Strategic strength: Government and consumer spending buoy growth as the sector waits for a new law and an independent regulator

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The IT sector has gained much ground over the last decade, witnessing a dramatic rise in internet penetration – from a negligible rate in the year 2000 to levels of access comparable to Europe by 2013. Substantial government investment in e-services and infrastructure have boosted the nation’s network readiness and gone some way towards mitigating the absence of a dedicated regulator for the sector. Accessing the internet, storing data online and utilising an increasing array of IT services have become faster and cheaper experiences for Kuwaitis in both the retail and commercial sectors, and technological advances combined with an increasing level of market competition suggest that this trend will continue. “Government spending continues to drive IT services in Kuwait, which, through the National Development Plan, has the potential to implement next-generation solutions,” Ezzat Jaafar, general manager of Arabian Construction Company, told OBG.

SECTOR STRUCTURE: The Kuwaiti IT market is served by four major internet service providers (ISPs), which cater to both the corporate and retail segments. Their activities extend beyond the provision of internet and into the increasingly popular area of data services, using data centres to provide cloud services to large clients in sectors such as banking, oil and gas, retail, telecommunications and transportation. At this level of the market advanced technologies such as multiple protocol label switching (MPLS), which gives network operators more flexibility to divert traffic around link failures, are being increasingly adopted. At the level of the individual user, too, industry standards are rapidly improving. In 2007 commercially available capacities for home users did not exceed 1 Mbps; by 2009 the upper limit had reached 4 Mbps, and by 2013 premium packages for home users had reached 24 Mbps.

Gulfnet Communications Company (Gulfnet) is among the oldest ISPs, established in 1991 as a subsidiary of Kuwait’s largest publicly traded investment company, KIPCO. The company offers its services over a 10-GB Ethernet backbone, and has safeguarded continuity of service through multiple internet STM feeds via terrestrial, submarine and satellite providers, along with running two disaster data recovery centres in Um Al Haiman and Kuwait City. Zajil Telecom’s operations also date from 1991. Since then, it has established itself as an innovator with a focus on the business sector and operates a regional and international MPLS network to address the multi-point connectivity needs of companies with geographically dispersed offices. QualityNet launched its internet gateway and data communications infrastructure in 1998, and became the first ISP in Kuwait to attain ISO 9001:2000 certification. It operates an MPLS system within the nation’s borders, primarily accessing it through high-speed Giga Ethernet, although it does retain legacy services such as frame relay, asymmetric digital subscriber line (ADSL) and integrated services digital network (ISDN) technologies. FASTteleco is the most recent entrant, having started operations in 2001. It offers residential internet up to 8 Mbps, as well as business services such as internet, voice, and data communication and storage.

The Kuwaiti market contains a large number of sub-ISPs. Around 50 of these companies purchase bandwidth from one of the four larger firms and sell it via pre-paid cards. As well as the traditional ISPs, which make use of the nation’s copper or fibre-optic infrastructure, the market has a single player offering high-speed wireless internet and data solutions. The Wireless Mobile Data Company (WiMD) is a licensed sub-ISP which has been serving corporate customers since 2010. In 2012 it rolled out its wireless broadband services to the residential market, with speeds of up to 20 Mbps.

ACTIVE INTERVENTIONS: While Kuwait is unique in the GCC in not having an independent telecoms regulator, the Ministry of Communications (MoC) closely monitors and regulates ISPs, sub-ISPs and internet cafes. It also enforces a policy which compels ISPs to block pornography and sites deemed injurious to public order and morality. The domain name system in Kuwait is operated by the Kuwait Institute for Scientific Research (KISR), which does not register domain names that offend public sensibilities or otherwise do not comply with domestic laws. Voice over internet protocol (VoIP) services are also prohibited in Kuwait, and the MoC’s control of the international gateway, the only legal means by which Kuwaitis can call abroad, provides it with a revenue stream to offset the free local calls available through the fixed-line system. However, popular VoIP programmes such as Skype can be accessed through proxy servers and the use of VoIP technology is widespread. Kuwait’s ISPs join the nation’s mobile operators in waiting for the establishment of a dedicated telecommunications regulatory authority, as well as a new telecommunications law. In the meantime, the MoC has stopped issuing new licences to ISPs.

As part of its regulatory role, the MoC has made a number of market interventions in order to protect consumers and promote competition. In June 2011 it called on ISPs to reduce their prices for internet access. While all four ISPs complied, they sought to protect revenues by introducing “fair usage” policies establishing daily download limits which, if exceeded, trigger a 75% Internet infrastructure, 2003-12 reduction in connection speed for the remaining 24-hour period. The ISPs justified their decision by stating that bandwidth caps, which ranged from a 1.7-GB-perday limit for a 1-Mbps connection to 7.9 GB for an 8-Mbps connection, ensured equal access to all users. However, negotiations in July 2011 between the MoC and ISPs resulted in an agreement by which broadband prices would be reduced by between 15% and 25%, and bandwidth caps would be scrapped. In September 2012 the MoC intervened again, this time announcing a decision which obliged ISPs to cut charges by 40% and remove the bandwidth cap on Wi-Fi services.

