Interview: Greg Young, Gürkan Öztürk, Talal Said Marhoon Al Mamari, Martin Glud
How is growing competition within the telecoms sector encouraging technological innovations and economic prosperity?
GREG YOUNG: Increased competition drives innovation and prosperity by encouraging the development of infrastructure, which in turn ensures availability of the latest in telecommunications services. This is key to attracting major companies and investors.
Further to this, competition in the sector can have a direct impact on and accelerate GDP growth. An example from the World Economic Forum (WEF) states that higher levels of mobile penetration can contribute to improved GDP. For every significant jump in broadband penetration there is an even greater affect on GDP. Bringing it back to Oman, broadband penetration levels before telecoms competition emerged was relatively low as was mobile penetration across the country. Now, with a competitive industry mobile penetration has risen considerably, as has broadband penetration. Penetration in both of these areas will continue to grow and the economic impact in real terms will be significant. Competition encourages technological innovation among firms and brings economic prosperity.
GURKAN ÖZTÜRK: It is hard to claim a direct causality between increased competition among operators and technological innovations at original equipment manufacturers (OEM). The OEM market is highly efficient, prices and intellectual property are almost transparent and even a splendid technology innovation becomes generic in a short time frame. That means you have multiple suppliers for the same technology, so it is hard, if not impossible, for operators to build sustainable competitive advantages depending on just technology. However, there is an indirect link between increased competition and technological innovations. Operators are focused on increasing their efficiencies in fixed and marginal costs, as well as capital expenditure (CAPEX). An example is mobile broadband optimisation solutions, which are a recent trend among OEMs. Greater demand and penetration mandated operators to undertake high CAPEX and operating costs to boost radio access and backbone capacity. As such, they needed to look for new technology to allow them to expand throughput – both for access and backbone – by an optimal mix of investments and economies of scale of existing assets. This is what we are currently seeing in Oman.
TALAL SAID MARHOON AL MAMARI: The competition in the sultanate does not directly impact technology and innovation in terms of the former entering the market. Technology is usually developed and evolved outside of Oman by large equipment providers. Thus, the competitive focus in Oman has been on innovation relating to the consumer experience, which means a focus on products and services. Over the last four years this innovation has specifically related to voice services, such as per-call charges as opposed to per-minute charges.
MARTIN GLUD: In recent years, as a result of more competition, there have been many positive developments in the sultanate’s telecoms sector. The introduction of a second operator into the market has allowed mobile virtual network operators (MVNOs) to enter the market as licensed re-sellers. The domino effect has been an increase in internet access at home and on mobile devices. Competition has also encouraged the development of new telecoms products. For example, it is because of competition that weekly and monthly internet plans were introduced on prepaid subscriptions. It is vital for the industry’s development and continued growth that resources and products like this are available. Finally, competition has led to spectrum liberalisation which has benefitted operators, regulators and, ultimately, end-users.
What market dynamics have lead to increased mobile subscriptions and penetration rates, and will these trends change going forward?
AL MAMARI: The government’s commitment to invest and develop infrastructure in Oman has had a major impact on the telecoms sector as well as the wider economy. In fact, investments in infrastructure have led to a 7% growth in the number of corporate customers over the past two years. These infrastructure projects have had a key effect on national employment and have created thousands of jobs. This has propelled growth in the telecoms sector by providing new consumers with disposable incomes.
Another key factor affecting increased penetration rates has been the surge in the amount of smartphones on the market. Overall, government spending on infrastructure, a larger workforce and an increase in the amount of smartphones on the market have been crucial variables for growth in the telecoms sector and have significantly affected mobile subscriptions and penetration rates. The main variables going forward are Oman’s demographics, specifically the youth. The country’s population is very young and that provides the sector with new customers. Mobile penetration in the sultanate will continue to increase for the foreseeable future.
GLUD: An increase in the use of mobile data has been a game changer. Just a few years ago most operators and companies only offered classic SMS and voice services. Today, mobile internet packages make up a significant portion of the telecoms business in the sultanate. This is a dramatic change in the market over just a short period of time.
