Arab ISP market headed for a shakeout, majors prepare to go regional

Published April 5th, 2001 - 02:00 GMT

In the past few years, dozens of Internet Service Providers (ISPs) sprouted across the Arab world, connecting more the 3.5 million Arabs to the WWW. Lately, however, many have been facing hardship, struggling to survive amid fierce competition. As the ISP price-war heats up, those becoming its casualties are to soon find out what the latest merger & acquisition frenzy is all about.  

 

Based on the analysis of recent mergers and acquisitions among ISPs in Egypt, Jordan, Saudi Arabia, Kuwait, and Lebanon, a recently released Arab Advisors Group research predicts rapid ISP consolidation in the Arab world, with the emergence of regional service providers covering several markets.  

 

The report warns of an upcoming shakeout threatening small sized ISPs, who should be considering all of their strategic alternatives with the emergence of a few major regional players, which are expected to enjoy the largest market share. 

 

One of the first early birds of this emerging business trend was Fiberlink Networks, a Lebanese subsidiary of the US-based Fiberlink Communications, that us endeavoring to become a major regional service provider. The first of what Fiberlink managers hoped will become a string of acquisitions and partnerships, was PSINet, one of Lebanon’s leading ISPs. 

 

After that November move, Imad Tarabay, former vice president of PSINet MENA and current CEO of Fiberlink Networks, commented that "the participation of Fiberlink Communications International and other off-shore Venture Capitalists will certainly enhance our work in the region… This will give us a competitive edge over our local and regional competitors."  

 

According to Tarabay, PSINet decided to sellout to the newly established FiberLink Networks, after shifting its growth strategy from outright acquisitions to focusing on organic growth. The US-based PSINet acquired in December 19999 local ISP Lynx to form PSINet Lebanon. FiberLink itself is one-third owned by the original owners of Lynx, Imad Tarabay and Raed Rayess. 

 

Pursuing Fiberlink’s professed-goal of “expansion in the Middle East and North Africa through acquisitions and partnerships,” it had already received a cash injection one billion Lebanese pounds last year, raising its capital to two billion LP to be used for short-term growth. The PSINet acquisition was to serve as Fiberlink’s launching pad for penetrating into the region, and it is currently in the process of negotiating with ISPs in Jordan and Egypt. 

 

Advancing from the west, similar strategies have been the carried out by the Africa Online Internet provider, who had bought in mid-February the Egyptian ISP MenaNet for $8.7 million. With the acquisition, the Africa Online Group—which serves Kenya, Zimbabwe and six other African countries—has gained a foothold in the Middle East and North Africa, achieving a combined dial-up user base of more than 33,000 subscribers. 

 

Mohammad Khatib, the Amman-based Arab Advisors Group director, explained the trend: “Five years after the emergence of the first liberalized ISP markets in the Arab world, the industry is undergoing rapid consolidation towards a more mature market with the emergence of regional players that can leverage the economies of scale, and provide a solid service.” 

 

According to the report, fully competitive Internet markets, such as Lebanon, along with high net-worth markets, such as the United Arab Emirates, were able to achieve highest regional Internet penetration rates, of five and eight percent respectively.  

 

However, in partially competitive markets such as Saudi Arabia, where the Internet backbone is still regulated by the government, there is a disappointing penetration rate of only 0.75 percent—well under the estimated potential of the Saudi market, the report stated.  

 

Other fully competitive markets, such as Egypt and Jordan, were found to be held back by a highly fragmented and undercapitalized ISP market that prevented any substantial investment in marketing the customer services. — (Albawaba-MEBG)

© 2001 Mena Report (www.menareport.com)


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