Strong competition in Bahrain's telecoms sector helps build the future of the industry

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Recognised by the government as an engine for growth, economic diversification and social cohesion, the telecoms sector in Bahrain is expected to play a vital role in enabling the kingdom to achieve its ambition of becoming a regional centre for digital technology. Since ownership was liberalised in the early 21st century, the industry has made a direct contribution to the development of the national economy while also serving as an enabler for other important business sectors.

TIMELINE: Bahrain’s telecoms history began in 1864 when the nation was used as a staging post for the Indo-European subsea telegraph cable. Telegraph and telephony services were introduced in 1931 by UK telecoms firm Cable and Wireless, an integral player in the early development of the local ICT sector.

The first digital exchange was built in 1980 and a year later Bahrain Telecommunications Company (Batelco) was formed, with Cable and Wireless taking a 40% stake in the enterprise. However, in 1989 Cable and Wireless started reducing their stake and sold 20% of Batelco to the government of Bahrain. Cayman Islands-based Amber Holdings, a subsidiary of Cable and Wireless which holds the remaining 20% stake, was bought for BD190.8m ($505.1m) in 2006 by Bahrain’s government investment arm, Mumtalakat, and the Social Insurance Organisation, the kingdom’s agency responsible for overseeing social insurance and pension services.

As of 2017 Mumtalakat held 36.7% of Batelco’s shares, Amber Holding held 20%, and 20.3% was shared by three Bahraini government pension funds. The remaining 23% is floating on the Bahrain Bourse.

SUPERVISION: In 2002 the Telecommunications Regulatory Authority (TRA) was established to oversee the sector and protect consumer rights. In the same year the Telecommunications Law was introduced to encourage competition in order to help the country adapt to rapid changes in the industry, such as the growth of mobile telephone usage. In 2003 Zain Bahrain became the second mobile operator in the kingdom with VIVA Bahrain granted the third licence in 2009. By 2017 Batelco, Zain Bahrain and VIVA Bahrain were among 26 companies offering telecoms, internet or data services in a country with 1.4m people. In the second half of 2017 the telecoms sector was employing 3230 people, 72% of which are Bahraini, representing an increase of 1% on the previous year.

MARKET REVENUE: According to the TRA, telecoms companies had combined revenue of BD431m ($1.1bn) in 2016, down 4% from 2015, yet still recording a compound annual growth rate of 13% between 2012 and 2016. Furthermore, according to TRA data, telecommunications revenue was worth 4% of GDP in 2016. Fixed-line revenue fell by 9% from 2015 to 2016 mostly due to a decline in call traffic. In 2016, 56% of landline revenue came from calls, 38% from line rentals and 6% from line connection fees. In 2016 the average revenue per user (ARPU) for all fixed-line customers, including international calls, was BD5 ($13.26) per month, dropping below the ARPU in 2014 of BD5.2 ($13.79), the lowest point in recent years. ARPU in 2015 had risen slightly to BD5.4 ($14.32) with demand for lines to support new fibre connections, but a lack of call traffic had not bolstered revenues.

Post-paid mobile plans represented 22% of the total number of subscriptions, yet accounted for 51% of total retail mobile revenue in 2016. Competition between mobile network operators (MNOs) in the mobile market saw ARPU decline by 48.4% for post-paid customers and 61.5% for pre-paid users during the 2012-16 period. In the fourth quarter of 2016 voice services were generating 57% of pre-paid revenues, while data accounted for 37% of revenue, compared to 21% in 2015. For post-paid customers, voice generated 46% of revenue compared to 8% from data, 42% from subscriptions and 4% from text charges. Monthly ARPU for voice was BD1.5 ($3.98) for pre-paid and BD4.9 ($12.99) for post-paid, while the average monthly spend on data was BD1 ($2.65) for pre-paid and BD0.9 ($2.39) for post-paid customers.

SUBSCRIBERS: According to the TRA’s quarter three 2017 report, there were 2.61m mobile phone subscriptions by the end of the third quarter of 2017, a 13% decrease from the end of 2016. Over the same period mobile penetration rates had decreased from 213% to 180% as most operators stopped offering unlimited data packages. Of mobile subscriptions in the region 77% were pre-paid and 23% post-paid. Fixed-line telephone subscriptions increased by 1% to 235,000 from the end of 2016. Whereas, fixed-wired connections made up 81% of this amount, while fixed-wireless connections dropped from 24% of the total at the end of 2016 to 19% in third quarter 2017.