Another change to the dynamics of the country’s telecoms market has come in the form of growth in the number of pre-paid subscribers. Go back five years and the majority of services available were only for post-paid subscribers. What we are seeing currently is that almost all services are available to prepaid subscribers as well. This only makes sense because pre-paid subscribers make up more than 80% of the telecoms market in Oman.
The two main growth drivers going forward will be the young population and an increase in end users owning and operating multiple devices that require internet connectivity, like iPads, smartphones and tablets. These two factors are intertwined since it is the youth that is embracing new technology, and which is likely to drive further growth in mobile subscriptions and demand for mobile connectivity.
YOUNG: The increasing number of mobile subscriptions and higher penetration rates are driven by several factors, competition being just one.
Like many Gulf countries, Oman is home to a young population. This means there are plenty of new customers entering the market each year. In addition, the youth in Oman are also adopting new technology which is further helping to drive growth.
Another factor is the strategic infrastructure projects taking place across the country. Megaprojects like the airport, the ports and free zone, for example, all require a substantial workforce, which subsequently requires some form of telecommunications know-how. This has led to a jump in mobile subscriptions and consequently a rise in penetration rates.
The government’s push towards e-Government solutions is another import development. Introducing the population to new, innovative ways encourages greater use of telecommunication services.
ÖZTÜRK: Specific to Oman, changing lifestyles and the way business is done have had great impacts on growing mobile subscriptions. For the younger generation in particular, preference for a smart device with internet connection, if not a basic handset for voice calls, has become a life necessity. Economic growth in the sultanate is also leading to a more sophisticated manner in which business is done. Firms are now much more aware of what automation and integrated communications mean to efficiency and higher growth. Additionally, especially in terms of small and medium-sized enterprises (SMEs), owners or managers of such companies are from a much more tech-savvy generation, and as more entrepreneurs and new ventures emerge so too will the demand for modern mobile communications increase.
However, the true potential is on the business-to-business side. Thanks to economic development, and especially the government’s policies to support SMEs, we will see more and more firms in need of mobile communications and broadband.
In what way can communication between state entities, private operators and consumers be enhanced to accommodate further growth?
ÖZTÜRK: Market regulators and the authorities are responsible for safeguarding the public’s interest. Their mandates force them to work as consumer advocates alongside the mission of non-governmental organisations and the media.
Communications are transparent between parties, and quasi-government organisations proactively inform stakeholders on key issues. This ensures an efficient market which promotes fair competition for the sake of public interest. Oman is taking great strides in this regard through building and empowering quasi-governmental organisations such as the Telecommunications Regulatory Authority (TRA).
The TRA has been working on improving competition, hence liberalisation via ex-ante and post-ex regulations. The annual work plans of the TRA disclosed to the public include thorough studies on competition and a new licensing framework, to which we expect to see the outcome in 2014. Recent post-ex regulations focus on fair competition and have led to transparent communications between all stakeholders. This creates hope for further liberalisation.
AL MAMARI: It is important to assess how much the sector as a whole has achieved in its young history. Liberalisation began with the introduction of the Telecoms Act and establishment of the TRA, both of which have propelled the sector forward, spawned its evolution and eventually introduced a second operator to the market. The main issues currently stem from limited communication between all parties in the telecoms sector, from operators to end-users. Misperceptions in the sector are the most important issues to address. At the core are price, coverage and quality. It is the responsibility of the entire telecoms sector – operators and regulators alike – to address and correct these misperceptions. These issues can be properly handled by hiring an independent consultant to conduct a scientific benchmark study. The sector could really benefit from a study like this and it should be a task driven by the regulator or an independent party, not an operator. This approach would automatically grant the study credibility and validity.
The study must have benchmarks based on the specific characteristics of Oman’s economy and the findings should be published independent of operator support. It is the responsibility of all parties in the sector to create awareness about these issues and correct these misperceptions.
