Bahrain is home to one of the most liberalised telecoms markets in the Middle East. Although it is a relatively small market, with a population of 1.3m in 2014, according to the Central Informatics Organisation, its official statistics agency, the country is keen to leverage the telecoms sector to facilitate broader economic growth, and the authorities are continuing to promote both new entrants and investment in networks. Bahrain’s telecoms market is witnessing a period of consolidation, with greater competition and an increased focus on new services, such as long-term evolution (LTE), or 4G, services.
Structure
Economic Vision 2030, Bahrain’s long-term development strategy created by the Economic Development Board (EDB), identifies telecoms and IT as a facilitator for the rest of the economy. Telecoms are regarded as essential for the growth of the digital economy, and indispensable to maintaining competitiveness internationally. The development of telecoms in Bahrain has recently taken place within the framework of the third National Telecommunications Plan (NTP), issued in 2012 and running until end-2015. The plan envisaged the industry as an enabler of socioeconomic development, and its aims included introducing an ultra-fast broadband network, effective competition and strengthening the internet “ecosystem”, as well as enhancing digital security.
The 2002 Telecoms Law had previously liberalised the sector by introducing competition for the first time and setting up the Telecoms Regulatory Authority (TRA). The TRA is charged with protecting consumer interests, liberalising the environment and promoting greater transparency. It has proven itself one of the most effective telecoms regulators in the GCC, having overseen the successful development of a largely competitive market and taking active steps to combat instances of the abuse of market power. For example, in 2009, the TRA fined Batelco BD750,000 ($1.98m) for failing to open up access to its cable system for its competitors, the first time a GCC telecoms regulator had fined an incumbent.
Main Players
The Bahraini telecoms market is dominated by three big players, who also hold the main GSM licences in the country: they are Batelco, Zain and VIVA. Batelco, founded in 1981 as a state-owned enterprise, now forms part of Mumtalakat Holdings, Bahrain’s state holding company, which owns 36.67% of the company. The General Organisation for Social Insurance holds a further 20.56%, and 20% is in the hands of the Amber Corporation. The remainder of the shares are publicly traded on the Bahrain Bourse.
In 2013 Batelco acquired the island assets of UK-based Cable and Wireless, bringing the number of markets in which the group operates to 14. This includes other MENA countries such as Jordan, Saudi Arabia and Yemen, but also markets farther afield, such as Jersey, Guernsey, St Helena, and the Maldives. In 2014 Batelco Group reported revenues of BD389m ($1.02bn), up on BD370m ($974.8m) in 2013, and profits of BD57m ($150.2m) in 2014, compared with BD51m ($134.4m) in 2013. The group also reports a total of 9.5m subscribers in 2014, a 6% increase on 2013. The newest acquisition has played a strong role in this growth; Batelco’s Islands Portfolio accounted for 58% of revenues and 55% of earnings before interest, tax, depreciation and amortisation.
Zain Bahrain commenced operations in 2003 and is part of Kuwait’s Zain Group, a telecoms group with operations in eight countries and a subscriber base of over 40m, and which holds a majority stake in the company. In September 2014 Zain Bahrain held an initial public offering, with 48m shares placed for sale on the Bahrain Bourse, which led to an increase in the company’s share capital of 15%. For 2014 Zain Bahrain reported revenues of BD71m ($187.1m) and profits of BD4.1m ($10.8m), compared to BD78m ($205.5m) and BD5.4m ($14.2m), respectively, in 2013.
VIVA, a wholly owned subsidiary of Saudi Telecom, entered the Bahraini market in 2010, having won the country’s third GSM licence a year earlier. Other operators include Menatelecom, a wholly owned subsidiary of the investment fund Kuwait Finance House, which was awarded a fixed-wireless licence in 2007 and is one of the leading providers of WiMAX services in the country. In 2005 Etisalcom became the first private internet service provider (ISP) to receive a licence for operation in Bahrain.
Licences
In total, Bahrain is home to around 20 telecoms operators, offering services including fixed lines, WiMAX, leased lines and ISP services. In terms of revenues, the TRA put the gross turnover of the sector at BD423m ($1.1bn) in 2013, up 3.5% on 2012. Telecoms revenues amounted to roughly 4% of GDP that year, of which the leading segment was domestic mobiles, which accounted for 41% of revenues, followed by international calls (26%), leased lines (15%), internet (13%) and fixed telephony (4%).
Some licences have become dormant in recent years, with operators having exited the market without rescinding their permits. The TRA has warned against such practices, and in 2014 announced it was planning to undertake a review of licence holders and their activities and to revoke licences deemed inactive or being held by operators who had shut down operations. In February 2015, the regulator revoked the licence of Hawar Telecommunications Company to provide international services.
