Data and smart phones were supposed to be the great saviors of the regional telecom industry.
With ever-shrinking revenues from landlines and voice, increasing use of data, applications and a whole host of Web-based services were expected to generate new revenue streams for the regional telco players.
"However, smartphones have opened the door to 'disruptive' newcomers such as WhatsApp, Skype and Viber, over-the-top (OTT) providers that have taken a bite out of the lucrative mobile data revenue stream by offering message and voice services at a fraction of the telecom operators' prices," said Shrouk Diab, analyst at NBK Capital.
"Operators are faced with a choice: adapt or see their mobile data revenues shrink."
Indeed, every 10% increase in smartphone penetration is costing operators an additional USD 1.19 billion, subscribers are increasingly using the OTT services and applications.
The problems come at a time when some regional telecom companies are already struggling.
Saudi Arabia's move to support Zain Saudi, a division of Zain Group, highlights the lengths Middle East countries are willing to go to lend the industry a hand.
"We believe most Gulf markets can only support two strong mobile telecom operators in the long term due to their demographics and relatively small size, but many, including Saudi Arabia, Jordan and Bahrain, have more than this," said Mike Dunning, an analyst at Fitch Ratings.
"Growth is slowing in these markets, causing third- and fourth-place operators to struggle, especially those that paid high fees for their operating licenses. These regions will also reach saturation relatively quickly, which will add to the pressure on all operators."
Fitch does not believe regional operators will be allowed to collapse given that infrastructure is a key area of focus of virtually all the regional states.
DATA LEADS THE WAY
Data consumption from smart phones is rising. Smartphones will have a 40% penetration in the Middle East and North Africa (MENA) region by 2017, growing at a 30% annual rate. Saudi Arabia, the UAE and Qatar are expected to lead the surge.
"Leading device manufacturers have already announced strong growth in smartphone and tablet sales in the MENA region during 2012 and early 2013," Diab said.
Major players like Samsung registered a 214% growth in handset sales in the Middle East, with the UAE growing 340%, according to company officials.
Other players like Apple, Nokia, Blackberry and HTC have all posted impressive growth.
MENA region added eight million mobile subscriptions in the first quarter of this year alone, to reach 284 million, according to Ericsson Mobility Report. Penetration percentage stands at 109%, one of the highest in the world.
All the six Gulf nations offer 4G services, while subscriber numbers seem to be inching upwards in virtually all markets, despite high penetration rates.
And data is driving growth. Ericsson notes that data traffic doubled between the first quarter of 2012 and first quarter of this year. Meanwhile, voice grew by a mere 4% during that period.
REGULATORS TO THE RESCUE
Regional governments are no fans of the OTT services. Most regional authorities take a dim view of the pervasive powers of Twitter and Facebook and consider it as a threat to their rule.
Various bans and clampdowns are in place across MENA on Skype, Viber and WhatsApp services. While regional governments have taken those measures purely on security grounds, it is neither a long-lasting solution nor will it be popular among consumers.
In Saudi Arabia, NBC Capital notes that growth will be driven by the data and corporate segments, supported by continued investments and increased low-cost smartphone penetration rates.
"However, the main concerns are increased price-led competition in growth segments (data and corporate), further changes in the CITC's regulations and fragmentation of the market due to the entrance of MVNOs [mobile virtual network operators]."
Some operators, however, have seen the light. Mobily, or Etihad Etisalat, struck an exclusive deal with WhatsApp last year and launched the service at low and fixed prices. The company has since reported that the revenues have somewhat offset declines in SMS revenues.
"We believe that ultimately most telecom operators in the region will follow in Mobily's footsteps, partnering with an OTT service provider, sharing a reduced percentage of the revenues and aiming to eventually become fully integrated ICT players," Diab said.
© alifarabia.com 2013