According to the new price regime, the maximum annual subscription fee for a 1-Mbps service is KD48 ($171) while the top rate for an 8-Mbps connection is KD200 ($714). However, in calling for the reductions, industry players concede that MoC has also made some accommodations to ISPs: “I think the ministry has done a good job with the pricing. All of the infrastructure in Kuwait is owned by it, and we rent it from the ministry. They help us with the cost, and at the end of the day we are able to reduce our prices for our customers,” Waqar Qureshi, senior manager, products development at QualityNet, told OBG.

INCREASING ACCESS: In 2000, only 6.73% of Kuwait’s population had access to the internet, according to the International Telecommunication Union (ITU). By 2011, this figure had risen to 74.2%, well over the 38% average for Arab states and the Asia and Pacific region’s 32%, and on par with the European rate of 75%.

The proportion of Kuwaitis with a computer at home is also relatively high, standing at 69% in 2011, according to data gathered during the 2011 census, while 57.7% of households have direct access to the internet. Detailed data concerning Kuwait’s IT sector is scarce, and market participants frequently resort to rudimentary measures to ascertain strategic information, such as market share. “Our engineers are able to look in each exchange to see how many ports we have compared to our competitors. Kuwait is small enough for this to be feasible,” Qureshi told OBG. The most recent data provided by the World Bank shows that the number of fixed broadband subscribers had reached 46,000 in 2010, while by 2012 the number of secure internet servers had risen to 582 from the relatively modest 38 in existence in 2003. In 2013 the nation was indexed 62nd out of 144 on the World Economic Forum’s “Global Information Technology Report”, scoring particularly well in terms of network coverage, provision of secure internet servers, individual usage of the internet and accessibility of digital content.

Its global placing for business usage was more moderate, while the absence of a dedicated regulator brought a poor score in the fields of government vision and political and regulatory environment (see analysis). Nevertheless, the nation climbed 13 places on the index in 2012 over its 2011 position, an achievement which reflects the success of some aspects of government strategy in relation to the sector.

STRATEGY: Kuwait’s planning for the development of the IT sector began in 2004 with the publication of the “National Strategy for Building an Information Society”. The document adumbrates a broad vision of IT’s role in society, and calls for modernising IT infrastructure, increasing the reach of the internet as a gateway to information, building trust in IT usage by encouraging the use of IT in general and electronic transactions in particular, and building the capacity of individuals to effectively participate in the information society. These principles underpin the IT section of the state’s current five-year development plan (2009/10-2013/14). This document, prepared and published by the General Secretariat of the Supreme Council for Planning and Development, established a number of “information society” policies, which include: the issuance of a new telecommunications law and the development of intellectual property protection; the establishment of a telecommunications regulatory commission; upgrading national infrastructure through the completion of a new fibre-optic network; further liberalisation of the sector through the privatisation of some services, such as fixed telephones; upgrading the skills of workers in the IT field; and the dissemination of information regarding IT and its applications to the community.

The agenda proposed by the development plan is a bold one, and many of its more ambitious recommendations are subject to Kuwait’s open (yet often slow) legislature. However, where the government has been able to act independently, it has addressed many of the principal issues directly. In 2006 an emiri decree brought the Central Agency for Information Technology (CAIT) into existence, and since then the body has been actively addressing some of the major pillars of government IT strategy. It has sought to increase awareness and usage of IT amongst the population by creating a government portal that offers more than 50 different online services in 2013, and it has established the Kuwait Government Call Centre to serve all users of government e-services, featuring multi-channel communication services including e-mail, electronic chatting, SMS messaging and voice calls.

Furthermore, it has launched a number of training programmes that have allowed both public and private sector employees to gain internationally accredited qualifications in fields such as network administration and database management (see analysis).

INFRASTRUCTURE: Kuwait’s IT infrastructure, both internal and external, continues to evolve. Since the late 1990s it has been assiduously building new external connections, starting with the Fiber Optic Gulf (FOG) submarine cable in 1998, owned by the MoC, Etisalat, Ooredoo and the Bahrain Telecommunications Company, sporting landing points in Doha, Dubai, Kuwait City and Manama. In 2005 the MoC joined forces with the Telecommunication Infrastructure Company of Iran to establish the 380-km cable that now connects the two countries. In 2006 the company was connected to Reliance Globalcom’s Flag Falcon cable, which links locations as far apart as Egypt’s Suez and Mumbai. Finally, in early 2012 Kuwait joined the Gulf Bridge International Cable System (GBICS) and the Middle East North Africa Cable System, a joint project owned by GBI and the MENA Cable Company, that brings yet more regional connectivity and security of supply. The country has further diversified its bandwidth sources with a number of terrestrial cables, primarily connecting to Saudi Arabia and Iraq.