Thus, by strengthening the communication lines within the telecoms sector we can ensure that liberalisation continues to accommodate growth.
GLUD: When compared to other countries the communication between operators and telecom authority in Oman is excellent. There are no pressing issues, as such. Operators carry a respectable and mutually beneficial relationship with the TRA.
In general it is easy to have discussions with the TRA and we appreciate the effort being done to prepare for a more liberal market. We are looking forward to seeing the tangible outcome of this in 2014.
YOUNG: These entities work well together, otherwise Oman would not be one of the most penetrated countries globally in terms of mobile subscriptions. So, the industry is doing something right, working hand-in-hand to continue sector development.
However there are important steps being taken to make it even better. The TRA, for example, coordinated with the government to free up frequency, allowing operators to make improvements to their networks. This has allowed operators to make further improvements to their networks. This additional frequency has made it possible for modern, technologically sophisticated networks to be built in Oman.
To what extent has spectrum liberalisation boosted infrastructure quality and 3G and 4G networks?
GLUD: Spectrum liberalisation has been important, as it has enabled the sector to accommodate the large growth of data usage that has occurred in recent years. When you look at it from a capacity level, adding more frequency has allowed for general development and supported growth in various areas across the sector. This general development has led to an increased network quality, and spectrum liberalisation has also accelerated broadband speed and connectivity. This enhancement to the quality and speed of connectivity is essential because new services require higher bandwidth. This has allowed operators and MVNOs to keep up with market demands as end-users are consuming more and more data. Before spectrum liberalisation, the telecom sector was on the verge of reaching the limits of available frequencies. The fact that spectrum frequencies were freed-up for commercial use has boosted infrastructure quality and allowed the sultanate to attract more effective modern telecommunications technology.
YOUNG: Inward investors and tourists are looking for a great communications network. Over the past year, the telecoms sector has increased the coverage, speed and capacity of the network nationwide and introduced 4G networks to the greater Muscat area. Oman was ranked 33rd out of 144 countries in the WEF's 2013-14 “Global Competitiveness Report”, and it will be interesting to see where the country ranks in the coming years. A relatively small percentage of the world's operators have launched 4G – of the 800 operators globally – and we have two in Oman with the service. The assumption is that the sultanate’s telecoms sector is behind the times, but this is not the case. It is because of spectrum liberalisation that these developments have been made.
ÖZTÜRK: Liberalisation has generic effects on quality, the services spectrum and end-user prices regardless of the industry or the segment of the industry, such as mobile broadband via 3G and 4G, respectively. Opening the market to competition therefore has raised the buying power of the customer as they now have more than one choice. Players of a competitive market structure start to look for ways to differentiate, rather than competing just on prices. Hence one player needs to upgrade their infrastructure to support both 3G and 4G. Naturally, the other player cannot let this turn into a competitive advantage for the other and they follow the same path. However, as services become offered at par one operator needs to focus on quality to gain a competitive advantage against the other. Actually this iterative process goes on to lead to new, higher quality services at a better price, thus benefitting the consumer. In Oman, the ever-increasing demand from consumers for mobile broadband thanks to greater bandwidth was only possible due to spectrum liberalisation. This helped operators sustain and even grow their profits, while also allowing for heavy investments in the telecoms infrastructure, such as the 3G and 4G networks.
AL MAMARI: The government-led initiative to finance and free-up the amount of available frequency for operators has been a beneficial decision for the sector. A second telecoms carrier, authorised by the regulatory authority to operate a telecommunications system, has supported broadband-data usage in Oman, which has subsequently increased five-fold over the past three years. When it comes to 3G, there is more that can be done. For instance, the sector is expecting a third carrier to be awarded by the TRA in the near future. As for 4G, the amount of available frequency is not the issue, rather the problem is that there are an insufficient amount of devices on the market that are 4G compatible. On the whole, the liberalisation of spectrum has led to greater network growth and enhanced infrastructure quality.
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