Competition
Operators in Bahrain tend to compete on a variety of bases, given the strong diversification of the market in recent years. Competition based on promotions and offers has given way to more direct competition on the basis of price. Meanwhile, new entrants have filled hitherto untapped niches, leading to a much wider product range across the market. At the same time, while overall revenues have shown strong growth, reaching BD423m ($1.1bn) in 2013, compared to BD303m ($798.25m) in 2008, average revenue per user (ARPU) in the sector has been on a gentle downward trend, according to the TRA. This follows on from the country’s low prices: in the International Telecommunications Union’s IT price basket, Bahrain ranked 34th in the world in 2013, with telecoms and internet subscription available for less than 5% of gross national income.
However, the market does remain fairly concentrated, in that the big three operators account for about 90% of revenues. By revenue, Batelco holds around 40-50% of the market, VIVA 25-35% and Zain 15-25%, with the remaining operators accounting for just 10% of revenues. In February 2013 the TRA ruled that Batelco no longer enjoyed significant market power regarding international wholesale leased-line services, and in 2014 deemed the broadband markets for residential and small and medium-sized enterprises (SMEs) to be competitive, removing a number of retail and wholesale restrictions on Batelco. Currently, VIVA has come under increasing scrutiny from regulators in place of Batelco, as the former company comes to reach greater predominance in the market. In 2013 the TRA classified VIVA as enjoying significant market power with respect to termination services. In the same year the TRA ruled that VIVA had exceeded the bandwidth limitations in the terms of its licence subsequent to an upgrade of microwave links. The regulator issued a fine of BD222,330 ($586,000) for unauthorised use of the spectrum, and the company was ordered to remove or downgrade links that were not in compliance with its licence terms, and to pay the outstanding spectrum licence fees. In 2014 the telecoms sector saw its first consolidation, when Kalaam Telecom bought Lightspeed, a subsidiary of Jordan Telecommunications. The deal brought Kalaam’s business broadband market share to 17%, putting it second only to Batelco in the segment.
Fixed
As of the end of the first quarter of 2015, TRA numbers show there were 237,000 fixed lines in Bahrain, yielding a penetration rate of 19%. As in many countries, the landline segment is in long-term decline, but the penetration rate has hovered at around 20% since 2007, held up by the popularity of fixed wireless services. These have increased from less than 1% of fixed lines to 35% in 2013, according to the TRA. Fixed telephony traffic fell 23% between 2012 and 2013, while revenues dropped 15% from BD15m ($39.5m) in 2012 to BD12.8m ($33.7m) in 2013. This is largely driven by a shift to mobile.
Business subscribers generated around 80% of revenues – BD10m ($26.4m) in 2013, compared to just BD2.8m ($7.4m) for residential landlines. ARPU for business subscribers in the fixed segment was BD9.70 ($25.55) per month in 2013, and BD10.60 ($27.93) per month in 2012, compared to respective figures of BD1.40 ($3.69) and BD1.80 ($4.74) for residential lines. The introduction of an unlimited call system for a fixed monthly fee in 2013 has led to a fall in revenues and increased affordability for households.
Moblie
Mobile penetration continues to grow, even at levels considered to be saturation points in other markets. Penetration stood at 182% as of the end of the first quarter of 2015, according to the TRA, up from 173% in 2013, and has continued to rise strongly since 2007 when penetration stood at 107%. Total subscriptions were up 9% to 2.4m, from 2.2m at the end of 2013. Of these, 1.44m included a mobile broadband subscription, roughly 60% of the total, compared with 43% in the fourth quarter of 2012. Some 78% of subscriptions were pre-paid and 22% post-paid in the first quarter of 2015.
This saturation level means competition is intense, and revenues have generally declined; according to TRA figures, ARPU rates in the mobile segment were BD7.50 ($19.76) a month in 2013, compared to BD8.40 ($22.13) in 2012 and BD12 ($31.61) in 2008. Voice services continue to be the main source of revenue, making up 64% of total revenues in 2013, followed by data (18%), subscriptions (14%) and SMS (4%). The successful introduction of number portability in 2011 has proved a further spur to shop around and change providers, with 106,000 numbers successfully ported since that year, TRA figures show. The retail market is generally lean in terms of profitability, with richer opportunities in the business segment.
Data
Similarly, data services have continued to witness exploding demand. Mobile broadband accounted for 38% of usage in the fourth quarter of 2013, up from 35% in the first quarter of that year. In 2014, 31% of respondents with internet access have a connection speed of at least 6Mbps in 2014, up from 4% in 2011. The data market is dominated by the big three and Menatelecom, resulting in an intense level of competition. Although the relative simplicity and attractive pricing of WiMAX made it a very popular mode when first introduced to the market, the technology has now largely been superseded by LTE connections, and thus is likely to be wound down as and when take-up of LTE becomes fully entrenched.
LTE
The constant strain on capacity from all this demand for data is helping to drive improvements in network capacity, whether in fibre or LTE. All operators are hungry for spectrum. Allocation is guided by the NTP, whose spectrum policy specifies that it should be allocated in such a way as to create a predictable market. The preferred mode is to offer bandwidths at auction (see analysis).