The latest TRA data shows mobile phone usage becoming particularly dominant in 2017, with fixed-line telephone traffic declining by 16% over a year until the third quarter of 2017. Of the calls originating from landlines 64% were made to mobile numbers in 2016. In 2016 the average minutes a month on fixed-line calls was 51 for residential users and 229 for businesses.

In 2016 the total number of minutes spent on international calls increased by just 1% to 2.8m over the year. However, revenue for international calls dropped by 26% with operators offering free international call packages. Of those calls, a 2% yearly increase to 2.6m minutes were to the home countries of expatriate workers from South Asia. The average revenue per minute fell 45% to BD0.02 ($0.05) between 2012 and 2016. In 2016, 98% of outgoing international calls from Bahrain were made from mobile phones.

OPERATORS: Batelco has developed into an international operator with a presence in 14 jurisdictions including Jordan, Kuwait, Yemen and Saudi Arabia in the Arab world, as well as Jersey, Guernsey, the Isle of Man, Diego Garcia, Saint Helena, Ascension Island, the Falkland Islands and the Maldives. In 2016 the group had revenues of BD135m ($358m), 1% down from the previous year, and 9.4m subscribers around the world, a 4% increase on the previous year. In 2016, 41% of the company’s revenues came from Bahrain, amounting to BD151.3m ($401.2m). In 2016 the group made a profit of BD37m ($98.1m). In the first half of 2017 the company had worldwide revenues of BD181.1m ($480.2m), with BD74m ($196.2m) coming from the Bahrain market. Gross revenues across all markets had declined by 1%. It made a profit of BD19m ($50.4m) in the first half of 2017, a 16% decline compared to the first six months of 2016, with the company blaming the competitive environment in many of the markets where it operates. In 2016 Batelco invested in increasing the rollout of fibre to homes and offices, using new technology to offer speeds of up to 500Mbps, while also launching Bahrain Wi-Fi, providing Wi-Fi access at major public locations throughout the country.

Zain Bahrain reported a 22% surge in its customer base at the end of 2016, up from 795,000 in 2015 to 971,000. It attributed the increase to the introduction of innovative products and services to the Bahrain market. In its 2016 annual report, Zain noted it had seen a 125% increase in data consumption over the course of the year. However, the company blamed fierce competition in the market for reduced revenues and profits. Zain’s 2016 net profit of BD4.3m ($11.4m) was down by 18% from the BD5.1m ($13.5m) it made in 2015. Its revenues for the year were BD64.6m ($171.3m), down by 9% on the BD71.1m ($188.5m) it made in 2015. Midway through 2017 the company reported a 16% increase in revenues to BD37 ($98.1m). Nevertheless, the company’s profits for the first half of the year fell by 22% to BD1.4m ($3.7m).

Zain Bahrain was founded as a joint-stock company in 2003, and was awarded the country’s second mobile operator licence in the same year under the condition it would float 15% of its shares on the Bahrain Bourse within a decade. In 2013 Zain’s authorised share capital was increased from BD32m ($84.9m) to BD36.8m ($97.6m) and divided into 368m ordinary shares valued at 100 fils (the equivalent to BD0.1) each. The company was listed on the exchange in December 2014. Its main shareholders are: Zain, the parent company of Zain Bahrain, which rebranded from Kuwait Mobile Telecommunications Company in 2007, with 54.8% of shares; the chairman of Zain Bahrain, Sheikh Ahmed bin Ali Abdulla Al Khalifa, with 16.1%; and the Gulf International Bank of Bahrain, with 8.5%.

VIVA Bahrain is a wholly owned subsidiary of the Saudi Arabian-based Saudi Telecom Company (STC), established with BD75m ($198.9m) share capital in 2009. It was not required to list on the Bahrain Bourse, and began commercial operations in 2010. In 2016 STC reported VIVA Bahrain had assets of SR2.2bn ($578.1m) and revenues of SR1.5bn ($388.6m). Assets had fallen from BD231m ($612.6m) in 2015 while revenues had increased from BD144m ($381.9m). STC does not include a breakdown of VIVA Bahrain’s performance in its consolidated quarterly financial statements.

