Stage Set For Telco Tussle


Economic News

22 Jul 2010
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The lines have been drawn for the fight to win the hearts, minds and subscriptions of Qatar's phone users, with long time monopoly rights holder Qatar Telecommunications (Qtel) about to face off against newcomer Vodafone Qatar.

Vodafone, along with its local partner the Qatar Foundation – a non-profit organisation established in 1995 by the Emir to promote technology, education, health and culture – won the bid with an offer of $2.1bn, beating six other suitors. In December, the partnership was also granted the licence to operate Qatar's second landline service, marking the end of Qtel's monopoly in the sector and the beginning of a fully fledged two-horse race in the country's telecoms industry.

Nevertheless, Vodafone will have a fight on its hands to topple Qtel as the leading mobile service provider, as the incumbent currently has a penetration rate of more than 120%. The new entrant to the marketplace will have to undermine Qtel's position of strength with a combination of a better service mix, lower tariffs and hard-sell promotion.

Vodafone's cause will be helped by having the appeal of the new, the high turnover of expatriate workers in Qatar and a growing domestic and foreign population that provides an expanding subscriber base. With Qatar's economy expected to grow by around 17% this year, according to the IMF's latest projections, demand for telecoms services should also increase as the business community expands.

As an indicator of the potential for growth, Qtel reported a 33.1% increase in its mobile subscriber numbers for 2008, giving it a customer base of 1.683m. Though the market may appear saturated, it is clear there is a demand for multiple handset ownership and subscriptions, a demand Vodafone hopes to tap into.

There is no question that there is interest in the new service provider, with Vodafone Qatar's initial public offering (IPO), held between April 12 and 26, raising $1bn. The IPO saw 82,000 individual Qatari investors and 273 institutional investors buy stakes in the company, a result that Grahame Maher, the chief executive officer of Vodafone Qatar, described as "amazing".

"In any other country in the world this would not be possible. Qatar has demonstrated again that it is the leading global economy with this very strong and successful result," he said on May 3.

While Vodafone has been touting its successes, it has also had to contend with some disappointments as well, which have handed Qtel an advantage in the early exchanges between the two rivals.

The company was scheduled to launch services in March but this was put back until June, with the Supreme Council for Information and Communication Technology (ictQatar) revising the terms of Vodafone's licencing agreement in April, giving it until September 1 to establish coverage over 98% of the country. The delay was requested due to what Vodafone described as "unforeseen delays", mainly attributed to postponements in acquiring base stations.

While its monopoly at home is coming to an end, Qtel is ramping up efforts to expand its own revenue and subscriber base. In early June, the company announced that its Omani unit Qatari Telecommunications Company (Nawras), had been granted a first-class fixed-line licence for a 25-year term by the government of Oman. Active in the Omani market since 2005, Nawras has built its subscriber base for its GSM services to 1.6m, more than 45% of the national total.

Sheikh Abdullah bin Mohammed bin Saud Al Thani, the Qtel's chairman, heralded the winning of the new licence as a historic moment for the company, saying it would help it, "provide the widest possible portfolio of world-class communication solutions".

Qtel is also looking further afield for investment opportunities. At the beginning of June, local media quoted Al Thani as saying Qtel was also interested in acquiring a stake in Morocco's telecoms operator Meditel, being offered by Spain's Telefonica, which owns 32.2% of the Moroccan service provider. Based on current share prices, the deal could be worth around $600m.

At home, Qtel is also responding to Vodafone's challenge by wheeling out new services and improving existing ones. In mid-May, the company announced it had doubled the speed of its broadband services at no extra cost to subscribers as part of an upgrade of its internet operations. Not only does the improved service solve some of the previous issues with speed and connectivity, it also raises the bar for Vodafone when it rolls out its own landline and internet services.

To support its expansion and fund its services upgrades, Qtel has entered the bond market. In early June, the company launched an unsecured note issue valued at $1.5bn to be used for general corporate purposes, including refinancing existing indebtedness. Possibly reflecting the overall strength of the company at home and abroad, the notes – the first telecoms bond issue by a member of the Gulf Cooperation Council – attracted $13bn worth of orders.

"This is a testament of the global investor confidence in our strategy, financial strength and of Qatar's strong economic fundamentals," said Al Thani.

In the coming months, Vodafone will hope to test that strategy and financial strength, and to a degree is already doing so. Though still testing its mobile network, offering a limited service to a trial group of subscribers, Vodafone is already competing with Qtel through the media and promotional activities.

On May 22, Vodafone staged a lavish event at the Doha Ritz Carlton Hotel to mark the successful completion of training courses by some of its staff. From having senior managers enter the hall riding on camels to employees releasing balloons bearing the slogan "Bye Bye Qtel, Hello Vodafone", the gathering appeared to be a high-profile challenge to the opposition.

Perhaps unused to competition in the domestic market, especially of the sort served up by its rival, Qtel hit back, accusing Vodafone of negative campaigning that was contrary to the traditional business culture of Qatar.

"Although Qtel has welcomed the new entrant, based on its support for the liberalisation of the communications sector for the benefit of the country and customers, the company was surprised at the statements and slogans made by the competitor. Qtel has pledged to avoid resorting to such tactics, which surprised and offended a large section of the community," the company said in a statement issued on May 23.

Thus the stage is set for a tussle in the Qatari telecoms sector – a competition between the well-established titleholder and a lively challenger.

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