There is a tiny island off of the Musandam Peninsula, the rocky patch of Omani territory that makes up southern extent of the Strait of Hormuz. That island, called Telegraph Island, marked some of the sultanate’s first steps into modern communication technology. The area hosted a telegraph station used by the British Empire, part of a line connecting British-operated telegraph offices in India and Egypt. From then until 1970, the country’s telecommunications technologies laid fallow for the most part. After ascending the throne in that year, Sultan Qaboos bin Said Al Said jumpstarted development by approving laws that set up government oversight and spurred investment.
Transformation
In the past 40 years, the telecoms market has transformed from a state monopoly to a multi-player market, one that has been marked by an increasingly fast past of development. Although the government takes a major interest in the construction of the country’s telecommunications infrastructure, it has abandoned the top-down approach of the past. During the 2000s, telecommunications in Oman underwent a shakeup as several new laws altered the structure of the sector and created new bodies of oversight.
The 2002 Telecom Act (Royal Decree No. 30 of 2002) created an independent Telecommunications Regulatory Authority (TRA) as the government regulator. The new law also outlined 10 principal goals for the TRA, including the provision of telecommunications services, regulation of competition among private players, management of the mobile frequency spectrum and encouragement of research and development.
Key Players
As the government regulator of the sector, the TRA is responsible for licensing operators. The TRA has a range of licence classes that permit licensees to build public infrastructure, build private infrastructure and lease other operators’ infrastructure. A class-I licence offers the broadest rights to its licensees, allowing them to establish and operate a public telecoms network for domestic and international use and sell services on that network. There are currently three companies that hold class-I licences: Oman Telecommunications Company (Omantel), Omani Qatari Telecommunications Company (Nawras) and Samatel.
The Oman Telecommunications Company (Omantel) traces its history to the 1980 Law No. 43, which created the General Telecommunications Organisation (GTO), a public monopoly. In 1999 the authorities transformed to GTO into a state-owned joint stock company called Omantel, which transformed in 2004 into Omantel Group. In the same year, the company received the TRA’s first class-I fixed and mobile licences. The company listed 30% of its shares on the Muscat Securities Market in July 2005. The government holds the remaining 70% of shares. In January 2012 the firm unified its fixed and mobile services under one brand, Omantel.
Oman’s second telecoms operator, Nawras, was incorporated in December 2004. In February 2005 the firm received Oman’s second class-I mobile licence by Royal decree. In 2009 the group also received a class-I fixed licence, allowing the firm to offer provide fixed, data and international services with fixed technologies.
The company, which is part of the Qatar-based telecoms group Qtel, made its initial public offering in October 2010, listing on the Muscat Securities Market. Qtel still holds a majority of the company, with a 55% stake.
A share of 40% floats on the Muscat Securities Market, while the remainder is held among the pension funds of various government organisations.
Samatel became the third operator to hold a class-I licence in the first quarter of 2011. The Muscat-based telecoms company launched services in August 2010 as a mobile virtual network operator (MVNO) with a class-II reseller’s licence, leasing space on Nawras’ infrastructure. Samatel’s class-I licence is set to allow the company to run as an international gateway operator, meaning it can aggregate inbound and outbound wholesale traffic. The company signed an agreement with Istanbul-based Verscom Solutions to deploy infrastructure that will facilitate interconnection with Omani networks and international wholesale operators. With both licences, the company aims to continue providing virtual services domestically and build up its international connection infrastructure.
MVNOS
In addition to traditional operators, there are several that work solely as MVNOs. The TRA gave telecoms resellers the green light in 2008, when the authority announced the issuance of five Class II MVNO licensees: FRiENDi Mobile, Injaz International, Kalam Telecommunications, Majan Telecom’s Renna and Mazoon Mobile. In their first year of operations, the companies captured 5.9% of the market, according to data assembled by TRA. Between the end of 2009 and the second quarter of 2012, that share grew to 11.2%.
Over the first four years of MVNO operations, the market landscape has shifted. Three virtual players now dominate the MVNO market: Samatel, FRiENDi Mobile and Renna Mobile. Omantel’s excess capacity hosts two of these three: FRiENDi Mobile Oman and Renna Mobile. In April 2009, Dubai-based FRiENDi Group launched FRiENDi, leasing infrastructure from the incumbent. A month later, Renna, owned by Muscat-based Majan Telecommunications, joined FRiENDi on Omantel’s network. The MVNOs built up their customer bases by focusing on services for niche groups, like international calling, off-peak rates and unique packages.
