Kuwait's telecoms providers diversify offerings to increase revenue and customer base

 

With Kuwait’s national strategy focused on establishing the country as a global and regional knowledge and communications centre, ICT development has gained significance in the country’s shift away from an economy based on hydrocarbons. The adoption of 5G technology has been key to achieving these goals, as is the earmarking of financial and human resources to create a wider and deeper IT ecosystem. Technology start-ups are being encouraged in the country, and private sector jobs and initiatives are seen by the government as an important part of the drive to diversify the economy and attract higher levels of international investment.

While there are many opportunities, there are considerable challenges as well. Telecommunications firms are seeing their traditional business models come under pressure as customer habits and demands change. Significant levels of investment are needed to keep up with rapidly evolving technology in a highly competitive market. As a result, companies are looking to find new lines of business and provide a wider range of services as they strive to maintain or expand market share.

In the case of Kuwait, the market is a highly compact one, with a technology-savvy, youthful population driving it forwards. The country’s development blueprint, New Kuwait 2035, places ICT at the heart of efforts to modernise and diversify the economy in order to encourage sustainable growth.

Structure & Oversight

For many years the main government body responsible for the sector was the Ministry of Communications (MoC), which had oversight over telecommunications as well as postal services. However, the MoC is in the process of being renamed the Ministry of Services and is headed by the minister of state for services affairs, a post held since December 2018 by Khaled Al Roudhan, who is also the minister of commerce and industry. The MoC’s fixed-line broadband services are supplied via five internet service providers (ISPs). Four of them are wire-based – Qualitynet, Fasttelco, Zajil Telecom and Gulfnet – one wireless ISP, which is Mada. Since 2014, however, the Communication and Information Technology Regulatory Authority (CITRA) took over as sector regulator in 2016, leaving the MoC as the sole provider of fixed-line telephony and fibre-to-the-home (FTTH) services. CITRA is headed by an independent board of directors, and is in charge of managing fair competition, licensing, the release of spectrum, cybersecurity measures and smart government strategies.

Another important body is the Central Agency for Information Technology (CAIT), which coordinates national e-services strategy and initiatives. It is responsible for the Kuwait Government Online Portal, the Kuwait Government Call Centre and the Kuwait National IT Governance Framework. CAIT has commissioned detailed surveys of the ICT sector, and established the data- and disaster-recovery centres used by various government ministries.

National Vision

The New Kuwait 2035 vision has identified ICT as a key sector that is expected to attract investment and boost the local economy. It focuses on seven pillars, with ICT development playing a central role in each. One such pillar is public administration, to which the improvement of e-government services is central. A planned privatisation of the MoC’s fixed-line service is also in the development plan, as is increased investment in ICT infrastructure. It lays out the third phases of the FTTH network, which will cover 100% of residential and business areas, and a broadcast and digital archiving system. The second phase of the FTTH network was launched in April 2018, with the MoC’s Gigabit-capable Passive Optical Network (GPON) delivering access to speeds of up to 100 Mbps. At the launch of the second phase, some 55% of Kuwaiti households were already covered by the GPON.

Main Players

The mobile telecommunications sector is dominated by three providers: Zain Kuwait, VIVA and Ooredoo. Three ISPs were acquired by mobile operators: FAST telco, bOnline, QualityNet and Zajil-KEMS. FAST telco was purchased by Ooredoo Kuwait in 2016, although they continue to exist as a separate legal entities. bOnline is a subsidiary of United Networks Company, part of investment outfit Kuwait Projects Company. QualityNet, meanwhile, was 90% owned by Bahrain’s Batelco until May 2019, when the company sold its stake to VIVA for around KD28.3m ($93.2m). Kuwait’s ISPs offer a wide variety of solutions, including the cloud, managed services and cybersecurity. QualityNet, Zajil and Ooredoo also offer co-location data centres in Kuwait City. Mada, a more specialised company, provides wireless corporate intranet and internet services, along with Integrated Services Digital Network lines.

International Connections

The country’s main satellite mobile provider is Gulfsat, which is also a subsidiary of the United Networks Company, in partnership with the UAE’s Thuraya Telecommunications. Kuwait is connected through a main landing station with the FALCON/GCX undersea cable, the Fibre Optic Gulf cable, the Gulf Bridge International cable system and the Kuwait-Iran submarine cable.

The first phase of CITRA’s Kuwait National ICT Plan includes the construction of a regional telecommunications corridor cable that will connect Kuwait to Iraq over land, before linking to Turkey and Europe. This cable system is key to accomplishing the goal of creating an internet exchange point for the region in Kuwait, thereby making the country more attractive to global data centre investors.

