Throughout the 20th century the economy in Bahrain made a significant transition from pearl diving to hydrocarbons. In the 21st century, the kingdom has begun to shift the emphasis of its economy once again, this time towards what the Third National Telecommunications Plan (TNTP) calls a digital economy. In recent years, Bahrain’s IT sector has been driven by a number of factors that separates this small economy from its neighbours. The kingdom has sought to develop its telecommunications infrastructure in a number of ways, including the planned national broadband network (NBN) (see analysis), which should help spur the growth of the IT sector and the wider economy. Indeed, research from the World Bank has suggested that with each 10% increase in broadband penetration in a country, 1.3% incremental growth in GDP has been observed.
REGIONAL PEDIGREE: Bahrain’s efforts to liberalise its economy have also stood its IT sector in good stead. In most developed OECD countries, the IT industry is one of the least controlled areas of the economy, in part due to the fact that government regulation in general tends to be reactive to new technologies rather than proactive. On this account, Bahrain’s IT sector is on competitive footing. In 2012 a study by the Wall Street Journal and Heritage Foundation found Bahrain to be the freest economy in the Middle East. A similar survey by the Fraser Institute, a leading Canadian think tank, also ranked Bahrain as the freest economy in the Middle East. For example, in many Middle Eastern markets, the right to operate Voice over Internet Protocol (VoIP) services is reserved solely for licensed telecommunications holders, but there is no such restriction in Bahrain. Indeed, mobile phone VoIP applications are present in Bahrain, which enables users to make calls outside the data plans provided by their mobile providers. In this way users can avoid roaming charges.
In addition, Bahrain’s e-government also ranks highly compared to elsewhere in the region and new IT solutions are routinely sought out. In the construction sector, for example, where 16% of all projects are focused on improving roads and the wider transportation network, the Ministry of Works used modern software applications, including PTV Vision Suite, Sidra intersection and Synchro to conduct 24 micro-simulation studies for 24 road improvement projects in 2012. These have led to new policy initiatives, such as an increasing emphasis away from roundabouts to traffic lights to increase efficiency.
BY NUMBERS: According to figures from the International Telecommunications Union (ITU), the number of households in Bahrain connected to the internet rose from 55% in 2010 to 77% in 2011. Overall, ITU statistics show that 90% of the kingdom’s households have a computer, higher than either Canada or Germany. Further, these numbers understate internet usage, as many residents access the internet via their mobile phones.
According to Markaz, a Kuwaiti investment group, spending on the ICT sector in Bahrain is expected to reach $1bn in 2013, part of a wider $63.5bn investment across the GCC, while market research firm Business Monitor International forecasts the total size of the IT sector within Bahrain will grow to $372m by the end of 2013, up from an estimated $346m in 2012. The sector is set to see further growth as the completion of two new telecoms cables are likely to reduce internet prices in the kingdom in the short term. Despite the relatively small size of the market, much of Bahrain’s IT business sector continues to see the kingdom as a gateway to the rest of the GCC and Saudi Arabia, which enlarges perspective opportunities.
TRANSIT POINT: According to the 2012 UN E-Government Survey, which looked at overall telecommunications infrastructure index and components, Bahrain ranked 63rd in the world. Nonetheless, geographic proximity in the Middle East means the kingdom can benefit from its location as a natural landing point for international submarine cables travelling from west to east. In early 2013, two fibre-optic cable landing points were operational – the Falcon, which connects the GCC with India, and the Fibre Optic Gulf, which links the country with the UAE and Kuwait. Two more cables are slated to come on-line by the end of the 2013.
SUBSEA: The addition of two new international submarine telecommunications cables, one from India’s Tata Communications and one from Qatar-based Gulf Bridge International (GBI), is in keeping with the government’s vision of upstream telecommunications diversity. Tata Communications is the world’s largest subsea cable network and has launched a subsea cable system that aims to connect GCC countries with the wider Tata Global Network (TGN). Tata claims that TGN currently covers 20% of the world’s internet routes. Indeed, both new links are designed to expand existing connections – 90% of which run west to east – to the emerging economies in Asia, with the GBI also linking to a landing station in Mumbai. Both cables were laid with partnership from the Bahrain Internet Exchange (BIX).
On top of the fibre-optic links, internet access in Bahrain is also provided via submarine dark-fibre connections to Saudi Arabia, which are part of the GCC Interconnection Authority cable, and terrestrial cables along the King Fahd Causeway to Saudi Arabia. A small portion of internet connectivity is supplied by satellite services. Further, connections utilising infrastructure provided by the Saudi Telecom Company (STC) have also been a key development within the market. Since entering the Bahrain market in January 2011, the company’s rise has been rapid. By the end of 2012, some 66% of commercial traffic in Bahrain was at least partially routed through an STC cable, according to internet consulting firm Rensys. Indeed, STC internet service supports the offerings of a number of companies in Bahrain, including Kalaam Telecom, Menatelecom and Zain, all of which rely at least partially on STC.