Although sometimes overlooked for the larger class-I operators, MVNO’s in Oman have been able to attract attention from potential partners and investors abroad. In June 2012 FRiENDi signed a partnership agreement with UK-based Virgin Group. The agreement lays out terms of how the two operators will join forces in the region, with Virgin’s South African operations combining with FRiENDi Group’s operations in Jordan, Oman and Saudi Arabia. The resulting group, called Virgin Mobile Middle East and Africa (VMMEA), will become a regional player with a customer base of over 1m subscribers. “What we’ve agreed with Virgin is that we’ll run a two-brand strategy where it makes sense. We will keep FRiENDi in markets where we are but we will also have the option to introduce Virgin and FRiENDi in new markets,” FRiENDi CEO Mikkel Vinter told CommsMEA, a regional telecommunications publication, following the announcement of the agreement. “We have some opportunity to mix and match: one MVNO with two brands sharing resources like the call centre.” Through growth in existing markets and expansion into new ones, the group aims to grow its operations to 5m customers by 2015, Vinter told Reuters in June 2012.
Regulations
In recent years the authorities have made several important adjustments to Oman’s telecommunications regulations, with changes on the docket for rural coverage, tariff transparency, market definitions, spectrum allocation and international roaming.
Rural connectivity is important to the TRA, since Oman is a relatively large country with a well-spread population. Telecoms firms, however, tend to focus on higher-density areas for infrastructure development, since these areas typically present the most attractive returns on investment. The TRA has been working with operators to expedite connections for rural areas. In June 2012, the authority announced a plan to bring 150 villages basic telecoms service by the end of 2013. To achieve this, the telecoms operators agreed to build 120 mobile sites in underserved rural areas.
Tariff transparency has also been a priority, as the range of plans on offer widens. In August 2012 the TRA published a draft of its Tariff Transparency Code of Practice to solicit feedback from telecom licensees and consumers. Increasing competition in the telecoms market has led operators to release service bundles that can make comparing plans and determining per unit prices more difficult, according to the document. The new regulations aim to ensure that operators provide consumers with tariffs that are accurate, simply understood and easily compared. Operators and members of the public proposed amendments to the draft legislation, which the TRA addressed and published.
In addition to clarifying tariffs, the TRA is also clarifying market definitions. Although definitions of terms such as market dominance may seem like a minor detail in the broader market, these definitions are crucial for outlining the rights and responsibilities of licensees. The flexibility to assign different responsibilities to players based on their market dominance could improve the regulator’s ability to encourage competition in various segments. To better address the issues of market dominance and competition, the TRA published a draft document in August 2011 providing analysis of different telecoms market segments, definitions of dominance and related regulation. The document was made available to the public and the licensees to solicit comments and proposals for amendments. In the document, the TRA proposed definitions for 20 different market segments, ranging from public payphones to wholesale international voice services.
The year also saw a regulatory breakthrough for spectrum allocation. Mobile operators build networks that use radio frequencies to transmit mobile data and voice. Different ranges of frequency have drawbacks and benefits, with the prime spectrum ranges generally reserved for government and military use. In December 2011, telecoms operators approached the TRA to explore possibilities of spectrum liberalisation, which could boost infrastructure quality and cut costs. In March 2012 the Ministry of Transport and Communication announced a OR50m ($130.3m) appropriation to free up lower spectrum frequencies for commercial use. These changes were well received by both of the country’s principal telecoms operators, who are in the process of upgrading their third-generation (3G) networks and building 4G networks (see analysis).
The telecommunications sector has seen developments at the regional level as well. A meeting of GCC ministers in February 2012 announced a region-wide move to lower roaming rates within the GCC. Credit ratings firm Moody’s pointed out the possible negative effects for telecoms profit margins, but Omani companies refuted those claims, pointing out that their roaming rates were already among the regions lowest. For consumers and businesses, the lower rates will likely be a positive development.
Profitability
Despite ongoing investments in network development, the country’s largest players, Omantel and Nawras, have seen their profit margins grow in recent years. Between 2006 and 2011, Nawras went from a OR12m ($31.3m) loss to a OR48m ($125.1m) net profit, according to its 2011 annual report. Omantel’s net profit, meanwhile, has largely hovered between OR110m ($286.7m) and OR120m ($312.7m). The companies’ earnings before interest, taxes, depreciation and amortisation (EBITDA) help contextualise their profits, since both companies hold significant fixed assets in the form of physical telecoms infrastructure.
