Strong economic growth, rising personal incomes and increased access to next-generation technologies have created significant opportunities in Kuwait’s IT industry. While the country is working to keep up with some of its regional peers in IT uptake, its market holds considerable untapped potential as the government pushes to expand fibre-optic networks and support growth in cloud computing technologies. Kuwait is working on broadening service options as increasing data demand is expected to drive sector growth in the medium term.
Still, there are some gaps to be filled in Kuwait’s IT industry: the implementation of fibre networks has been slow, weak regulations remain a serious challenge and stronger cyber security measures are needed to protect digital businesses. However, a new regional submarine cable system and promising private sector participation in fibre roll-outs ought to help mitigate these challenges through 2014.
Central Agency
The Central Agency for Information Technology (CAIT) was established in 2006 with a mandate to encourage IT development and coordinate government action. CAIT’s responsibilities include developing e-government facilities, as well as education initiatives and training systems for IT development and the e-citizenship programme.
The agency was moved under the direct control of the Ministry of Communications (MoC) in 2008, which took over responsibility for implementing IT policy, including elements of the government’s five-year National Development Plan related to technology solutions and projects. With CAIT now assuming a coordinating role, Kuwait has rolled out a number of new initiatives as it ramps up e-government efforts, including the deployment of new internet infrastructure, enhanced e-services and education programmes.
The MoC owns and operates Kuwait’s fixed-line infrastructure, with six major internet service providers (ISPs) – QualityNet, FAST telco, Gulfnet Communications Company (Gulfnet), KEMS, Zajil Telecom and Mada – paying the government to use it. Kuwait was the first GCC country to establish internet services for its citizens in 1991, with the establishment of GulfNet and Zajil Telecom, making it one of the region’s most mature internet markets.
Users
The International Telecommunications Union reported that in 2012, 75% of households in Kuwait had a computer, 65.2% of households had internet access and 79.2% of individuals used the internet. The “MENA Internet Usage and Consumption Survey of 2013”, published by market research firm Ipsos, reported that despite having one of the smallest internet populations in the Middle East, approximately 1.73m people in 2012, Kuwait boasts one of the region’s highest internet penetration rates at 64%.
Research firm Business Monitor Information (BMI), meanwhile, estimated there were 1.68m internet users in Kuwait in 2012, forecasting this number to rise to 1.83m in 2013. The company projects internet users will grow by 4.2% annually until 2017, and reported that there were around 557,000 broadband connections at the end of 2012, including DSL-based and wireless connections using USB modems and data cards, representing a penetration rate of 19.3%.
Counting Subscribers
Research firm Informa Telecoms & Media pegged the state’s total number of mobile broadband subscribers at 535,700 in 2013; however, the establishment of an independent telecommunications regulatory authority could provide a clearer picture on internet usage.
For example, for the Kuwait Telecommunications Company, once a customer purchases a SIM card, he or she is automatically provided with internet access. Even if it is not being used, that customer is counted as an internet user. This is likely true for all operators. Defining what actually constitutes a user is a challenge that the establishment of a regulatory authority would help to address.
Growth Drivers
BMI projects the broadband sector will grow by some 13.1% a year until 2017, to reach 31.7% penetration, led by a rapid uptake in wireless data services on smartphones and tablets, increased competition between operators and services providers, and cost-effective access to international bandwidth via the Gulf Bridge International (GBI) submarine cable system and the planned Middle East-Europe Terrestrial System (MEETS).
Rankings
Nonetheless, in 2012 Kuwait dropped to 63rd place from 50th place in 2010 on the UN’s 2012 e-government survey, which ranks 190 countries’ progress across a host of indicators. While the country’s efforts to develop its IT sector have been successful in recent years, the nation still lags behind its regional peers, including the UAE, which rose from 49th place in 2010 to 28th place in 2012, and Qatar, which moved from 62nd to 48th place.
More recently, the World Economic Forum’s 2013 “Growth and Jobs in a Hyper-connected World” report found that limited uptake of new technology has had an impact on economic development in Kuwait. Despite some advances, the report stated that the country has not fully utilised the economic potential of IT. Kuwait ranked 62nd out of 144 countries surveyed, the same position it held in 2012. “Despite a very sharp rise in ICT uptake in terms of internet users and households with computers, as well as internet access, the country still suffers from a shortage of skills. This shortage, coupled with a low capacity to innovate and an environment that is less business-friendly than those of other GCC states, results in the low economic impacts,” stated the report.
