Telephone companies in Jordan are set to face a series of challenges in 2014, with the possibility of a new player entering the market at a time when costs and charges are eating into profits.
The mobile market in Jordan is relatively mature and saturated, with a penetration rate of 155% as of the third quarter of 2013, according to the Telecommunications Regulatory Commission (TRC). It is also one of the most competitive. The Arab Advisors Group’s 2013 Cellular Competition Intensity Index, which ranked 19 countries, found Jordan to be the second-most competitive market in the MENA region, after Saudi Arabia.
New taxes weigh on sector
According to a report prepared by the three service providers – Umniah, Zain Jordan and Orange Jordan – the sector has come under pressure from a series of additional state levies imposed in the middle of last year. The report, issued on January 26, said combined revenue had fallen by 9% since the taxes came into force in July, while profits had dropped by 30-40%.
The new charges, part of a wider programme of revenue-raising measures put in place in 2013, raised the special state tax on mobile phones from 8% to 16%, and the levy on mobile subscriptions to 24%, up from 12%. The sector is also subject to direct taxation, paying both income tax and a revenue sharing levy.
In a report on its 2013 consolidated financial performance, Zain Jordan’s parent company, the Kuwait-based Zain, said the higher state tariffs will slow market expansion.
“These taxes have effectively acted as an impediment to the sustained growth of the telecom sector in the country in the short term,” the statement said.
Nonetheless, Zain’s Jordan division did well last year, reporting a 12% rise in subscriber numbers, with its customer base climbing to 3.9m, giving it a 39% share of the market. The local subsidiary saw a 34% increase in revenues from data services, which Zain said now represented 20% of local income.
Possible new entrants
However, a new cloud on the horizon for mobile service providers is a government proposal to offer a fourth licence.
In June, the government launched a tender for ultrahigh frequencies in the 800 MHz, 2100 MHz, 2300 MHz and 2600 MHz bands, paving the way for 4G services and opening up the possibility of a new entrant.
Umniah, Zain and Orange all chose to skip the tender, calling the move “premature”. The incumbents have warned that a fourth operator would not only erode earnings but would also have a negative impact on the market as a whole. They say a new entrant would spark a price war and reduce funds available for investment.
Supporters of the proposal argue that adding a fourth operator will both improve client services and raise additional revenue for the government. It could also hasten the roll-out of data services, according to the TRC. “We have a mature market with high mobile penetration [levels]. Nevertheless, we are still seeing relatively low data usage,” Mohammad Al Taani, CEO and chairman of the board at TRC, told OBG last year. “The future is clear to everybody. People and businesses are connecting wirelessly, so we should facilitate this as much as possible.”
On the other hand, even without 4G, data usage appears to be on the rise, as Zain Jordan’s financial results suggest. Moreover, TRC statistics show the number of mobile broadband subscribers continues to rise at a rapid pace – the number hit 1.06m in the third quarter of last year, a rise of more than 30% over a six-month period.
In the meantime, market observers await the outcome of last year’s spectrum auction, which is expected shortly. Late last year, the government said it had received two offers but declined to identify the bidders. In early January, the minister of ICT, Azzam Sleit, said the government was in the “final stages” of reviewing the bids.