As Bahrain, already one of the GCC’s most diversified economies, looks to further broaden its economic base away from hydrocarbons, telecommunications will likely play a key role. Working toward that goal, and the overall improvement of the infrastructure and services available, the country has sought to recapture a competitive edge. The government of Bahrain has unveiled the Third National Telecommunications Plan, which commits it to the goals of developing a national broadband network and providing the regulatory framework necessary for implementing fourth-generation long-term evolution (4G LTE) technology.

Since the release of the latest national telecommunications plan in summer 2012, the banking sector has responded by increasing the amount of lending to the industry. According to figures from the Central Bank of Bahrain, the total value of loans and advances to the transportation and communications sector rose from BD202m ($531m) in the summer of 2012 to BD248m ($653m) by the end of the year. More recently, growth within the sector has been spurred by the preparations to auction licences and spectrum rights necessary for 4G LTE service in the spring of 2013 from the government to the telecommunications sector.

FAVOURABLE INDICATORS: While Bahrain may be a latecomer to the development of 4G LTE technology within the GCC, the kingdom boasts one of the Middle East’s most developed information and communications technology (ICT) infrastructures. According to the ICT Development Index released by the International Telecommunications Union (ITU) in 2012, Bahrain’s well-developed ICT infrastructure ranked 40th in the world. This ranking marks a significant improvement from 45th in the 2011 list. This jump represented the largest gain made by any country on a year-to-year basis during that period. The Bahraini market also received a high mark (15th place) in terms of price competitiveness. The ITU therefore concluded that prospects for telecommunications look promising, noting that, “further increases in ICT usage may be expected in the country”.

According to the 2013 Investment Climate Statement released by the US State Department, the telecommunications sector already contributes $1.07bn to the economy, an amount roughly equivalent to 4% of GDP. Statistics for 2011 released by the country’s Telecommunications Regulatory Authority (TRA) show that some 2708 individuals work in the sector and employment continues to grow. Between 2010 and 2011, the number of staff in the sector increased by 4.8%. Some 80% of those employed in the sector are Bahraini nationals, a fact that speaks to the highly educated workforce. Tamkeen, a government training initiative started in 2006, is eager to fund new technical trainings to ensure Bahrain’s ICT workforce remains competitive.

OPERATORS: According to the December 2012 TRA Market Indicator Report, there are 22 active telecommunications companies within the kingdom: 10 active operators for national fixed lines, 17 companies licensed to transmit international calls, 17 leased lines providers and 16 internet service providers. So far, growth has primarily been seen in domestic mobile services, which account for roughly half (46%) of revenues for the telecommunications sector; international calls (22%), leased lines (15%), internet (12%) and fixed telephony (5%) round out the market, according to data released by the TRA. Given that most telecommunications revenue comes from mobile services, it is no surprise that the competition between operators is fierce.

GOING MOBILE: Since 2009, Bahrain has been home to three mobile telecommunications providers: the legacy operator Bahrain Telecommunications Company (Batelco), Zain Bahrain and Viva Bahrain. Competition between these three companies has helped to grow mobile penetration rates from 130% in 2008 to 158% by the end of the second quarter of 2012, giving Bahrain 1.9m mobile users, of whom around 80% are prepaid subscribers. A 2013 report from market researcher Business Monitor International shows that average revenue per user (ARPU) has grown 10% over the last year, as demand for high-speed data services continues to rise. A key priority for all mobile operators has been to encourage more post-paid subscriptions. To grow the market share of this segment, operators are offering a range of incentives to switch. According to a 2012 report from the ITU, while prepaid mobile broadband customers could purchase 1 GB of data for $26.30, post-paid mobile broadband customers could buy a 4 GB data allowance per month for the same price. According to the same report, growth continues to be robust for a number of services. For example, the two-year period from June 2010 to June 2012 saw an increase of 570% in mobile broadband service.