Spectrum constraints mean that bottlenecks can still arise on occasion, slowing down connection speeds. Over the longer term, the government is investing in upgrading the fibre network through its National Broadband Network (NBN) programme, due for completion in 2018. Final details of the NBN programme are expected to be released when the government issues the fourth NTP in early 2016.
Review
At the end of August 2015, the TRA released its latest Strategic Market Review (SMR), the first since 2008. Most of the measures proposed under the earlier review – such as the introduction of a third mobile operator, defined competition guidelines and mobile number portability – have now been implemented for some years. A second SMR therefore appears timely, given that the market has had time to digest the new measures and is in a much more dynamic situation than in the late 2000s. In view of this, the new review focuses upon so-called ex-ante regulations – that is, remedies and obligations imposed upon operators with dominant positions or “significant market power” in defined retail markets.
The TRA proposes in the review that ex-ante regulations should be lifted from all retail telecoms markets, so long as dominant operators in the relevant market meet certain obligations in the wholesale markets (such as equal access to fibre). These obligations are designed to allow other licensed operators to provide competitor services to operators that enjoy significant market power, and to obtain equivalent advantages in the wholesale market. In the immediate future, regulators foresee four retail markets retaining ex-ante regulation: retail broadband internet access from a fixed location for business users; retail domestic data connectivity services; retail international leased lines (connectivity services); and the retail market for premium access to call services and domestic calls from a fixed location.
In the wholesale markets, the five sectors where ex-ante regulation is proposed or is to be retained are: domestic data connectivity services; broadband access for business users; physical infrastructure access for business users; call termination on individual fixed networks; and call termination on individual mobile networks. The SMR also proposes a number of further measures to promote efficient competition and development of the market, including: to impose solutions based on the proportionality principle; to monitor and amend solutions that prove ineffective at rectifying identified instances of market failure; to introduce new regulations and guidelines for infrastructure sharing and site deployment; to consider mobile virtual network operator (MVNO) licences and agreements; to prepare the process for spectrum allocation; and to support the NBN and develop a national broadband strategy, taking into account supply and demand factors.
Convergence
The upshot of this is that a number of policy trends are discernible over the medium term, subject to their being included in the final draft of the 4th NTP, which is due for release in early 2016. Technological progress has enabled a convergence of fixed and mobile communications, between telecoms, IT and media services, and between infrastructure and content of IP networks.
This convergence is leading to all sorts of new services and ways of delivering them. One example is the bundling of services together into triple- and quadruple-pay packages, whereby a single telecoms company provides a combination of any of home broadband, fixed-line telephony, television access and mobile services. Barriers between segments are becoming increasingly blurred, and companies are finding themselves having to compete on new bases. In particular, bundling can lead to a company making use of cross-subsidy between different products, such as by providing mobile (where ARPU is low and competition fairly high) with streamed premium television services (such as a sports package).
At the same time, bundling can have some counterproductive outcomes, such as constraining competition, insofar as bundling requires access to wholesale services that smaller players may not be able to provide. Bundling can also lead to a loss of revenue, as areas previously relatively untouched by competitive forces become less profitable as they are increasingly bundled in with less lucrative products. Open access to fibre networks and wholesale service is thus essential to providing bundled services at a competitive and sustainable price.
Simultaneously, there is an emerging counter-trend towards greater uptake of over-the-top (OTT) services and – possibly – introduction of a MVNO. OTT refers to services that simply use the telecoms network as a highway, with no other interactions with the provider. These services include communication apps such as WhatsApp, Skype and Viber, which allow for communication across the web with no extra cost other than that to connecting to the network in the first place, typically through a home or mobile broadband package. Consequently, OTT services have potential to deprive networks of revenue, as evidenced by the sharp decline in the volume of SMS sent in Bahrain, from 993.8m texts in 2010 to 333.6m in 2013, according to the TRA.
MVNOs, which use another operator’s wireless networks, paying that provider at wholesale rates, are a way for new entrants to come into a market without building their own networks from scratch, the expense of which might prove prohibitive. MVNOs have proven very effective at enhancing competition in markets across Europe, and have the compensatory advantage that incumbent operators can increase their revenues in the wholesale segment.
Bahrain’s neighbour Saudi Arabia has granted licences to two MNVOs, which began operation in 2014. The TRA recommends introduction of a MVNO not because of a lack of competition per se, but because such a model can promote greater choice and a more diverse range of services for consumers. The upshot of this is that the market is likely to witness further unbundling of network services and more open access, leading to more competition across a broader range of segments.
Outlook
The telecoms market in Bahrain looks set for a period of major change, as regulators and policymakers determine how best to enhance competition. Over the near term, two trends are expected to continue: the thirst for data services and the decline in ARPU across the sector. Over the longer term, the development of the NBN, together with the possible introduction of an MNVO, is likely to change the structure of competition in the industry, disrupting the sector, but providing the competitive edge that is key for the prosperity of the country as a whole.
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