In 1961, Jordan’s first automatic telephone service was introduced, with roughly 5000 lines in operation. Since then, the country has come a long way, becoming the second in the region to launch GSM services, after Qatar. Until the 1990s, the government was the sole telecoms operator in the country, after which time the authorities began to open the sector to private stakeholders with the aim of fostering competition and reaping the gains. In 1995, legislators introduced a new telecommunications law, paving the way for reform. The law also established the Telecommunications Regulatory Commission (TRC), the organisation responsible for regulating the postal, telecoms, and information and communications technology (ICT) markets.

BACKGROUND: As part of this wave of change, the government began to commercialise the sector by turning the state-run Telecommunications Corporation into a government-owned entity, the Jordan Telecommunications Company (JTC). By 2000, following Jordan’s accession to the World Trade Organisation, policymakers sustained the momentum towards privatisation, which was needed to meet their new member-state obligations. That year JTC opened a bidding process for 40% of its shares. After considering offers from several investor groups, the government selected a consortium led by France Telecom (FT) with a bid of $508m, and signed a management contract with the firm. Of the 40% stake, FT held 88% and Arab Bank held 12%. In 2006 JTC combined all operations under one umbrella company, Jordan Telecom Group (JTG). The government also sold more of its stake through an initial public offering and direct sales, allowing FT to increase its holdings to 51%. The following year, JTG’s retail mobile operations re-branded as Orange, FT’s commercial arm.

Since the French operator owns a majority of JTG, the Jordanian government places particular importance on its relationship with FT. In November 2012, Prime Minister Abdullah Ensour met with FT CEO Stéphane Richard to emphasise the Jordanian government’s support for the operator’s presence in the kingdom. FT, for its part, has indicated that it sees Jordan as an important part of its broader operations. “Our investment in Jordan is strategic and a long-term one, as we are here to stay,” Richard told media in late 2012.

BY NUMBER: In addition to Orange, there are two more mobile network operators in Jordan: Zain and Umniah, as well as one mobile virtual network operator (MVNO), Friendi. Each firm is part of a foreign-based parent group: Zain with Kuwait-based Mobile Communications Company, Umniah with Bahrain’s Batelco and Friendi under the UK’s Virgin Mobile Dubai operations.

In first-quarter 2013, Zain held the largest share of subscribers, with just over 3.63m active subscriptions, or 38% of the total, as per TRC data. Orange was close behind Zain with 3.35m active subscribers (35%), followed by Umniah with 2.43m (26%). Friendi, which began operations in Jordan in June 2010, had 67,678 pre-paid subscribers (0.71%) for its MVNO services.

Operators largely reported growing subscriber numbers and stable revenues in 2012. Zain saw a 20% rise in active customers between the third quarter of 2011 and 2012, according to its financial statements. Its revenues for the first three quarters of 2012 held steady, growing 2% from $377.5m to $383.7m during the same period. Net incomes sank 7% year-on-year (y-o-y), however, from $99.5m to $92.9m. The company also lowered its capital expenditures, from $20.6m to $19.2m, a 7% drop. JTG’s Orange saw its cash flows fall during the first three quarters of 2012 as well, posting a 12.5% dip in net profit compared to the same period in 2011.

Its revenues largely held firm, dipping by 1.6% to JD306m ($430.4m), compared to JD311m ($437.4m) during the same period in 2011. A combination of factors, including competition from other carriers and diminishing spending power among Jordanians, likely held back growth. Direct costs also went up during the year, with utilities costs rising following the state’s discontinuation of energy subsidies. These changes contributed to a drop in Orange’s gross profit margin, the company said in its 2012 third-quarter financial statement.

Umniah, however, saw positive results, thanks in part to its 3G roll-out. “In Jordan, the customer response to the launch of Umniah’s 3.75G services in June 2012 has exceeded expectations,” said Batelco Group’s CEO, Sheikh Mohamed bin Isa Al Khalifa. The company said it added 67,000 subscribers following the introduction of third-generation mobile broadband, an increase of 2% between the second and third quarters. In its 2012 year-end financial results, Batelco reported a 4% gain in gross revenues, which rose from BD88.9m ($233.9m) to BD92.7m ($243.9m) y-o-y. Despite gains in revenues, however, the company’s profits were impacted by the cost of the 3G roll-out and an unexpected spike in electricity prices. Although still in the black with BD9.8m ($25.9m) in profits, this is down 28% from BD13.6m ($35.8m) in 2011, as per Batelco’s 2012 annual report.

LAY OF THE LAND: Jordan’s mobile landscape is dominated by the pre-paid system, which accounted for roughly 8.05m of the total 8.77m active mobile subscribers in the third quarter of 2012, according to data from the TRC. Post-paid made up the remaining 720,000 subscribers. Zain leads in the post-paid segment with 448,780 subscribers, followed by Orange (207,719) and Umniah (63,345).