MOBILE WARS: According to research compiled by Markaz, a research arm of the Kuwait Financial Centre, Bahrain boasts the second-lowest mobile phone tariffs in the GCC, adjusted for purchasing power parity, at just $0.13 per minute for voice calls. In the GCC, only the UAE boasts a lower tariff rate ($0.07 per minute).

The first company to enter the market was the Kuwaiti telecommunications company Zain Bahrain, formerly branded as MTC-Vodafone, which arrived in 2003. Viva Bahrain, whose parent company Saudi Telecom Company (STC) entered Bahrain in 2009, joined the mobile market in 2010. Despite the entrance of two competitors, the incumbent Batelco maintains the greatest market share in the kingdom, with 39% of all mobile users. Zain has 33.7% of market share and Viva holds the remaining 27.3% of subscribers.

CREATING COMPETITION: The TRA is responsible for regulating both the telecommunications and IT sectors in the kingdom. The organisation was established by the Telecommunications Law approved by legislative Decree No. 48 in October 2002 as part of a series of moves towards market liberalisation. The TRA is both judicially and financially independent in its capacity as the primary regulator of telecommunications within the kingdom. The legislation broke the monopoly held by Batelco and encouraged additional companies to enter the market. In order to maintain a competitive domestic market, the TRA makes decisions and issues regulations to create competition. These moves often create significant value for the end user, such as the introduction of fixed number portability in 2011.

On February 16, 2012, the TRA announced that Bahraini mobile operators would have to reduce roaming charges imposed on customers using their services in other GCC countries. In justifying its move, the TRA noted that Bahraini roaming charges within the GCC were steeper than those Bahrain had committed to under agreements reached within the Ministerial Committee of the GCC. The TRA decreed that a maximum rate of BD0.25 ($0.66) per minute could be charged for users roaming within the six GCC countries. In effect, this move represents a roughly 75% reduction on the previous maximum rate. In the same ruling the TRA also set a maximum rate of BD0.10 ($0.26) per minute for local calls within the GCC for roaming users.

THE NATIONAL PLAN: Since the formation of the TRA a decade ago, the organisation has outlined its goals for the telecommunications sector through the periodic publication of national telecommunications plans. Released in 2012, the Third National Telecommunications Plan details the TRA’s agenda through 2015. The plan outlines an ambitious agenda for the “economic and social advancement” of Bahrain by fostering improvements to the nation’s telecommunications infrastructure, and calls for protection of the telecommunications sector as “critical national infrastructure.” The plan also lays out a number of goals for the sector, including post-3G and LTE standards, digital security and increasing competition within the market.

The TRA’s regulations have often focused on Batelco, which formerly held a competitive advantage as the state incumbent in the market. In 2009, for example, the TRA found Batelco had prohibited access to its submarine cable landing station without sufficient warrant, a complaint for which Batelco agreed to pay a fine of BD750,000 ($1.9m) in 2012.

In another effort to level the playing field, the regulator has since 2009 set the cost of capital for the telecommunications sector at 9.5%. This figure marks the expected return that investors should receive on capital invested in regulated telecommunications services, and is meant to ensure competition within the market by capping returns to industry leaders. The TRA has also set a limit on how much Batelco can charge other operators for field studies prior to the laying of alternative communications cables.

Not all of the TRA’s policies and regulations have been to the detriment of Batelco. In fact, the TRA has pursued polices meant to ensure fair competition among all of Bahrain’s telecommunications companies. In 2012, for example, the TRA ruled that Viva had reached the position of significant market power (SMP), meaning that it will now have to abide by the same regulatory considerations as Batelco and Zain – both already SMP operators – in the provision of messaging or voice interconnection services.

Indeed, in February 2013 the TRA ruled for the first time that Batelco was not the dominant force in the market for the provision of international telecommunications services. As a result, Batelco was freed from the obligation to provide these services in bulk to its competitors. This move signals that the Bahraini telecommunications market is increasingly competitive. The TRA’s policies have not gone unnoticed; the organisation was the named the Most Progressive Regulator of the Year 2011 by the South Asia Middle East and North Africa Telecommunications Council.