PRICE COMPARISONS: In April 2017 the TRA published the “2016 Telecommunications Retail Price Benchmarking Report for Arab Countries”, comparing Bahrain’s retail prices to that of its GCC neighbours, Arab countries and the average for OECD countries. The report was based on data collected in January 2016 and used a purchasing power parity (PPP) method based on the US dollar. Its authors compared fixed-line, leased-line, mobile telephony, both fixed and mobile-broadband services for residential and business customers, and the sub-divided each category based on how much customers used the service.

The report found Bahrain’s fixed-line residential customers were paying among the lowest fixed charges but relatively high calling fees, a pattern repeated for fixed-line business customers. High-use business customers were paying less than anywhere in the GCC, with a price of $126/PPP in Bahrain, compared to $145 in the UAE and $164 in Qatar. However, these rates were significantly higher than the OECD and Arab averages, which were below $70 and $120, respectively. Mobile customers were also paying less than in many GCC countries when tariffs from Batelco and VIVA were compared to operators elsewhere in the Gulf.

Customers using a pre-paid phone to make 40 calls a month were paying Batelco $22 and VIVA $17, compared to $29 with STC in Saudi Arabia or Ooredoo in Kuwait. The same low-use customers using Mobily in Saudi Arabia were paying just $15. Oman Mobile was charging customers the most among users making 900 calls or 100 calls, with tariffs of $327 and $63, respectively. In comparison, Batelco customers making 900 monthly calls were charged $85 and those in the 100-call basket faced fees of $25. VIVA’s rates were even lower than Batelco for 900 calls a month at $72, but slightly dearer for 100 calls at $31.

The report found Bahrain’s mobile operators offering data were close to the OECD rate and that they compared favourably to other countries in the GCC, with tariffs for 300 calls and 1 GB of $35 and $47 at VIVA and Batelco, respectively, compared to the OECD average of $36, $104 at STC in Saudi Arabia, $107 at Etisalat in the UAE, $125 at Zain Kuwait and $146 at Oman Mobile. When aggregate prices across mobile, broadband and fixed-line are compared, Bahrain has the lowest tariffs in the GCC for low-use residential customers, but is charging high-use customers more than in the UAE or Qatar. For business customers, Bahrain is in the middle of the GCC pricing table for firms with moderate usage, but it has the second most-expensive aggregate charges for high-use companies at $796, behind Oman on $1230 but significantly more than Saudi Arabia where aggregate charges are $342.

The TRA data shows that although all three mobile operators in Bahrain have a presence in other GCC countries, there are significant differences in consumer costs across the Gulf. However, the marketing of mobile packages is limited to individual jurisdictions. For instance, majority state-owned Batelco is not attempting to sell its Bahraini SIM packages to customers in Oman, nor is it facing direct competition in Bahrain from STC products created for Saudi customers. Business customers operating in all GCC countries must therefore buy services within each country rather than agreeing on a pan-GCC price.

ROAMING FEES: In April 2017 the TRA, alongside representatives from GCC nations, announced a 35% reduction to data roaming rates within the GCC from BD0.49 ($1.30) per MB to BD0.32 ($0.85) per MB. International calls were cut from BD0.24 ($0.64) per minute to BD0.24 ($0.61), national calls dropped from BD0.098 ($0.26) to BD0.094 ($0.25) per minute, and the cost per SMS was reduced from BD0.03 ($0.08) down to BD0.026 ($0.07). “We’ve taken some significant steps in collaboration with our counterparts in the GCC to enable consumers with better roaming rates in the region by initiating the GCC roaming regulation which puts price caps on roaming charges,” Sheikh Nasser bin Mohamed Al Khalifa, deputy general director of the TRA, told local media. “This has been in effect since April 2016 and costs will continue to decline every year until 2020 in favour of consumer welfare.”