EXCHANGE: In 2003 the government created the BIX under Decree No. 47. The BIX is overseen by the Ministry of Transportation and was designed with the goal of creating faster and more affordable internet services within the kingdom, primarily by offering infrastructure for the exchange of internet traffic between the various internet service providers (ISP) operating in the country. To that end, the BIX has supported the development of the NBN and the introduction of more international internet cables into the market. Since its inception, the majority of BIX’s customers have been small internet providers and back-up for larger multi-homed providers. Today, BIX consists of 13 member groups, including a variety of IT companies and the government’s Central Informatics Organisation (CIO).
CONNECTION PRICE: According to BIX, the arrival of new submarine high-speed fibre-optic cables may result in internet wholesale prices dropping by as much as 50% in 2013. This is likely to go down well with consumers given that a study published by the Arab Open University in 2012 showed that 49% of respondents thought internet costs in Bahrain were high compared to other GCC countries. Despite this perception, prices in the kingdom have already fallen considerably over the last decade. The average cost of a 2-MB ADSL line was BD60 ($158) per month in 2007, while the provision of the same service in 2012 was BD12 ($32) per month. This drop is a result of de-regulation of the downstream market in 2009, which created local-loop unbundling (LLU) and subsequently enabled ADSL prices to be reduced. LLU was in fact first imposed incrementally in 2009. Prior to the LLU policy, survey and duct rental charges for a provider trying to use existing infrastructure might run over BD1000 ($2631). In 2012 the price was capped at BD600 ($1579). LLU has also increased demand for high-speed ADSL services with rates of 8 MB per second and above.
The provision of internet services within Bahrain has thus become highly competitive. This is further complicated by the fact that many residents use their mobile devices to surf the web, meaning traditional ISPs face significant competition from the country’s three mobile telecommunications providers as well. By the end of the first half of 2012, the mobile broadband customer base represented 60% of all broadband consumers in the kingdom, according to the Telecommunications Regulatory Authority (TRA). As a result, ADSL has increasingly become left to just high-end residential users and small and medium-sized enterprises (SMEs). With 4G technology expected to enter the market in 2013, high-speed fibre-optic cables may soon be competing with wireless access. While fixed-line services remain popular, the introduction of broadband 4G long-term evolution (LTE) to the market could be significant.
Although falling prices are good for the consumer, market players are concerned. “Price erosion is harming the market and the TRA should devise proper regulations to control competition,” George El Aily, CEO and co-founder of Greenisis, a local broadband provider, told OBG. “Profits of the major telecoms players are haemorrhaging more and more due to current price levels.”
OPPORTUNITIES FOR SMES: As the government moves many of its services online, the private sector continues to follow suit. Given that prices for speeds and bandwidth are now dropping, SMEs have an opportunity to play a larger role in the market and are likely to be key drivers of the sector in the coming years.
“With both the price of internet access dropping and internet speeds increasing there are likely to be opportunities for SMEs to begin launching new businesses within Bahrain’s IT sector,” Alaa Al Yousuf, CEO of Filoosy.com, a local marketing website, told OBG. In 2011 Filoosy.com began operations as a price comparison website to allow consumers to compare banking products, telecoms plans and insurance quotes.
Meanwhile, a number of companies with an online presence continue to enter the Bahraini market, one of these being the Kuwaiti food ordering service Talabat, which began operating in the kingdom in 2012.
SOCIAL MEDIA: Overall, businesses built around social media platforms are a largely untapped area in Bahrain. According to Socialbakers, a social media intelligence group, some 23,000 users in Bahrain joined Facebook in the six months prior to March 2013. As a result, Facebook penetration in the kingdom stood at just over 50%, though undoubtedly with much duplication. In general, the government has encouraged the business potential of social media. Under the National eGovernment Strategy 2016, half of all Bahraini government entities will be required to interact with clients via social media on a weekly basis by 2016.
CLOUD ATLAS: While new telecommunications platforms and services are popular with consumers in Bahrain, the reverse is true within the business community, which has often been hesitant to offer or make use of new IT solutions. That reluctance has changed in the past few years as Bahrain’s business sector has struggled in the wake of the 2008 global financial crisis and, more recently, the Arab Spring. For example, virtualisation solutions are highly popular as they save on energy and reduce redundancies and hardware costs. Businesses in Bahrain have been relatively slow to embrace cloud computing and associated technologies. The pay-as-you-go model of software as service platform has become an attractive option for businesses looking to reduce operating costs.