FUTURE PLANS: At present, the TRA seems satisfied with the level of competition within the market and is unlikely to allow a fourth entrant in the short term. This attitude is perhaps expressed most clearly in its decision to limit participation in the auction of the 4G radio spectrum to the three existing providers.

While 4G technology has been present in the market for a number of years, mobile 4G/LTE technology has yet to be unveiled. In part, this is due to the fact that the portion of the radio spectrum needed to provide 4G coverage to Bahrain is being used primarily by various government agencies (see analysis). Further, the TRA was keen to unveil the service in a competitive manner via an auction to award frequency concessions and mobile licences in the 2600 MHz, 2100 MHz, 1800 MHz and 900 MHz bands. Originally set for the end of March 2013, this plan has been put on hold, however, as the TRA faces legal challenges from wireless broadband provided Menatelecom, a subsidiary of Kuwait Finance House, about its decision not to allow new entrants to bid for spectrum.

Having rolled out its own 4G technology for its customers in December 2012, Menatelecom had contracted Huawei Technologies to deploy its latest 4G LTE wireless network in Bahrain in advance of the auction as part of a broader $40m investment programme designed to ensure that the company was ready to provide its customers with the full range of 4G services once the required spectrum is released.

MOVING AHEAD: While waiting for the TRA to release needed parts of the spectrum, some existing operators are moving ahead with their own infrastructure, although the exact definitions of these is the subject of debate (see analysis). Batelco announced in late February 2013 that LTE services were now available for its customers, becoming the first telecommunications provider in Bahrain to offer the service. This followed the introduction, in the autumn of 2012, of Bahrain’s first pay-as-you-go cloud computing service, known as Imaas. Batelco has already expressed an interest in developing other business solutions that will take advantage of the high speeds made available by 4G. Other companies within the market have also spent months positioning themselves for 4G spectrum licences.

As well as increasing the services it offers at home, Batelco has looked to expand its operations overseas. In January 2013, the company’s shareholders approved the acquisition of Cable and Wireless Communications (CWC) Monaco and Island division. CWC has traditionally focused on the provision of telecommunications in islands similar to Bahrain, making the purchase a good fit. This acquisition gives Batelco a presence in 17 additional markets. By the beginning of 2013, some 41% of revenues came from markets outside Bahrain, such as Yemen and Jordan. The company hopes to reach 30m customers across its various markets by 2015.

In September 2012 Zain announced plans to expand its footprint in Bahrain by making investments worth some $100m to retrofit and modernise its network. When this effort is completed, Zain will have added 200 coverage sites to provide better coverage within Bahrain and expand its capacity for 4G LTE service. Zain previously sought to develop an LTE capacity in 2009, when Nokia Siemens Networks was contracted to provide LTE radio and associated infrastructure for its expansion into post-3G technology. In October 2012 Zain also announced that the company planned to launch a new data centre, with Dheya Towfiqi Engineering Bureau serving as the lead consultant for technical implementation and the Maklai Group acting as programme managers for the project.

Viva also began its preparations for a 4G LTE network market early, and indeed Viva’s parent company, STC, was the first in the region to unveil 4G LTE service. As of January 2013, the company was offering 42-Mbps Dual-Carrier High-Speed Packet Access (DC-HSPA+) mobile services for its customers. Viva has previously billed itself as the fastest internet provider in Bahrain; in 2010 the company offered the HSPA+ technology with speeds of 21.1 Mbps to mobile data users. Should new radio spectrum bandwidth become available, Viva hopes to unveil true 4G LTE technology in 2013.

Viva has partnered with a number of international firms to upgrade telecommunications capacity. In 2010 Viva began working with the Chinese technology firm Huawei to upgrade its 4G LTE capacity. The company also worked with Tech Mahindra for IT development and with the US firm iVEDiX to upgrade its data warehouse solutions. As the newest entrant into the market, raising brand awareness is also key for Viva. As a result, Viva has set out to sponsor a number of community and sporting events in Bahrain, including the annual F-1 Bahrain Gulf Air Grand Prix. The company has also sought to develop a promotional deal with the English football club Manchester United.