In the far larger pre-paid segment, however, Orange is the leader by customer share, with just over 3m active subscribers, followed by Zain (2.9m), Umniah (2.1m) and Friendi (31,125). Pre-paid’s popularity in Jordan is not surprising, as consumers are attracted to the flexibility of this tariff structure. Going pre-paid also allows pricesensitive customers to use phones that hold two SIM cards, allowing switching between carriers to take advantage of seasonal campaigns. With or without specially equipped handsets, customers often use multiple mobile phones and SIMs, as reflected in the kingdom’s high mobile penetration rate, which was edging toward 140% in 2012 by the TRC’s calculations.

This high rate of penetration, combined with the number of different players and liberal regulation, benefits the kingdom’s telecoms customers. Jordan was the most competitive mobile market in the Middle East and North Africa (MENA) region after Saudi Arabia in 2012, according to Arab Advisers Group’s 2012 Cellular Competition Intensity Index. The publication examined 19 countries in the MENA region, comparing the number of operators and services on offer.

Unlike other markets in the region, where regulators tightly control market entry, Jordan’s government has experimented with a more open and competitive environment. In December 2012, the TRC took this market openness a step further. In a statement announcing the bidding process for newly released frequency bands, it also said it was accepting bids from a possible fourth network operator (not including MVNOs) to enter the market. Not surprisingly, the three incumbents were opposed to the idea, as a fourth operator could only heat up competition. The TRC, for its part, believes that a fourth operator could help speed up developments in the sector, especially regarding mobile data. “We have a mature market with high mobile penetration. Nevertheless, we are still seeing relatively low data usage,” Mohammad Al Taani, CEO and chairman of the board at TRC, told OBG. “The future is clear to everybody. People and businesses are connecting wirelessly, so we should facilitate this as much as possible.”

STRONG CREDENTIALS: Striking the right balance between competition and protection of market players can be tricky. Too little competition contributes to sluggish development and higher prices, while too much can slow investment. In Jordan, stakeholders are working to find a happy medium.

The indications so far are that telecoms competition in the country has paid off in some ways. Prices, for example, have stayed low, a factor that likely supports the high rate of use. “Prices of telecom services in Jordan are the lowest in the Arab world. This is a major reason… the market is ranked among the most competitive,” Raslan Diranieh, JTG’s chief financial officer, told The Jordan Times, a local English-language newspaper, in July 2012. “In Jordan, mobile users no longer pay per minute for the phone calls they make. All telecoms companies offer users unlimited minutes… in return for a monthly or weekly subscription… [T]his is not common in many telecoms markets in the Arab world.” However, despite the lower prices, Jordan has download and upload rates that exceed regional averages, as per information from the Global Cloud Index put out by US-based Cisco Systems. Lower prices and faster data transfer rates are both promising signs that competition, though fierce in the eyes of some stakeholders, is spurring on progress in the segment.

OPERATING COSTS: Indeed, while low prices may be a perk for customers, they can create challenges for carriers. In recent years local operators have had to find ways to control rising costs and hold prices steady, since raising prices could drive customers to other carriers. In May 2012, for example, all three of the country’s major mobile operators together voiced concern over the government’s proposed changes to energy tariffs, which could result in energy costs increases of 8-40%, according to The Jordan Times. The changes would affect all sectors of the Jordan’s economy, but telecoms operators say a spike in energy costs would be especially tricky for them, since the industry already bears a large tax burden. Indeed, a month after the energy tariff changes, the government floated the idea of raising taxes on telecoms operators in the form of revenue sharing. “A study is examining the impact from higher revenue sharing that stands currently at 10%… It seeks to analyse companies’ profits and compare the percentage Jordan obtains [with] other countries in the region,” Al Taani said in a press conference. “The examination will show us if it is possible to increase revenue sharing… without harming the sector.”

The government is in a tight fiscal situation as a result of several factors, including an unexpected rise in energy costs during 2012, and it is looking for ways to raise further revenues from several sectors, including telecoms. Operators, however, oppose the idea, saying a new tax could slow down investment. In addition to sending 10% of revenues to the government, the telecoms operators and their users also pay other taxes, including a 16% sales tax, 12% special tax and 24% income tax. Market players have indicated that any additional taxes would siphon off money otherwise earmarked for investment, which could slow down development in the sector as a whole.

Although costs in some areas may rise, lower costs in others could help offset these. In August 2011, for example, the government exempted smartphones from sales tax, a move that reduced prices for high-end handsets by between JD88 ($124) and JD100 ($140). The change likely nudged some potential buyers to purchase a smartphone, and consequently boosted demand for 3G. “The number of Jordanians using smartphones is on the rise, and we expect this trend to sharply increase during the near future,” Vesa Jutila, Nokia’s head of in-market product marketing for smart devices, told The Jordan Times in May 2012. Jutila added that the tax exemption was an important factor in boosting smartphone use in the country. The introduction of low-cost smartphones has also been instrumental in expanding mobile broadband penetration. A typical high-end smartphone in Jordan can cost as much as JD400-500 ($563-703), an average month’s wage. Lowcost handsets could reduce those prices to JD80-150 ($112.50-211), creating a much larger audience for mobile broadband. Jordan’s telecoms market is already seeing the effects of falling handset prices.