Within Kuwait’s borders, one of the most interesting infrastructural changes taking place in Kuwait’s IT sector is the gradual implementation of new fibre-optic infrastructure being spearheaded by the MoC. Kuwait’s adoption of fibre-to-the-home (FTTH) technology involves the removal of the old copper local loop cabling and replacing it with a new broadband network architecture, which uses more efficient optical fibre to transfer data. It is a more comprehensive approach than similar alternatives, such as fibre to the building or fibre to the curb, in that it reaches the boundary of each living space – which in Kuwait’s case often involves a number of homes in a multi-floor building.

REACHING OUT: The initiative dates back to 2005, when the MoC carried out a pilot programme which was one of the most extensive of its type in the world at the time. Partnering with Siemens Communications, the MoC oversaw the installation of a new Gigabit Passive Optical Network (GPON) system, which routes cables into residential or business areas and then fans them out via passive splitters to each building. Some 44,000 plots, both commercial and residential, were connected in the first phase, although a small number of them still await the installation of a switch.

In 2013 the MoC is planning to issue a tender which will ensure the connection of a further 66,000 plots, and the ministry has a broader goal of linking up all of Kuwait’s buildings – an estimated 200,000 plots – to an FTTH system by 2017. The principal advantage of fibre over metal cables is speed, and the significantly improved transfer rates of Kuwait’s new point-to-multipoint access system (up to 2.49 GB per second) will allow for a range of enhanced services, such as high-speed internet access, voice calling, video-technology, online gaming and TV broadcasting. For this reason, local ISPs are anxious to see the FTTH implementation completed as soon as possible. “We are pushing the government to deploy GPON as soon as possible. I believe we are expecting complete implementation by 2017, but we are hoping that this will be accelerated,” said Qureshi. “In Kuwait, customers are used to anywhere between 2 Mbps and 4 Mbps. Anything more than that is seen as a luxury. In other markets, speed of 10 Mbps to 20 Mbps per second are seen as basic services now, and ISPs are adding on all kinds of new services, such as IPTV and OTT [over-the-top] services. We are hoping to provide those technologies, change market perception and get accustomed to higher bandwidths, have better quality of service. And all this depends on a very robust infrastructure.”

FUTURE GROWTH: Like similar markets across the globe, the economic crisis which began in 2007 negatively impacted Kuwait’s IT sector, and its cooling effect is still evident in sales of hardware and data services. While market participants indicate that the private-sector business is recovering, many report that a return to pre-crisis levels has been slower than expected.

Percentage of population using the internet, 2000-11 Nevertheless, the presence of an established corporate sector and its need to upgrade hardware and software, along with an expanding oil and gas industry and a growing small and medium-size enterprise segment keen to adopt fully automated back office systems, presents domestic IT compares with numerous opportunities in the private sector. Government business, including the MoC’s extensive e-government projects, continues to drive growth, helping to underpin an IT spend expected to reach $334 per capita by 2016 (from the estimated $276 in 2012), according to Business Monitor International. On the consumer side, Kuwait’s per capita GDP of nearly $60,000 per annum should sustain future growth in the sector, particularly as technological innovations lead to a greater convergence of voice and data services on mobile devices.

CONVERGENCE: The increasing trend of using mobile phones for data and entertainment is a global phenomenon, and Kuwait is no exception. Local retailers have reported that smartphones have displaced older models in the handset market over the past two years, and now account for around 80% of mobile phone sales. Increasingly, mobile operators are bundling voice, data, internet and entertainment services in a bid to attract a new generation of tech-savvy consumers.

For now, the attempts of ISPs to retain their customer bases in the face of an ever increasing convergence of services on mobile handsets are strengthened by the data limits that mobile operators now apply to their packages. As in many other markets, consumers have demonstrated a willingness to subscribe to a data services for their smartphone in addition to a separate internet connection for the home.

For many in the industry, however, the future growth of the ISPs rests in their ability to work with Kuwait’s mobile operators to take advantage of the convergence of voice, data and entertainment. In Kuwait, a basis for cooperation already exists: ISPs, as well as selling on bandwidth to sub-ISPs, already sell bulk bandwidth to major mobile operators, and companies like QualityNet have established trial programmes in the past with mobile operators to offer bundled services. The development of the relationship between Kuwait’s ISPs and mobile companies as data traffic increases with the introduction of new technology – most notably the 4G LTE networks currently being deployed across the nation – will remain a central industry issue over coming years.

OUTLOOK: Despite the government major efforts to promote the benefits of IT to the business community and public, the future development of the sector would be greatly aided by a new telecoms law and the emergence of an independent regulator. While both of these ambitions have long formed part of the government’s stated strategy, the rapidly evolving nature of the market and the increasing overlap between the activities of mobile operators and ISPs have made their realisation of these goals all the more important. In the meantime, Kuwait’s young and wealthy population, along with government purchases of IT equipment, continue to drive the sector’s recovery from the decline it experienced following the global economic crisis.


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The Report: Kuwait 2013

Telecoms & IT chapter from The Report: Kuwait 2013

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