The telecom industry in Kuwait is one of the well-penetrated markets in the Middle-East. The mobile penetration rate has reached high level in recent times. Kuwait was the first country in the GCC to introduce a second telecom operator in 1999. Currently there are two players in Kuwait’s mobile market which are MTC-Vodafone and NMTC (Wataniya Telecom).
In contrast to a competitive mobile telecom sector, the fixed-line telecom business in Kuwait is still government owned. The fixed-line penetration rate at year-end 2005 was approximately 19%, very low compared to the mobile telecom penetration which is hovering around 90%. However, currently Kuwait is without a telecommunications regulatory authority (TRA) and is the only country in GCC not to have a TRA. At present, the Ministry of Communications (MoC) is responsible for regulatory matters for telecommunications in the country. Telecom sector constituted 12.72% of the total market capitalization of the KSE as on December 2006, which indicates the importance of the sector. MTC-Vodafone is the largest company in terms of market capitalization in Kuwait with a market cap of KD4.19bn as on year-end 2006.
Mobile segment revenues in Kuwait grew by 13.3% y-o-y in 2005 to reach KD364.4mn. During the same period, the total number of subscribers in mobile segment grew by 11.4% to reach 2.38 million at the end of 2005. During the first 9 months of 2006, total number of subscribers in mobile segment grew by 6.6% over end-2005 to reach 2.54 million and the total revenues recorded for these nine months was KD303.4mn.
The mobile penetration rate reached 89% in 1H06, up from 88% at the end of 2005. The penetration rate has increased significantly in recent years. It has gone up from 71% in 2003 to 89% in recent times. The penetration rate compares favorably with other GCC markets. Looking at higher penetration in countries like UAE and Bahrain, it seems that still there is room for growth for the mobile telecom companies. With the rise in population (mostly due to increase in number of expatriates), the growth is expected to be high in the prepaid categories.
On account of limited growth potential in the well-penetrated market of Kuwait, both the existing players have expanded their operation overseas. Mobile Telecommunications Company (MTC) is one the pioneers of mobile services in the Middle East and now a major player in Africa. The company was established during 1983 in Kuwait as one of the region’s first mobile operators and is now present in 20 countries. On December 17, MTC announced that it was considering placing a bid for Paktel, Pakistan's fifth largest mobile phone company. Wataniya Telecom was commercially launched in December 1999. This company is currently present in six countries. The company has recently also won the bid to build and operate the second mobile telecommunications license in Palestine.
In Kuwait, the mix of the customers is inclined highly towards the pre-paid customers. Around 80% of the total customer base in Kuwait is pre-paid customers, which is on account of presence of high number of low-income expatriates in Kuwait. The average monthly blended ARPU in Kuwait during first 6 months in 2006 was US$46, which is in-line with ARPUs observed during 2005. Going forward, we expect ARPUs to come down on account of growth of the prepaid subscriber base.
MTC-Vodafone leads the Kuwait telecom sector in terms of subscriber base, revenues and profits. Of the total revenues of KD303.4mn for nine months of 2006, the share of MTC-Vodafone was 57.1%. This has come down marginally from its market share for 2005, which stood at 57.4%. In terms of subscriber base, the share of MTC-Vodafone was higher at 59.7% as on 30 September 2006. As on 30 September 2006, the total number of mobile subscribers in Kuwait was 2.54 million and out of that number of MTC-Vodafone subscribers was 1.51 million.
The already competitive mobile telecom market in Kuwait will experience increased competition in coming days with the entry of a third player. In December 2006, the Kuwaiti Cabinet approved a proposal to establish a third mobile operator. The decision by the Kuwaiti cabinet to back the proposal for a third operator came after considerable pressure from the opposition, which had long contended that the establishing of Wataniya in 1999 had not done enough to boost competition in the telecom market and had failed to cut prices and improve services. Under the Cabinet's proposal, 60% of shares in the new firm will be available to the public, 24% to state-owned authorities including a pension fund and an investment body and the other 16% to a core local or international investor. According to reports, a consortium led by Kuwait Finance House is preparing to bid for Kuwait's third telecom license and plans to run the company as the world's first Islamic Shariah compliant telecom operator. The consortium comprises KFH, the Public Authority for Minors Affairs and the Kuwait Awqaf Public Foundation, both of which are government entities that own shares in KFH.
With the entry of the new player in the Kuwait, the existing companies have to focus their energies on defending their domestic market share. Of late these two companies have been busy expanding their geographic footprints. We believe the entry of the new player will further stimulate the market. It will also help in increasing the penetration of the market further. Both the existing players might push the market aggressively trying to make it difficult for the new player to garner a good market share. We believe that the new player might cut tariffs for the sake of market share leading to price war and further reduction in ARPUs. It may focus on value-added services to differentiate itself from MTC-Vodafone and Wataniya Telecom.
The existing players are also focusing on value-added services. Recently Motorola announced the deployment of a nationwide 3G mobile broadband network in Kuwait for MTC-Vodafone which includes High Speed Downlink Packet Access (HSDPA) to further increase download speeds and improve the user experience of new services. HSDPA delivers high speed mobile access, thereby enabling the delivery of innovative solutions and applications to consumers and enterprise users, which is a focus market segment for MTC Kuwait. With the new HDSPA deployment, MTC-Vodafone customers who opt for 3G services will benefit from faster download speeds and capacity for streamed content. Wataniya Telecom is also in the process of offering similar services.
© 2007 Al Bawaba (www.albawaba.com)
