By Magnus Hansson
Of DOW JONES NEWSWIRES
STOCKHOLM (Zawya Dow Jones)--Swedish telecommunications equipment vendor Telefon AB LM Ericsson (ERICY) sees continued good growth potential in the Middle East and hopes to further boost its already strong market position there, said Bo-Erik Dahlstroem, president of Ericsson Middle East, in an interview with Dow Jones Newswires.
The biggest potential is in large countries such as Saudi Arabia, Pakistan and Iran, where penetration of mobile phones is still relatively low despite rapid growth in the last year.
Ericsson forecasts subscriber additions of 20 million to 25 million annually over the next two to three years, more than half of them expected to come from Pakistan.
"We see a deregulation of several markets (such as telecommunications) in connection with countries in the region becoming members of the World Trade Organization," Dahlstroem said. "This helps drive penetration."
Increased competition among telecoms operators following the awarding of new licenses is also a key driver in the development.
Dahlstroem said Mobily, Saudi Arabia's second operator and a unit of Abu Dhabi-based Emirates Telecommunications Corp. (ETISALAT.AD), gained 4 million subscribers in its first year of operations in the country, which has a population of 25 million. Ericsson is a key supplier of network equipment to Mobily.
Competition in the region is strong, according to Dahlstroem, with Finnish rival Nokia Corp. (NOK) recently having stepped up its efforts.
Dahlstroem said neither Nokia nor Chinese rivals Huawei Technologies Co. and ZTE Corp. (000063.SZ) had made enough progress to hurt Ericsson's market position.
"If anything I would say we have strengthened our position... The market share varies significantly from country to country," Dahlstroem said.
He wouldn't give details on the company's estimated market share in the region but said it's approximately the same as Ericsson's overall share in the global wireless infrastructure market.
Credit Suisse in May estimated Ericsson's share of the market at 26% in 2005, ahead of Siemens AG (SI) at 12%.
Ericsson's fast-growing services arm is also doing well in the Middle East, where it operates Mobily's network in Saudi Arabia, Nawras in Oman and Warid Telecom's network in Pakistan.
"There is a tradition to outsource services in the region... Both incumbent and new operators have an openness," Dahlstroem said.
He also noted that many of the region's telecom operators have expanded abroad both by buying existing companies and by starting greenfield operations.
"The internationalization of the operators also opens the door for more services" from Ericsson, said Dahlstroem.
Up until recently the focus among a majority of telecom operators in the region has been on providing voice calling, but now there's also an increasing interest in new mobile data and content services following the introduction of third-generation technology.
Etisalat, in both the United Arab Emirates and Saudi Arabia, as well as incumbent Saudi Telecommunications Co. (7010.SA) are both among the frontrunners in implementing the new technology.
Dahlstroem said an upcoming Etisalat order for 3G equipment will be one of the larger opportunities in the region this year. Expansion orders by the incumbent operator in Iran and Pakistan's government-controlled Ufone are other large contracts up for grabs.
Dahlstroem wouldn't say how much business Ericsson hopes to win from these contracts.
Overall, it's the wireless networks that are expanding fastest in the Middle East, with fixed-line broadband network expansion still in its infancy.
While this market is set to grow, Dahlstroem said talks with operators indicate a significant interest in mobile broadband based on wireless technologies.
Ericsson only last week signed a deal with Mobily in Saudi Arabia to upgrade its network with high-speed packet access, or HSPA, technology that allows transmission speeds of over one megabit per second.
Dahlstroem said there's good availability of capital for investments in the Middle East, which helps finance expansion by the region's operators both into new geographic markets and into new technologies and services.
A license for a third operator in Saudi Arabia is expected soon and a tender could be out towards the end of this year. A second mobile operator is currently building a new network in the U.A.E.
Dahlstroem said that average revenue per user - a key yardstick in the industry - has so far held stable in most countries despite increased competition and quick penetration growth.
Levels around $40 to $50 or higher are common in countries such as the U.A.E., Kuwait and Saudi Arabia, while Pakistan registers significantly lower numbers.
"The levels will likely start to come down now as penetration continues to go up," Dahlstroem said.
Company Web site: http://www.ericsson.com
-By Magnus Hansson, Dow Jones Newswires;+46 8 545 130 91, magnus.hansson@dowjones.com
(END) Dow Jones Newswires
06-22-06 0753ET
Copyright Zawya Dow Jones Newswires 2006
