bahrain's telecoms sector is remarkably competitive, with two mobile operators, a number of NGN telecom companies and about 15 players in the international calling business.

Furthermore, Bahrain's telecoms sector has also come under the spotlight lately, with plans for local loop unbundling, ongoing battles between the country's TRA and Batelco, and talk of a third mobile operator all attracting attention and sparking debate among Bahrain telecom players.

There is a clear intention of the regulator to do two things to make significant steps forward. First, to open the market to different players, and then to make the services much more appealing to the customers. – Anglada.

Indeed, for most analysts, Bahrain's telecom market has made huge strides in a relatively short time. Xavier Anglada, an associate partner at Delta Partners, an investment company and consultancy specialising in telecoms, says Bahrain's telecoms regulator, the TRA has made significant steps to improve the competitive landscape in recent years across the sector.

"At the end of last year they issued over 130 licences to more than 60 companies. Now we have 17 that are providing services," says Anglada. "There are a lot of companies that have already been awarded licences to operate in the country in fixed line, international calls, and mobile.

"There is a clear intention of the regulator to do two things to make significant steps forward. First, to open the market to different players, and then to make the services much more appealing to the customers."

He added that the organisation has also been active trying to improve the quality, as well as the quantity of services.

Bahrain's mobile sector is currently a duopoly of incumbent Batelco, and Zain, which joined the fray in 2003 as MTC Vodafone. While Batelco dominates the country's landline sector, this situation is likely to start to change, since the TRA announced plans to unbundle the legacy landline network. Batelco has already experienced a taste of competition in the fixed-line sector, with a number of NGN operations offering fixed line services through newer technologies such as IP and WiMAX.

But Anglada does have some concerns that the amount of competition in the sector could lead to a fall in fixed-line use and investment, which in turn could have a knock-on effect on the rest of the industry.

Indeed, while he insists that Bahrain has benefited from having two mobile operators, NGN players such as 2Connect and Neutel, and numerous companies offering pre-paid calling cards, he says there could be negative side effects from too many companies and technologies competing with more traditional fixed-line services.

"Out of all these technologies, fixed line penetration could further deteriorate," he says. "We have seen this trend happening in other countries as well, that the launch of these additional technologies has made the fixed-line business degrade further."

"This is challenging because in the long term the fixed-line allows for some high speed broadband technologies through WiMAX. If we do not ensure the fixed-line is still growing, the market may stagnate in the future with content and services that could have been offered," he adds.

Similarly, the TRA's decision to award a third mobile licence by the end of the year, which could allow a third operator to start business in 2010, has raised concerns about growth potential in the already saturated mobile sector.

"As for Bahrain, there remains a question around size," says Milan Sallaba, partner, Oliver Wyman. "Each operator needs some critical mass to be able to spread its fixed costs, and a relatively small population makes it more difficult for numerous players to all ramp up their subscriber numbers sufficiently and be operationally and financially successful. That said, this further depends on the degree to which costs can be shared across operators, obviously," he adds.

Despite this, Sallaba views the TRA's efforts to develop Bahrain's telecom sector as positive. "With a working TRA, a third mobile operator in the wings and much very recent talk about fixed line unbundling, regulation is clearly making great strides in its attempt to ensure a level playing field, where operators are competitive and focused on introducing innovative products and services," he says.

But some smaller players in the market say that the TRA could do more in terms of ensuring regulations are enforced. Mahmood Hashimi, acting CEO of Neutel Communications, which offers triple play services via IP and fibre, says organisations such as the TRA need to work in three phases.

The first phase is to establish rules and regulations, the second to build awareness and implement them and the third to enforce them and take action if the rules are not adhered to. "What to do if companies such as Batelco are not adhering to these regulations?" Hashimi asks.

"I think this third phase has not yet happened. In some cases yes, but in other cases there are rules without teeth."

Batelco's battles

While incumbent Batelco has its share of critics among its competitors, the company's CEO, Peter Kaliaropoulos, is remarkably candid about the challenges the company faces, both from increasing competition and from disagreements with the TRA.

But Kaliaropoulos also remains upbeat about the sector and Batelco's potential in the country. "Bahrain is a market that analysts and commentators need to keep an eye on, because it's ahead of what's going to happen in some Middle Eastern markets," he says.

Kaliaropoulos claims that the relatively small size of the Kingdom, the competitive deals offered by telcos, the latest technology and even the tussles between the regulator and Batelco make it the perfect testing ground for other Middle Eastern countries.

Bahrain only has two mobile operators, Batelco and Zain, but it is competition, Kaliaropoulos says, that is the reason that Batelco has delivered double-digit growth over the last three years.

"If you drive around Bahrain today, on every second lamp-post and every second billboard there is an advert for a free month's subscription, free this, free that - there is a tremendous amount of offers to customers for mobility and for internet," he says.

Hub of innovation

For Zain, Bahrain's liberal telecom sector and scale make it an ideal testing ground for new products and services, and for spotting wider trends in the market.

"From a regulatory framework point of view, from the evolution of the market, it has been a very good example. It is one of the leading examples in the region in terms of implementing the liberalisation and opening up of the market," says Ibrahim Adel, Zain's group chief communications officer.

Adel adds that Bahrain's size makes it an ideal testing ground for new products and services, and this has been one of the reasons behind Zain locating its Middle East headquarters in the country. "It's an incubator of the latest technologies. We have introduced all the latest technologies in Bahrain. We get the lessons learned and then transplant them."

"The commercial success of the company has always exceeded all of our expectations. We formed the company with Bahraini shareholders. We hired all new young Bahraini's to run the company and they have done a fantastic job."

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