Mobile operators in the Middle East will struggle to maintain their current revenue premium over mobile operators in European markets. There are a number of strategies that Middle Eastern operators may wish to consider in order to try and maintain strong revenues in increasingly difficult market conditions. The analysis below is taken from the Analysys Research report The Middle Eastern Mobile Market: trends and forecasts 2007–12.
The Middle East’s mobile operators currently find themselves in an enviable position compared to their European counterparts; total mobile revenue per capita is higher in the Middle East, when comparing across the range of levels of disposable income. For a country with an average disposable income of USD10 000, Analysys Research estimates that revenue per capita is 20% higher in a Middle Eastern country than in a European country.
There are two main reasons for the revenue difference between the two regions:
- Competition. Liberalisation of the mobile market in the Middle East started later and has proceeded at a slower pace compared with Europe. There is still an incentive for operators to reduce prices in low penetration markets, as this can attract new subscribers. However, in mature markets where there is a lack of competition, operators have less incentive to reduce prices, as it will not attract many new subscribers and with few operators in the market, churn is also less of a concern.
- Low fixed-line penetration. In the Middle East, the penetration of fixed-line infrastructure is relatively low. As a result, mobile operators in the region have been able to take a greater share of total telecoms spend than their European counterparts.
Note: AE = United Arab Emirates; BE = Belgium; BH = Bahrain; CH = Switzerland; CZ = Czech Republic; DK = Denmark; EE = Estonia; EG = Egypt; FI = Finland; FR = France; GB = United Kingdom; HR = Croatia; IT = Italy; JO = Jordan; KW = Kuwait; LT = Lithuania; LV = Latvia; NL = Netherlands; NO = Norway; OM = Oman; PL = Poland; PO = Portugal; RU = Russian Federation; SA = Saudi Arabia; SE = Sweden; SK = Slovakia; UA = Ukraine
Figure 1: Mobile competition and fixed-line penetration in the Middle East and Europe (Source: ITU, Analysys Research, 2007)
However, competition is currently increasing in the Middle East, as demonstrated by the recent fixed and mobile licensing in Saudi Arabia and the anticipated licensing in Qatar. As a result, operators will have to employ new strategies if they are to maintain their revenue premium.
Provision of fixed services provides growth opportunities for mobile-only operators
Mobile operators that do not currently offer fixed services could either acquire a fixed licence or partner with a fixed operator. There is scope for further fixed licensing in many Middle Eastern countries, whether through the auctioning of full fixed service licensing or spectrum for the provision of fixed wireless broadband services. Mobile operators could take advantage of these licensing opportunities in order to provide a range of bundled or converged services encompassing both voice and data. While many mobile incumbents already operate fixed networks, some do not, and instances of alternative mobile operators also offering fixed services are rare; future licensing may provide the opportunity for this to happen. An alternative is an alliance with a fixed operator. Vodafone Egypt majority shareholder Vodafone Group announced it had entered into a strategic partnership with co-owner Telecom Egypt, which follows a wider move by Vodafone Group aiming to offer its mobile customers fixed broadband services across the markets in which it operates. The provision of fixed services has the potential to allow an operator to:
- take advantage of having an existing customer base that can sign up for fixed offers thereby increasing ARPU
- gain a competitive advantage over its rivals
- capitalise on an existing brand and customer support infrastructure.
Direct competition with fixed operators may offer a better opportunity
An alternative to the introduction of fixed services is for mobile operators to promote fixed–mobile substitution. Fixed-line penetration is low across much of the Middle East, so this may be a viable alternative, especially for mobile operators that have already invested in HSDPA networks. Operators with the ability to offer high-speed data services may be able to compete with fixed DSL offerings and may well have the capacity to offer services without further infrastructure roll-out. Broadband penetration is low in most Middle Eastern markets, so there is great potential for operators to exploit. Mobile operators may also be able to compete with fixed services through the introduction of home-zone voice tariffs, as used by Vodafone in Italy as part of its Vodafone Casa FASTWEB product, which was recently named the world’s top non-voice service by Analysys Research.
Improved pricing strategies can encourage higher spend
A third strategy that mobile operators may be able to implement in order to secure revenue is bundled pricing. Bundled pricing can encourage higher usage of, and increase revenue from, traditional voice and messaging services, as well as encourage take-up of new services. SMS bundles have worked well for many European operators, while bundles of voice minutes encourage substitution of fixed-line calls, shifting telecoms spend to mobile. With a large proportion of prepaid users across the Middle East, mobile operators should take advantage of providing bundles to prepaid as well as contract users. Service allowances for a minimum monthly top-up by the subscriber, or being able to buy bundles at set prices using prepaid credit are tactics that mobile operators should consider.
Operators must not ignore their home markets in the rush to expand
Regional operators seem keen to invest both inside and outside of the Middle East, but they must not lose track of developments in their current markets. Though they may have to cast their net wider in order to provide good returns on large investments, home markets are still fruitful compared to European markets and must not be ignored. Improving pricing and providing a wider range of services, through either convergence with, or substitution for, fixed services will provide operators with successful strategies for maintaining revenue growth in an increasingly competitive marketplace.