TO THE MAX: Worldwide Interoperability for Microwave Access (WiMAX) services were introduced to the market in 2007, and by the end of 2011 the country boasted 109,000 subscribers, of whom 97% are residential users. The technology is provided by two operators in Bahrain: Menatelecom and Zain. In 2009 Menatelecom was one of several companies that considered bidding on the market’s third mobile telecommunications licence, which was ultimately won by STC and used to launch Viva Bahrain. Since then, Menatelecom has focused on WiMAX and, together with Zain, covers 95% of Bahrain. Key to such rapid growth in WiMAX subscribers has been the speed of service, the bundling of both broadband and fixed telephony in the service, and flexible payment options. Both prepaid and postpaid WiMAX services are available in the local market.

DECLINE OF FIXED LINE: As in other markets with mobile phone penetration above 100%, use of fixed-line phone services in Bahrain continues to decline. There are currently 254,000 fixed lines in the country, a market penetration of just 21%, according to the TRA. Figures have been falling for several years; domestic traffic decreased by 27% between 2010 and 2011 due to increasing usage of mobile telephones and the full availability of Voice over Internet Protocol technologies. During that same period, ARPU decreased from BD5.10 ($13.42) per month in 2010 to BD4.30 ($11.32) per month in 2011. For residential users, the average fixed telephony minutes per month have also fallen. Today residential customers use only a 100 minutes a month, as opposed to 450 minutes a month for business users, according to data released by the TRA. While usage figures decline, the actual number of fixed telephone lines in the kingdom rose by 5% between 2006 and 2011.

The affordability of fixed-line telephone service in Bahrain may help explain this growth. Bahrain had the sixth most affordable fixed-line service out of 161 countries surveyed, according to the ITU. International calls continue to be one area of growth, with the overall volume of minutes rising by 41% from 2006 to 2011. Though the growth of international calls has proved stable, ARPU has dropped from BD0.23 ($0.61) per minute in 2005 to just BD0.03 ($.08) per minute in 2011. While international calls originating on both mobile and fixed lines have become cheaper, the drop in prices has primarily benefitted mobile telephone operators. Some 90% of all international outgoing calls are made via mobile, a statistic that has remained static since 2011, according to the most recent market update figures from the TRA.

ALTERNATIVES TO FIXED LINE: The development of bundled WiMAX services and other alternatives to traditional fixed-line telephony has been aided by TRA regulation, in particular the creation of fixed number portability in October 2011 and mobile number portability in July 2011. Telecommunications companies whose users switch services must facilitate the transfer of the number within six days. According to figures released by the TRA at the end of 2012, some 43,000 mobile numbers were ported within the first year the regulation had been entered into the market – roughly 2.2% of the mobile customers in the kingdom. Indeed WiMAX fixed telephone subscriptions have grown from just 1000 in 2007 to over 68,000 by the end of 2011, according to the TRA. The introduction of fixed number portability into the market has had a large impact as businesses have realised the savings. As such, by the middle of 2012 some 33% of all fixed lines were, in fact, provided by fixed wireless service.

OUTLOOK: Bahrain, though home to just over 1m customers, is an intensely competitive market. To stay competitive the kingdom’s telecommunications giants will likely form further international partnerships of a technical or promotional nature to distinguish themselves. This is in no small part due to the proactive regulatory policies of the TRA. The main telecommunications companies within Bahrain have worked to carefully position themselves over the past few years toward the unveiling of the 4G LTE spectrum. Just as dial-up gave way to ADSL, the likely trend based on TRA figures is that ADSL will inevitably give way to 4G LTE service. This trend is especially likely given Bahrain’s high level of ICT interconnectedness and the tendency of the kingdom’s population to be early adapters of new technologies.