Between the first and third quarters of 2012 alone, mobile broadband subscribers grew by over 58%, from 350,627 to 556,557, according to data from the TRC. Indeed, a growing audience for 3G likely encouraged Umniah to push ahead with its 3G roll-out, with the lower cost of smartphones creating more potential to attract mobile broadband subscribers.

MOBILE DATA: Given the competitive environment in the traditional voice market and rising demand for 3G, mobile data could offer several opportunities for operators to create new revenue streams. Indicators have so far been promising. Both Umniah and Zain, which recently introduced 3G services, reported rising revenues in 2012. With the three major operators’ 3G rollouts complete, content creators can now deliver their products via these new networks. Currently, the vast majority of telecoms revenues, as much as 90%, come from voice services. However, factors like competition, rising mobile internet use and new voice over IP (VoIP) services are contributing to falling voice revenues.

“All telecoms companies, whether in Jordan or elsewhere, are facing challenges at present as revenues generated from voice services are gradually [declining],” Umniah CEO Ihab Hinnawi said in a public speech in 2011. “Nowadays, the focus is on providing relevant content for customers.” Indeed, operators have already begun experimenting with new services, often partnering with content providers to deliver information and media channels to customers’ mobile devices. Music has been a popular medium for operators trying to capture a larger share of the youth segment. In May of 2012, Zain joined forces with local singer Omar Al Abdallat to help release his new album, and in November 2012 Orange unveiled its campaign, Min Al Akher 2, which bundles an unlimited music and content-streaming application with SMS and talk time.

“The more people are connected to the internet, the more traffic there will be, especially video, which is one of the main tools of communication nowadays,” Abed Shamlawi, CEO of the Information and Communications Association of Jordan (int@j), told media in 2012. Global video streaming giant YouTube had the thirdhighest web reach in the kingdom, after Facebook and Google, according to a July 2012 poll conducted by market research firm Ipsos. The rising popularity of video chat applications like Skype and Facetime could also boost data demand. Worldwide, video consumption is rising, and by 2016 an estimated 833 days’ worth of video content will be relayed over the internet every second, according to Cisco Systems.

In addition to content delivery, the advent of 3G in the kingdom has opened the mobile market up to services in other sectors, like finance. Recent developments now allow users to use their handsets for financial transactions, often with nearly the same functionality as a bank account. Orange Jordan introduced its Orange Money service in partnership with the Jordan Housing Bank for Trade and Finance in June 2012. The programme allows users to pay bills and buy items at participating locations using their Orange account as a financial conduit. Zain also runs a mobile financial transactions platform called E-mal, which it rolled out in early 2011. In addition to reducing the time and energy spent making transactions, mobile payments could also help strengthen the population’s familiarity with e-payments, laying the groundwork for future content payment systems and online retail usage. These developments and others point to a market increasingly focused on content and services as opposed to traditional voice and SMS packages. “In the past decade, legacy services like voice and SMS represented 90% or more of telecoms revenues and about 10% came from data,” Ahmad Darwazeh, Umniah’s pricing and market research manager, told OBG. “In the past two years, since the introduction of 3G, we estimate those ratios have become 80% and 20%, and we expect this trend to continue.” Indeed, as mobile broadband improves, opportunities in music, video, financial services and other mobile products are set to grow. Capitalising on these services will likely be crucial for telecoms operators in coming years. If data demand growth continues to eclipse that of voice and SMS, telecoms groups will have to look for ways to ensure that revenues from these services can make up for – or even top – shrinking revenues from traditional segments.

FIXED: In the face of an increasingly popular mobile sector, the fixed voice market has gradually receded from prominence, with subscriptions declining in recent years. Between 2005 and the third quarter of 2012, the number of fixed subscriptions fell 35%, from 628,000 to around 408,000, leaving penetration at 6.4%, as per TRC data. Drops in residential subscriptions were primarily responsible for this dip. In the first three quarters of 2012 alone residential subscriptions fell 3.78%, from 278,594 to 268,048. Business subscriptions, while also on the decline, sank at a slower rate, by less than 1%, from 140,939 to 139,798 over the same period. While Jordan Telecom remains the sole provider of fixed telephone lines in the kingdom, changes are afoot in the sector. The TRC decided in its July 2010 “Fixed Broadband Market Review” to begin local loop unbundling, a process that opens access from telephone exchanges to customer dwellings, and in September 2011 the organisation posted the conditions for Jordan Telecom’s unbundling on its website.

OUTLOOK: Looking forward, the kingdom’s telecoms sector is progressing toward a more information technology-oriented future, as data demand grows and network operators ramp up their mobile broadband and mobile content offerings. In terms of regulation, the TRC has already begun its balancing act, looking for ways to keep competition lively but not stifling.

An institutional twinning programme with the EU announced in January 2012 could help in this regard, through receiving regulatory advice from Brussels. The programme participants, France, Spain and Italy, will support the development of the kingdom’s telecoms framework and work with Jordanian authorities to harmonise the country’s regulations with the EU’s best practices.