Early Operators
Gulfnet was the country’s first ISP, established in 1991 as a subsidiary of Kuwait’s largest publicly traded investment company, KIPCO. Zajil Telecoms, also founded in 1991, is presently focused on providing business services, and operates on a regional and international multi-protocol label switching network. QualityNet was established in 1998 as the government sought to privatise the sector. Formed by a local conglomerate including Ali Al Ghanim & Sons, Bahrain’s Batelco Communications and the National Bank of Kuwait, QualityNet claimed a 40% market share in June 2013, and continues to lease a significant portion of its network to mobile broadband providers today. QualityNet’s 2013 revenue was $83m, an 8.9% decrease from 2012, but still providing Batelco with $6.39m in profit in 2013, according to the company’s annual report.
In February 2014, Batelco announced it will take majority control of QualityNet after agreeing to double its holding in the company. According to a press release, Batelco acquired a 46% stake in the Kuwaiti company from Ali Al Ghanim & Sons for an undisclosed sum. The deal was concluded in March 2014, with Batelco holding a 90% stake in QualityNet.
Infrastructure
The government has endeavoured to enhance its external connections since the late 1990s, joining a consortium to develop the Fibre Optic Gulf submarine cable in 1998, which connects through Doha, Dubai, Kuwait City and Manama. The MoC partnered with the Telecommunications Infrastructure Company of Iran to establish a 380-km cable connecting the two nations in 2003, and in 2006 Kuwait was connected to the FALCON cable system, operated by Global Cloud Xchange ( formerly Reliance Globalcom), which runs to Egypt and India.
More significantly, Kuwait joined the GBI cable system, a joint project owned by Gulf Bridge International and the MENA Cable Company, in early 2012. GBI is the first sub-sea cable offering connectivity at 100 Gbps and is also the country’s first carrier-neutral operator, extending to major European cities and becoming a major transporter for operators in the Middle East, Europe and India.
As a “self-healing ring” designed to reroute traffic in the event of a cable cut or disruption, the GBI system has brought substantial improvements to internet reliability. In October 2013, Zajil Telecoms signed a capacity sale agreement with GBI, which should greatly improve the company’s data delivery and cloud computing applications.
Rising Speeds, Lower Costs
Internet speeds, particularly in the fibre-optic segment, have shown promising growth over the past decade; in 2007, maximum speeds were 1 Mbps, whereas Fasttelco today offers consumer packages with speeds of up to 100 Mbps – granted, at the hefty price of KD2000 ($7032) annually. Indeed, high prices for fast internet have been burdensome for the country’s consumers. The government ordered ISPs to cut prices by at least 40% in September 2012, a move which slashed the price of an annual subscription for a 1-Mbps connection to KD48 ($168.77), while an 8-Mbps plan was lowered to KD200 ($703.22).
Competition has further eroded prices, which has been beneficial for consumers but decidedly less so for operators such as QualityNet, which saw substantial hits to its revenues and profits after a price war in 2013. “We do not have a telecommunications regulatory authority, so there is no real price regulation at the moment, which has lead to ridiculous price wars among operators,” Waqar Qureshi, business development manager at QualityNet, told OBG. “We have dropped our prices from KD299 ($1051) annually for an 8-Mbps unlimited package in 2012, to KD54 ($189.87) for the same package in 2013.”
Fibre Internet
Kuwait’s largely copper-based network cannot carry sufficient bandwidth to satisfy consumer demand, creating a significant challenge for operators as demand for data grows. Only 15% of homes and offices are currently using the state’s fibre, or Gigabit Passive Optical Network (GPON), demonstrating significant potential for expansion of fibre services. “The development of fibre-optic networks is critical to the continuing development of Kuwait’s social and economic development,” Paul Budde, managing director of telecommunications research firm BuddeComm, told OBG.
The MoC chose the Arabian Construction Company to design, engineer and install a 240-km plesiochronous digital hierarchy fibre-optic network, capable of transporting large quantities of data and voice lines between government agencies and other entities. This marked the introduction of fibre services in Kuwait, with the government now targeting replacement of its ageing copper infrastructure with new fibre-optic networks as a key strategy to improving the country’s attractiveness to foreign investors.