Performance & Size

Kuwait is a highly saturated and competitive market for telecommunications companies. Indeed, in 2017 Kuwait had a mobile penetration rate of 172.6% and a mobile broadband penetration rate of 223.2%, with 98% of individuals using the internet, according to the most recent national figures from CITRA. Additionally, 99.7% of households had internet access and 99.6% of the population was covered by an LTE network.

Ooredoo Kuwait reported that in the first quarter of 2019 its customer base stood at 2.5m, up 13% from the first quarter of 2018. Revenue for the same period totalled KD56.1m ($184.8m), down 14.4% year-on-year (y-o-y) from KD65.5m ($215.7m). However, operational efficiency and the use of new accounting standards, namely the International Financial Reporting Standard 16, meant that the company’s earnings before interest, taxes and amortisation (EBITA) rose by 48% y-o-y, from KD11.8m ($39.9m) in the first quarter of 2018 to KD17.5m ($57.6m). VIVA has gained a reputation as Kuwait’s newest and fastest-growing telecommunications firm. Established in 2008 by Emiri decree, VIVA operates as the Kuwait Telecommunications Company and was listed on Boursa Kuwait, the country’s stock exchange, in 2014. The Saudi Telecom Company owns a 51.8% majority stake in the business. First quarter results for 2019 show that VIVA’s revenue dropped from KD77.6m ($255.6m) in the first quarter of 2018 to KD66.6m ($219.4m). However, the company recorded a 4.2% increase in EBITA, rising to KD18.7m ($61.6m) in the first quarter of 2019, and served a customer base of 2m. Following its acquisition of QualityNet, VIVA launched its first post-paid, home broadband packages in May 2019.

Zain Kuwait is the oldest telecommunications company in the country, founded in 1983 as the Mobile Telecommunications Company. It listed on Boursa Kuwait in 1985. The Kuwait Investment Authority holds a 24.6% share and Oman Telecommunications has a 21.9% share. In 1994 Zain became the first firm in the region to offer a commercial GSM service. Similar to Ooredoo, Zain is a global business and operates in eight countries in the Middle East and Africa. The company’s first quarter results showed it maintained its position as market leader in Kuwait, with some 2.6m subscribers.

Zain Kuwait generated KD82m ($270.1m) in revenue for the quarter, with an EBITA of KD32m ($105.4m), representing an increase of 21% y-oy. Data revenue for the company grew by 9% and accounted for 38% of total revenue. In 2019 Zain Kuwait launched an LTE-based home broadband service called BEAM, which offers unlimited data under a two-year contract. The company also signed an agreement with Microsoft in October 2018 to offer a range of cloud services to businesses.

The decline in revenue experienced by operators in 2018 is widely attributed to competition that resulted in a surge of promotional offerings that occurred in the beginning of the year. In the months since, all three firms have refocused their efforts on enhancing quality and service delivery in order to boost operational efficiencies. While this may reduce overall revenue in the shorter term, these investments are expected to eventually pay off over the longer term. “From the perspective of the telecommunications companies, there is a lot of pressure at the top,” Kamil Hilali, chief strategy officer of Zain Group, told OBG. “The use of voice services is decreasing while the use of data is increasing, but data is generally cheap and it has not been enough to offset the loss of revenue from voice services. At the same time, technology has been quickly improving, and companies that invested in 4G must now shift and invest in 5G.”

Diversification Efforts

The rollout of the new, higher-speed 5G network is happening at an accelerated pace, with first commercial operations launched in 2019 (see analysis). The nature of the rapidly changing market has pushed firms to identify new lines of business and revenue sources. One such stream is the digitalisation of services, as more and more functions are conducted online. Ooredoo, for example, introduced an eSIM that can be embedded into a phone and activated remotely, allowing multiple numbers to operate from a single handset. Local firms have also been expanding their international roaming offerings, taking advantage of existing expansive global networks to bring unlimited roaming to customers for a weekly fixed fee.

Providers are similarly looking to business-to-business (B2B) and machine-to-machine (M2M) offerings to diversify revenue sources, with Zain’s partnership with Microsoft for cloud services a prime example. Additionally, in September 2018 CITRA signed a memorandum of understanding with Amazon Web Services to enhance capacity for secure cloud governance. Zain also announced partnerships with Samsung and local firm Al Babtain Turnkey Solutions in October 2018 to develop internet-of-things (IoT) and smart city solutions for education, health, security and mobility in line with New Kuwait 2035. The adoption of these technologies and their potential for growth is reflected in the country’s performance on the Huawei Global Connectivity Index, which ranked Kuwait 37th out of 79 countries in 2018. Huawei expects that cloud computing, e-government and M2M services will prove to be key areas of expansion, and that new infrastructure investment will create various opportunities for cloud service providers.