In September 2012 the Bahrain Telecommunications Company (Batelco) became the first operator in the kingdom to offer cloud-based IT solutions. Batelco offers eight infrastructure management services modules ranging from IT asset management to active performance monitoring. Batelco has announced its interest in developing additional cloud computing technologies. Take-up is beginning to catch on. Recently, Bahraini aluminium group Alba adopted server software with a heavy cloud-based component, and credited the deployment with reducing IT operational costs by 25%.
SECURITY EMPHASIS: At the same time, the second half of 2012 saw a number of high-profile cyber-attacks in neighbouring countries, which has renewed interest in security solutions. In the summer of 2012, the Shamoon virus damaged the cyber infrastructure of both Saudi Arabia’s Aramco and Qatar’s RasGas. Given this context, the TNTP, which was unveiled by the TRA in the second half of 2012, noted the “rising digital threat” to critical national infrastructure within Bahrain. The strategy called for the development of early warning capacity and similar contingency plans. Indeed, after the cyber-attacks in Qatar and Saudi Arabia in 2012, there is certainly more caution and focus from the businesses community to accelerate the growth in IT solutions. Abdulla Ishaq, general manager of IT solutions firm Gulf Business Machines, told OBG, “In general for the past two years there has been a clear emphasis on solutions related to ICT security in the region.”
E-GOVERNMENT LEADER: While the authorities are intent on preventing cyber-attacks, the government’s involvement in the sector is perhaps best demonstrated by its commitment to e-government solutions. In the World Economic Forum’s Global IT Report published in April 2013, Bahrain was ranked fourth globally for “government usage of ICT”. In addition to the 2012 UN E-Government Survey ranking the kingdom as the sixth-highest e-government index of all Asian countries surveyed, the report also described Bahrain as “a leader in West Asia”, given its strong position compared to other countries in the region. Further, in 2012, FutureGov, a publication group that focuses on public policy and governance in Asia, awarded Bahrain’s eGovernment Authority (eGA) the title of “Public Sector Organisation of the Year in the Middle East”.
Today, residents of Bahrain can complete a number of government services online, from checking the school reports of students to making payments for government services. With 15 e-services centres and self-service platforms (known as eKiosks) scattered across the kingdom, this service has proved so popular that in early 2013 the eGA announced a tender for the servicing and development of its eKiosk programme.
Under the National eGovernment Strategy, the eGA also plans to unveil some 40 new e-services by 2016. A number of e-government services are also available by mobile phone application or text message. The government is in fact seeking to develop a number of mobile apps to link into its digitalisation of governance and operations, with the 2016 strategy calling for the development of 10 new mobile apps a year. Further, the strategy states, “All transaction services (payment and two-way interaction) to have a growth of at least 10% in uptake on an annual basis.”
One of the distinguishing features of Bahrain’s eGovernment is that it has developed specific channels for both businesses and residents to utilise e-government services. The emphasis on e-government extends to visitors as well. In February 2012 the government announced that it would grant visas upon arrival for visitors entering the country. Travellers can also now submit an e-visa application prior to arrival.
FUTURE TRENDS: The rapid rise of the eGA has been facilitated by its close work with the CIO. The government plans to centralise the development of IT applications within the CIO, as roughly 30% of government applications are currently developed outside of the industry. As such, virtualisation and centralisation is likely to be the main thrust of government policy over the next few years. In December 2012 Mohammed Al Qaed, CEO of the eGA, announced that Bahrain’s eGA portal would be substantially upgraded in 2013, according to a report from the Bahrain News Agency.
Additionally, the eGA aims to increase participation of the kingdom’s residents in e-government services. Bahrain is currently tied for eighth place globally in terms of e-participation as per UN figures. As such, the eGA has sought to further incentivise the use of some of its services. For example, one way has been to encourage students to pay for their course fees online. A small number of students were chosen at random to be reimbursed for their course fees in 2012 after payment via this service, as the government sought to reward those that paid online and to encourage others to follow suit.
OUTLOOK: With new opportunities emerging, the sector has the potential to expand with the aid of improved infrastructure and the promotion of e-services. The introduction of 4G LTE technology in 2013 could also serve to increase market penetration via mobile devices in the use of entertainment and other services. Given that the kingdom is also a centre of financial services, with many of these players keen to expand into mobile banking, there is potential across the board. For these ambitions to be realised, laying more fibre-optic cables and maximising the kingdom’s importance as a transit point between the Middle East and Asia will be key.