COVERAGE: In order to ensure that customers within Bahrain were receiving value for money, the TRA commissioned an evaluation of the quality and extent of coverage offered by the three MNOs. Independent telecoms consultancy Directique conducted an audit in September 2016 to ensure the three MNOs were meeting their licence obligations in offering voice and data services across 99% of the kingdom, or in VIVA’s case 99.8%. All three operators managed to meet their obligations according to the survey. However, all three companies also had their lowest results for the Northern Governorate where 26% of the population live. In this area the three companies, Batelco, VIVA and Zain, were found to have voice coverage of 99.70%, 99.89% and 99.88% of the population, respectively.

Batelco successfully managed voice coverage for 100% of customers in the Capital Governorate and 99.8% of the population in Muharraq and Southern Governorates. VIVA covered 100% of the population in the Capital, Muharraq and Southern Governorates. Zain also reached 100% of voice customers in the Southern Governorate, 99.92% in Muharraq and 99.97% in the Capital. Furthermore, the audit found that all three networks were providing 100% coverage in all regions for both 3G and 4G data services.

5G: All three MNO’s have recently made significant investments in infrastructure and are gearing up for the next mobile technology generation. In May 2017 Batelco and Ericsson announced they had carried out what they described as Bahrain’s first 5G trial, technology which will enable machine to machine (M2M) and internet of things (IoT) development. During the test at Batelco’s headquarters a record speed of 25 Gbps was achieved over a live network during tests for speed, latency and beam steering. According to Ericsson’s “5G Business Potential” report published in 2017, the new technology could support $600m in 5G opportunities in Bahrain. Concurrently, Batelco has been expanding its 4G network, doubling the locations covered from May 2016 to July 2017.

In July 2017 VIVA announced it was “paving the way for 5G services” with the launch of its 4G LTE network to almost double speeds from 150 Mbps to 225 Mbps automatically for subscribers on the network. “This sets a strong foundation for the deployment of our 5G services in the near future while also uplifting Bahrain’s capabilities to be an ICT powerhouse,” VIVA Bahrain’s CEO Ulaiyan Al Wetaid told local media.

A month later VIVA made another step in broadening the technology and services available to its customers by announcing it was planning to buy 100% of the shares of Menatelecom (Mena). Established in 2003 Mena holds licences for national fixed wireless, national fixed services, international telecoms services and facilities, along with internet services. In April 2017 Mena launched an LTE service in the Muharraq, Isa Town and Saar regions offering internet speeds of up to 200 Mbps. Additionally, in June 2017 Zain Bahrain issued a statement to the Bahrain Bourse clarifying its planned launch of their commercial 5G network “expected to take place at the end of 2018.”

In July 2017 the TRA organised a workshop to discuss the findings of its report on fixed point to point links to enable the deployment of 5G networks, acknowledging that the implementation of the technology was imminent, which in turn has led to the three MNOs aggressively competing on speed and service by investing in new technology. In addition to the 1590 existing masts – the structures supporting the radio antennas – the TRA is managing the positioning and distribution of future masts and other equipment to reduce the impact on the skyline, promote greater efficiency by encouraging site sharing among operators and to address public concerns about mast emissions.

BIOMETRICS: In 2017 new rules introduced by the TRA came into force requiring all MNOs to fingerprint customers attempting to buy SIM cards and limit the number of cards any individual could purchase. The TRA regulations were introduced to prevent identity theft, fraud and other misuse of SIM cards. MNOs are required to take passport details and use biometric tests to verify the customer’s identity and SIM cards can only be sold through operators’ outlets or through approved resellers. The new rules limit each customer to 10 SIM cards from each operator, 30 pre-paid cards in all. The TRA also ran an awareness campaign aimed at customers, stressing the importance of controlling cards registered in their name, and reminding customers that misuse of a SIM registered in their name by another person could expose them to financial obligations or legal accountability.

OUTLOOK: The intense competition in Bahrain’s telecommunications market has been acknowledged by all three network operators. Nevertheless, there is little sign the struggle for acquiring new subscribers and growing margins will subside as the determined pursuit of new technologies to offer higher speeds continues. Just as voice has been eclipsed by data with the rollout of the 4G network, the promise of the imminent introduction of 5G technology may see a shift in revenue sourcing from man to machine as the three MNO’s each seek to create platforms that will support the upcoming IoT and M2M revolutions in Bahrain.

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The Report: Bahrain 2018

ICT chapter from The Report: Bahrain 2018

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