Eye of the storm

Iraq’s telecoms sector shows real potential but regulation remains a problem.

Tags: IraqKalimat TelecomValue PartnersZain - Iraq
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Eye of the storm Josep Moyà says fixed line penetration is very poor in Iraq.
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By  Roger Field Published  December 12, 2010

With a population of about 30 million people and a mobile penetration rate of some 70%, Iraq remains one of the Middle East’s last bastions of mobile growth.

The mobile sector leads in Iraq’s telecoms industry, with fixed voice and data services accounting for only a small slice of the market by comparison. Indeed, the lack of fixed infrastructure is widely viewed as being one of the reasons behind the country’s rapid mobile growth in the past couple of years.

“The growth that Iraq has experienced over 2005-2009 has been mainly driven by the mobile market,” says Josep Moya, partner, Delta Partners. He adds penetration rates were about 44% in 2007, reached 64% at the end of 2009, and are expected to reach 73% by the end of 2010.

“This is not bad if you consider the limited competition environment,” Moya says. Indeed, he points out that the market only became more competitive in the past couple of years, when the three main mobile licence holders, Zain Iraq, Asiacell and Korek, were awarded nationwide licences.

Initially, the licences awarded by the transitional government were regional licences for the three players.

“Now the three licencees are competing nationwide, significant growth should be expected. Our estimate is that the market should reach around 115% penetration rate by 2015,” Moya says.

He adds that this will partly depend on “the evolution of the socio-economic and political conditions” and the regulatory climate in the country, which has been criticised by operators and analysts alike.

The reasons for this rapid growth of the mobile market are not entirely positive, and much of the growth can be attributed to the fact that many people are forced to use mobile services because the country’s fixed infrastructure remains inadequate.

“The mobile market also grew because the fixed line market was never significantly developed. Traditionally between the start of the US led invasion of Iraq in 2003, even at that time, Iraq had one of the lowest penetration rates in the region, which was below 3%. The [first] Gulf war and sanctions left Iraq with damaged, outdated wireline infrastructure, with coverage of 5% of the population,” Moya adds.

Growth projections

Estimates for Iraq’s economic development indicate a bright future for the telecoms sector, according to Moya. “We cannot forget that Iraq is the fourth largest oil reserve in the world. Significant economic growth is expected, with GDP growth expected to be around 6-7%, which is quite healthy, and the economy is expected to grow up to 8% in 2020,” he said.

However, despite these figures, the main mobile operators in the country claim that operating in Iraq is far from plain sailing. Indeed, the CEOs of Asiacell and Zain have said that a lack of clarity in regulation is a cause for concern.

This certainly appears to be the case with the government’s plan to offer a fourth mobile licence in the country. While there remains a lack of clarity about exactly when and how this will be awarded, a number of operators, including Verizon, MTN Group, Turkcell and French incumbent, Orange, have already expressed an interest, and the general consensus appears to be that the licence will be awarded sometime in Q1 2011.

But while the country’s two leading mobile operators, Zain and Asiacell, which have 54% and 36% market shares respectively, argue that the market is incapable of supporting a fourth operator, Moya disagrees. He says that the country’s 30-million population and economic growth should be able to support a fourth operator.

Just as there is some confusion over when the ministry of telecommunications or the regulator, the CMC (Communications and Media Commission) will launch a fourth operator, there is also a lack of clarity surrounding the long overdue introduction of 3G licences.

At present, none of Iraq’s mobile operators have a 3G licence. Emad Makiya, CEO, Zain Iraq, says he is hopeful that the government will clarify the situation soon. “According to CMC, they will issue a licence by the end of the year. We are excited about that, and we will be in the auction,” he says.

But until a further announcement is made by the CMC, speculation is likely to remain about how the 3G licences will be issued. Moya warns against the issuing of a single licence and favours all the mobile operators being able to launch 3G services.

Fixed growth

While Iraq’s mobile operators have become accustomed to strong growth in the past couple of years, the fixed line sector remains in a poor state, at least in comparison to mobile.”

Moya estimates that current internet penetration in terms of “subscribers over population” was about 3.7% at the end of 2009. He thinks that this could rise to about 6% by the end of 2009, although he is quick to point out that this figure includes vast numbers of narrowband connections. Broadband penetration was about 0.3% at the end of 2009, and is projected to rise to about 0.6% near the end of 2010, according to Moya.

“Broadband is less developed due to high prices and lack of capacity, and also a lack of fibre crossing to neighbouring countries and access to submarine cables,” he says.

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