Analysys Mason's recent report, The Middle East and North Africa telecoms market: 2014 interim forecast update 2013–2018, shows that the mobile telecoms market in the region continues to display signs of growth. Driven by strong mobile handset data growth, telecoms service revenue in the Middle East and North Africa (MENA) region will grow at a CAGR of 2.9% during 2013–2018 (mobile at 3.3% and fixed at 2.8%), to reach USD96 billion in 2018.
The market will continue to be dominated by mobile – mobile retail revenue will grow from USD50.4 billion in 2013 to USD59.1 billion in 2018. Growth will be driven by handset data spending, with smaller contributions coming from non-handset mobile broadband and mobile voice. The fixed market will also continue to grow in all countries – from USD23.7 billion in 2013 to USD27.3 billion in 2018, driven by fixed broadband and IPTV revenue, while fixed voice revenue will decline in most countries.
At country level, five of the eight major markets that we model individually – Algeria, Morocco, Qatar, Saudi Arabia and the UAE – show strong net growth in telecoms service revenue. The fastest growing of these will be the UAE, at just over 3% CAGR, closely followed by Algeria and Saudi Arabia. By contrast, revenue in Israel will decline at a CAGR of –2.2% because of competition and price erosion. In Kuwait, revenue will decline at a CAGR of –0.2%. Egypt will only experience marginal growth because of political instability.
Mobile handset data will be the main growth driver, but ARPU will come under significant pressure
Telecoms retail revenue in the region (worth USD74.1 billion in 2013) will drop to 1.5% of the region's nominal GDP in 2018, compared with 2.1% in 2013. This is in line with international trends – both competition and a decline in the underlying cost of providing services are putting downward pressure on service pricing, and spending is shifting from services to devices.
Most MENA countries have reached mobile market saturation – growth in the number of connections will come from population growth and increased multiple-SIM adoption.
Mobile voice revenue will still be the largest single telecoms service revenue stream in 2018, but mobile handset data will be the main growth driver for telecoms revenue in the region (see Figure 1) – it will account for 9.5% of telecoms retail revenue by 2018, up from 5.9% in 2013 (a CAGR of 13.6%). Annual revenue from mobile handset data will reach USD 8.3 billion by 2018. Drivers for this are smartphone adoption and the spread of LTE, as discussed below.
Figure 1: Telecoms retail revenue growth by service type, Middle East and North Africa, 2013–2018 [Source: Analysys Mason, 2014]
Non-handset mobile broadband and fixed broadband/IPTV retail revenue will grow strongly but more moderately than handset data during 2013–2018. Mobile broadband revenue will grow at a CAGR of 7.1% during the next 5 years to reach USD9.5 billion by 2018. Fixed broadband and IPTV revenue will grow from USD6.7 billion in 2013 to USD9.4 billion in 2018 (representing a CAGR of 6.9%).
Voice services on fixed and mobile networks will account for 53% of retail revenue in 2018, down from 61% in 2013 – fixed voice and narrowband revenue will decline.
Smartphone penetration and the spread of LTE are beginning to strongly affect the region
Smartphones will account for 34% of active handsets by 2018, up from 15% in 2013, and will drive growing demand for data services. Israel, Qatar, the UAE and Kuwait have the highest smartphone penetration rates in MENA throughout the forecast period (see Figure 2).
Figure 2: Smartphones as a percentage of handsets, and LTE's share of total connections (excluding M2M), Middle East and North Africa, 2013 and 2018 [Source: Analysys Mason, 2014]
Egypt, Israel and Morocco are considering launching LTE during 2014–2015. Operators in Gulf Cooperation Council (GCC) countries have been particularly active in extending LTE coverage and adoption.
- Saudi Telecom (STC) in Saudi Arabia plans to expand LTE coverage to 90% of the population by the end of 2014. It launched LTE-A in February 2014.
- In the UAE, Etisalat had reached 82% of the population at the end of 2012, while du aims to reach nationwide coverage by 2015.
- In Qatar, Ooredoo launched LTE in April 2013 and plans nationwide coverage by the end of 2014, while Vodafone is expected to launch LTE in the first half of 2014.
- Viva, Wataniya Telecom and Zain Kuwait have all launched LTE and announced plans to upgrade to LTE-A.
Operators, particularly those in GCC countries, need to be prepared for the significant impact of over-the-top (OTT) messaging and eventually voice, as the penetration of smartphones passes 50%. Early movers in LTE deployment should aim to maximise the initial opportunity for premium pricing for LTE, but international examples show that the LTE premium is not sustainable, so it is important to be realistic about the length of time this can be maintained. Alternative strategies to monetise mobile data are critical, as are strategies to accelerate revenue development from adjacent market partnerships and new business models.