Kuwait introduced fibre services to residents in 2005, when the MoC carried out a pilot programme in partnership with Siemens Communications to install the GPON. Around 44,000 plots, both commercial and residential, were connected in the first phase, and in 2013 the MoC planned to issue a tender to connect a further 66,000 plots, aiming to link Kuwait’s 200,000 plots to a fibre-to-the-home system by 2017.
However, a tender has yet to be awarded for the project, and the MoC’s plans to extend fibre coverage across the country date back to 2007. Some stakeholders have grown frustrated waiting for the government to act. “As of now, approximately 20% of urban Kuwait has fibre coverage. Fibre will really help with adoption of fixed broadband services, as currently many Kuwaitis are plagued with bad copper networks that are incapable of delivering speeds more than 1 Mbps. We would be able to do so much more with fibre,” said Qureshi.
MEETS
The private sector offers tremendous potential for the creation of future fibre developments. In one of the region’s most promising fibre developments to date, a consortium including Zain, the UAE’s du, the UK’s Vodafone and Zajil announced the creation of a GCC-wide high-bandwidth regional transmission cable system, MEETS, in 2013. The system will involve construction of an optical transport network with speeds of up to 200 Mbps, which will be constructed on top of a largely dormant 1400-km fibre-optic network built as part of the power grid installed by the GCC Interconnection Authority, which is jointly owned by the six GCC member states. The $35m network is designed to connect Kuwait to Fujairah in the UAE, running through Saudi Arabia, Bahrain and Qatar.
As part of the MEETS development, the Gulf consortium signed a 15-year rental contract with the GCC Interconnection Authority to activate and manage the network. MEETS’s capacity is an estimated 2300 Gbps (compared to total Gulf usage of about 500 Gbps). The first phase is now expected to go live in the third quarter of 2014. MEETS is designed to offer economically and technically competitive bandwidth alternatives to Gulf operators, and enable a terrestrial route to Europe to increase reliability. Access is provided at the UAE through the Fujairah Landing Station, or via the Datamena carrier neutral hub.
Demand for bandwidth is being led by smartphones and the digitisation of modern life. However, smart TVs and smart video recorders are now entering the market, and while these products are not yet common in Kuwait, they have already begun making inroads. As adoption of these technologies becomes more widespread, data usage is expected to increase.
Hardware & Software
Kuwait’s hardware market, like many in the developed world, is rapidly transitioning away from desktops and notebooks, as its citizens increasingly turn to smartphones and tablet devices. Growth in this type of hardware is driven by high incomes in the state, and vendors are increasingly looking to new products, such as hybrid laptops and ultrabooks to meet demand by tech-savvy Kuwaitis who are regional leaders in adopting new devices. Although these products are relatively expensive, they are still well within reach of Kuwait’s high-earning citizens and residents.
Hardware sales increased from KD113m ($397.32m) in 2012 to KD114m ($400.84m) in 2013, according to BMI. Meanwhile, total spending on software rose by 5.5% to reach KD76m ($267.22m) in 2013, with the market’s upward trajectory driven largely by strong uptake of new technology, including smart-phones, tablets and ultrabooks.
IT service sales grew 4.3% to reach KD88m ($312.54m) in 2013, with future growth expected to be supported by cloud computing, e-government platforms and machine-to-machine services. Businesses have been slow to invest heavily in new IT solutions following the global financial crisis of 2008-09. However, new cost-cutting services like cloud computing fit into the development strategies of larger companies and are expected to drive expenditure in IT services (see analysis).
Security
The IT security software market also looks set to boom in Kuwait. An August 2013 survey conducted by Gulf Business Machines, a subsidiary of IBM, showed that 71% of IT experts in Kuwait believe the country is a prime target for cyber attacks, while 42% reported experiencing a cyber security incident within the last 12 months. The survey also revealed that a third of organisations do not conduct regular proactive screenings to ensure data protection.
“Data security is virtually non-existent here; there are banks that have run their networks for over a decade without any kind of security. Even within the government, there are ongoing cyber-security issues which need to be addressed,” Sanjay Cherian, project manager at Gulfsat, told OBG. This too presents an opportunity for the private sector, with firms already moving in to fill this gap in the market. For example, IT consulting firm Booz Allen Hamilton entered the industry in May 2012, aiming to secure government and commercial IT security contracts, planning to target the energy, financial services, health care and telecoms sectors. In October 2013 an American trade mission led by Francisco Sánchez, undersecretary of commerce for international trade, visited Kuwait and Saudi Arabia to discuss provision of cyber security infrastructure. The delegation included representatives from firms including Lockheed Martin, AirPatrol Corporation, Datalocker, Fire Eye, GlimmerGlass Optical Cyber Solutions, Implant Sciences Corporation, Raytheon Company, Schweitzer Engineering Laboratories and Tecore Networks.