Smart Cities

Kuwait has adopted several policies that encourage the development of smart cities. Contracts for construction must include provisions for the installation of smart networks, and the MoC’s FTTH rollout is being carried out in coordination with new city developments to deliver the high-speed broadband required by the IoT and smart cities.

There are several smart city projects in the pipeline that complement Kuwait’s long-term vision to shift its economy away from oil revenue and towards technology, finance and tourism. In July 2018 Kuwait signed an agreement with Huawei to implement a smart city strategy based on the development of intelligent infrastructure networks, security, virtual systems, and digital transformation of businesses and the government. The agreement proposed developing Silk City in the north as a smart city. The planned $86bn, 700,000-person megapolis will span 250 sq km, from Subiyah on the north side of the recently opened Sheikh Jaber Al Ahmad Al Sabah Causeway to Boubyan Island and its new Mubarak Al Kabeer Port. Additionally, in May 2019 the authorities announced that work had been started on the South Saad Al Abdullah project, billed as the Middle East’s first green and smart city. The 64-sqkm development, built in partnership with South Korea, is expected to cost $4bn and will be home to 400,000 individuals once completed in 2029. Elsewhere, smart city technology has already been integrated into developments such as the South Al Mutlaa City project, located near the capital.

Start-Ups

Kuwait is also looking to build an indigenous IT entrepreneurial ecosystem as part of the New Kuwait 2035 strategy. In this regard, Kuwait is well positioned to take advantage of its growing, 4.2m-strong population, 83% of which lives in the greater Kuwait City area. It is also a youthful country, with a tech-savvy median age of 29.

While the development of the ecosystem is in the early stages, Kuwaitis have already built several successful start-ups. Talabat, a food-ordering service that started in Kuwait in 2004, is now present throughout the GCC. In 2015 it was bought by Germany’s venture capital firm Rocket Internet for $170m. Another food-delivery service, Carriage, has operations across the GCC and was acquired by Germany’s Delivery Hero in May 2017. The service launched most recently in Egypt in March 2019.

JustClean, an online laundry service platform previously known as Masbagti, was bought by Kuwaitbased Faith Capital in May 2017 for an undisclosed amount. The venture capital company announced in February 2019 that it was investing an additional $8m into the start-up. The authorities are working to encourage the ongoing development of technology and financial technology start-ups by boosting funding, easing access to the market and infrastructure, building a strong human resources and establishing a regulatory framework conducive to growth.

Start-ups also benefit from recent efforts to enhance the ease of doing business, including bills introduced in 2018 and 2019 to improve conditions surrounding bankruptcy, labour, protection of competition and financial controllers. Financing continues to be an issue for Kuwaiti start-ups, however. According to a 2018 survey by ArabNet, 43% of technology start-ups do not receive any kind of financing and 17% have used angel funds, reflecting the ecosystem’s early stage of development. Instead, entrepreneurs use personal savings (76%) and bank loans (33%). In recent years the government has worked to address this issue. In 2013 the $6bn Kuwait National Fund for Small and Medium-sized Enterprise (SME) Development was established to finance up to 80% of the capital requirements of local SMEs. Furthermore, 10% of all government spending must be on SMEs, including those done via tenders. Several private funds have also entered the market to support start-ups, including sharia-compliant KISP Ventures, Faith Capital and Seeds Partners. “The SME segment is a very competitive area of the industry, with high growth potential,” Mohammed N Al Nusif, CEO of ICT and enterprise services provider Qualitynet, told OBG.

While further improvements to financing are needed, start-ups report that access to communication services such as mobile and fixed broadband, as well as payment infrastructure, is strong. The rollout of FTTH, 5G and widespread high-speed mobile coverage are all significant advantages for technology start-ups. There are also several incubators present to provide a higher level of support to growing start-ups. One such firm, Mefazec, provides mentoring, networking and assistance with finance, while Sirdab Lab offers boot camps and co-working spaces. Additionally, StartupQ8 offers business advice, discussions and workshops, while Brilliant Lab holds an annual competition for the best start-up. Brilliant Lab also partners with Zain for the Zain Great Idea accelerator programme, which is conducted in partnership with Silicon Valley-based organisation Mind the Bridge.

Outlook

As the national 5G network rolls out, Kuwait’s telecommunications firms will continue to compete for customers while absorbing the major infrastructure costs associated with the upgrade. With voice in decline and low-cost data an increasingly dominant line of business, players are looking to new services such as B2B, M2M, cloud, big data and data centres. Government efforts to establish Kuwait as a global IT and communications hub will be strengthened with the establishment of smart cities and a more supportive start-up ecosystem.

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The Report: Kuwait 2019

ICT chapter from The Report: Kuwait 2019

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