Bahraini government seeks regulatory structure to maximise broadband cover

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Telecoms operators across Bahrain have become increasingly spectrum-hungry over the past few years. Since the late 2000s, when uptake of smart-phones began to rise sharply, then-existing 3G capacity started to look increasingly inadequate. At the same time, margins of voice services have continued to decline, prompting telecoms firms to seek to use data to supplement their revenue streams. As a result, Bahrain’s telecoms operators have been looking to invest in new networks, from long-term evolution (LTE) services to fibre, in order to meet new demand while remaining competitive.

Network Upgrades

LTE was rolled out in Bahrain in 2013 after several years of preparation. The first company to offer LTE services was Batelco, which in February 2013 launched LTE on the 1800-MHz band, available on devices such as the Samsung 19305, Galaxy S II, and Nokia Lumia 820 and 920. Zain launched its own LTE services in April 2013, as part of an upgrade contract with Swedish firm Ericsson. VIVA’s LTE provision was rolled out in January 2014, advertising speeds of up to 100 Mbps, while February of the same year saw Menatelecom launch its LTE network, after upgrading to a TD-LTE 3500-MHz network in November 2013. As of 2015, these big four operators all offered 4G services on a variety of devices and formats.

In March 2015 VIVA, in partnership with Bahraini car retailer Y K Almoayyed & Sons, announced the launch of a 4G car Wi-Fi system, offering 60 GB of data a year per subscription. In February 2015 Chinese group Huawei signed an agreement with Menatelecom to provide end-to-end management services for the telco’s WiMAX and LTE networks, for which it also supplied the original infrastructure. In January 2015 Zain Bahrain announced a 30% increase in its network capacity, as part of a $100m network upgrade the operator is currently undertaking in partnership with Ericsson.

Along The Spectrum

Spectrum availability continues to be a contentious issue for LTE operators, as a lack of spectrum bandwidth can create bottlenecks and prevent the technology from attaining the speeds of which it is capable. Spectrum allocation in Bahrain is guided by the National Spectrum Planning and Allocation Policy, drawn up in 2008, with the overall aim of creating a predictable environment for current and future spectrum usage, in the public interest.

In 2012 the Telecoms Regulatory Authority (TRA) announced an auction process for the 90-MHz, 1800-MHz, 2100-MHz, and 2600-MHz bands, to open in January 2013. However, this auction was suspended in March, and cancelled in June of that year, subsequent to a government alteration to the National Telecommunications Plan (NTP) that obliged the regulator to allocate the spectrum to the three GSM licence holders. Menatelecom, which won a licence to provide wireless broadband in 2007 and unsuccessfully bid for the country’s third GSM licence in 2009, losing out to Saudi Telecom subsidiary VIVA, initiated legal proceedings against the TRA, prompting the body to cancel the auction. As of the third quarter of 2015, no final verdict on the case had been issued.

All operators continue to refine their networks. Both Batelco and Zain moved to introduce Ericsson’s Red Dot System in 2015 to ensure seamless connectivity in large buildings such as shopping malls and office complexes. The system works by using a cellular radio to provide an antenna connection for devices in locations that might otherwise be difficult to access via signal, as in cases where thick walls create reception blackspots. This is the first use of the system in the Middle East.

Currently, mobile services in Bahrain are reasonably competitive, according to the TRA. However, fibre-based services are one field where lack of competition is an issue. Over the medium to long term it therefore appears likely that the authorities will move to introduce more competition into the fibre network segment, helping to bring down costs for business customers in particular, and helping the country cement its position as a business and IT centre for the Gulf region, according to the TRA’s latest Strategic Market Review (SMR), released in August 2015.

Broadband First

The government has recognised the importance of the telecoms network to Bahrain’s security and development. The third NTP, which spans the 2012-15 period, specifies that fast broadband speeds are a critical part of Bahrain’s competitiveness, citing a World Bank study that every 10% increase in broadband penetration correlates with 1.3% percentage points of higher economic growth. As such, it mandates that the government oversee the development of the National Broadband Network (NBN), to be created with state involvement should market forces fail to step in. The plan notes that in principle it should be easy to develop such a network given Bahrain’s small area, but also that this would require a restructuring of pricing arrangements and the adoption of new technology, which could prejudice existing investments made by private operators. Many operators have been holding off constructing or investing in their own networks, relying on Batelco’s fibre in the meantime. If these operators were to build their own networks, this would risk expensive and wasteful duplication.

However, the main reason to date that the NBN has stalled is the question of what its ownership model should be. Essentially, there are two main options. The first would be to build an entirely new network from scratch. This would be more expensive, requiring brand new cables to be laid down, and thus the acquisition of new land in which to lay them. Moreover, it is unclear who would ultimately be responsible for owning and operating the network – whether a government body with a specific mandate or a private company. The second option is to oblige the incumbent, Batelco, to open up its fibre to competitors and upgrade them, possibly with some government support. This is the less expensive option, as it takes account of investment made when Batelco was a state-owned enterprise, and also makes better use of existing fibre resources in the country. The government is currently weighing its options, and is due to announce its final decision, together with details on funding models, timetable and other details, when it releases the fourth NTP in early 2016.

Structural Or Functional

At the same time, the SMR, which is likely to significantly inform the upcoming fourth NTP, clears up several of these questions by positing a number of possible models for implementing the NBN. It notes that there is a need for other licensed operators – which make use of a network to provide services over it without owning it themselves – to obtain fair wholesale access to the NBN in order to offer their own bundled retail services. As such, the NBN plan is for a single network, with either structural or functional separation – that is, for a neutral entity to maintain the network or for vertical integration with an existing operator (in this case, Batelco).

Functional separation has been successfully implemented in a number of markets, notably in the UK, where 10 years ago the then-incumbent operator, BT, was obliged to split its network division into a stand-alone entity separate from the rest of the company, albeit still owned by BT. This has the potential to revolutionise the market for wholesale services in Bahrain; in 2013 BT Openreach, the group’s “last mile” entity, was the biggest unit in the business, reporting revenues of £5.1bn, of which £1.8bn was external and £3.2bn internal. BT’s wholesale division generated external revenues of £2.4bn in total, constituting 23% of external revenue and 19% of group revenue. In Bahrain in the same year, revenue for defined, relevant wholesale markets was BD23m ($60.6m), or 5.5% of total revenues, demonstrating the potential of wholesale as a contributor to turnover.

Structural separation, on the other hand, is the route taken in markets such as Australia, New Zealand and Singapore, where a separate NBN entity was set up, but the incumbent operator was not broken up While structural separation perhaps provides for a clearer distinction between service providers and network operations, it can also lead to the stripping down of valuable assets from companies, and can be complex to implement in practice. At the time of writing, while it remained impossible to say which model the Bahrain government would ultimately choose, the authorities’ commitment to the NBN and to making network improvements in general remained firmly in place.

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The Report: Bahrain 2016

Telecoms & IT chapter from The Report: Bahrain 2016

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