Intellectual Property
Protection of intellectual property rights (IPR) is also a concern within the sector, with the former US ambassador to Kuwait, Matthew Tueller, identifying IPR protection as one of the state’s key business weaknesses during a March 2014 speech to the American Business Club. Kuwait was listed on the US Trade Representative’s (USTR) 2013 watch list for IPR violators, which is less severe than its priority watch list or blacklist, but still indicating a need for legal reforms.
Kuwait has been a member of the World Trade Organisation (WTO) since 1995, and the World Intellectual Property Organisation (WIPO) since July 1998. The state adopted its first IPR legislation in 1999 when parliament passed Law No. 64 of 1999, which provides copyright protection and penalties for copyright infringement. The law applies to works of foreign nationals that are published for the first time in Kuwait, as well as works of authors who are nationals of member states of WIPO, but offers little insight into digital IPR protection.
As of March 2013, a draft revised copyright law was under review within the legal committee of the Cabinet, with the USTR stating in a 2013 country report that delays are hindering development. “Key issues include the lack of deterrent criminal penalties and excessive delays in the enactment of key pieces of IPR-related legislation, which have been pending for years. The United States…continues to encourage Kuwait to implement legislation consistent with its WTO obligations,” read the USTR report.
IT Education
In 2011 Kuwait’s Ministry of Education moved to roll out the New Technology Infrastructure Project to increase IT usage in primary and secondary schools. The project looks to equip 350 schools with smart e-learning technology, in partnership with Microsoft. The state has also implemented a digital awareness programme with the goal of training hundreds of thousands of employees in IT skills. The programme hopes to provide training to 100,000 government workers and 200,000 employees in other sectors, over a period of five years.
The MoC is also promoting an e-citizenship programme designed to train citizens in using its range of e-services, including online bill payments, appointment bookings and visa issuance.
E-Government
Indeed, e-government services could be a significant IT growth driver in the coming years, as the state looks to upgrade and expand its online offerings and enhance the public’s IT usage. “There is a lot of room for IT expansion throughout the country in both the public and private sector,” Amro Maken, general manager at Arab Information Management Services, told OBG. “Switching the work of these entities to paperless systems is necessary for the advancement of the country.”
CAIT has led the drive to launch the state’s new portal for e-services, which makes all government services available through a single site and over a mobile platform. The agency also manages five national IT projects, including the Kuwait Government Online Portal, Kuwait Information Network, Kuwait Government Call Centre, Kuwait News Project and Legislation Sources System, although as of July 2014 the Kuwait Information Network had yet to go live.
A primary objective for CAIT’s work is to upgrade existing government portals to create the necessary infrastructure to support further development to e-services. Such improvements could include enhanced online payment options, expanding ministry websites to offer English services and creating an email notification system for subscribers.
While websites for the Partnerships Technical Bureau, Ministry of Defence, Ministry of Social Affairs and Labour, and Ministry of Finance have already made major strides in provision of e-services, others including the Public Authority for Housing and Welfare, the Department of Public Works and even the MoC, currently offer limited online information and services, presenting new opportunities for private sector participation.
The rise in e-services presents a significant growth avenue for IT developers, for example the creation of platforms such as e-health and e-government. The authorities have recognised the need to further develop these resources, which will likely result in new opportunities for the private sector.
Outlook
Strong improvements in internet penetration and skyrocketing demand for data among tech-savvy consumers should help drive the IT sector to new highs in 2014, with the private sector set to expand fibre-optic internet offerings significantly through the establishment of the MEETS network. Rising personal incomes and a young population with technical know-how is expected to continue to drive growth in hardware and software sales in the retail segment, while in the business market new technologies such as cloud computing offer promising opportunities for IT investment in larger companies.
Although cyber security and IPR protection remain significant challenges to future growth, the state’s drive to establish a digital economy has created a strong impetus for enhanced IT training, e-government offerings and infrastructure expansion, which should see the industry thrive in the coming years.
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