A combination of factors such as depreciation costs affect the net profits of both companies. Nawras, for instance, saw its net profits ease 3% between 2010 and 2011, despite seeing EBITDA grow by OR500,000 ($1.3m) during the same period. The country’s second-largest operator explained the data with higher depreciation costs. At Omantel, EBITDA has also been growing despite net profits that have held steady for the past few years. Omantel’s EBITDA doubled from OR119m ($310.1m) to OR238m ($620.2m) between 2007 and 2011, according to the firm’s annual reports.
The MVNO market, meanwhile, has seen stiff competition. Overall market penetration edges closer to 200% each year, and two heavyweight traditional operators compete for market share. Despite challenges, some resellers have been able to find underserved niche segments. In June 2012 Omantel and Nawras resellers combined to make up 13.5% of subscriber share, according to financial information from the two operators. Although privately held MVNOs are not obligated to release regular financial statements detailing profit numbers, some firms periodically disseminate financial information. In June 2011 Renna mobile announced that it had reached its breakeven point in its home market of Oman. In June 2012 FRiENDi, the largest MVNO with an 8% share of the market, also announced that its Oman operations were profitable.
Market Dynamics
A decade of growth underlies these growing profit margins among operators and MVNOs. Between 2005 and the second quarter of 2012, mobile subscribers nearly tripled, growing 274% from 1.33m to 4.98m, according to data from the TRA. Average annual growth between 2005 and 2011 was 23.66%. The penetration rate crossed the 100% threshold in 2008, meaning that starting in that year the number of cell phone subscriptions began to outnumber the country’s population. In the second quarter of 2012, penetration was 179.83%, its highest point yet.
There are a number of explanations for the relatively high penetration rate. The country’s burgeoning youth demographic is one factor. Another is the increasing affordability of mobile technologies. When smartphones began to gain traction in the late 2000s, their prices were comparable to those of computers.
A combination of new technologies, operating system competition and other market factors have helped drive prices down. Price sensitivity to telecoms services is also important. Competition among operators is fierce, so special pricing campaigns are common to pull in more users. In many cases, telecoms operators practically give their subscriber identity module (SIM) cards away. As a result, it is common for Omanis to have several SIM cards from different providers in order to take advantage of multiple campaigns.
Competition Effects
Competition among operators has helped hold prices down. Correspondingly, average revenue per user (ARPU) has fallen steadily since the introduction of mobile services. ARPU has declined by nearly 40% between 2007 and 2011 according to TRA data. This sort of decline is typical of growing markets as early adopters are joined by the general public, with the larger pool of customers pushing down the overall average price per user. The continuing effects of a competitive marketplace also contribute to changes in ARPU. In Oman, the sector’s various players try to distinguish themselves with different offerings and seasonal campaigns, which can mean more value for consumers. Technological progress also helps generate savings, which can be passed onto consumers. The increased use of voice-over-IP (VoIP) applications like Viber and GoogleTalk, for example, allow smartphone users to place calls using their data connections, rather than paying international voice rates. Use of these services was previously restricted by the TRA, but since 2012 the use of some VoIP applications has been possible in the country. The result for operators has been growing data usage but decreasing revenue from international calls, Omantel said in its 2011 annual report.
The decline of ARPU, although steady in the past few years, has slowed and even reversed in 2011 and 2012. Omantel’s Mobile prepaid ARPU held steady at OR7. 30-7.40 ($19.02-19.28) between 2010 and the second quarter of 2012, according to the operator’s financial statements. Prepaid subscribers make up the lion’s share of the market, about 91% of the market in 2010 according to the TRA. Nawras’ ARPUs have even marked slight growth between 2010 and 2011. Mobile postpaid grew from OR26 ($67.76) to OR26.60 ($69.32) and mobile pre-paid rose from OR5.70 ($14.85) to OR6.30 ($16.42), according to its 2011 annual report. Factors like rising revenues and decelerating subscriber growth, are likely affecting these changes.
Fixed Sector
The fixed voice sector has been on a steady decline as mobile services come to the fore as the primary means of communication. In the sultanate these trends are not as pronounced, however, since fixed services had a relatively small customer base from the start. The segment has had two players since 2010, when the TRA awarded Nawras the country’s second fixed licence. Between 2005 and the second quarter of 2012, the number of fixed-line subscribers increased from 265,237 to 295,946, according to TRA data. User numbers peaked in 2008 at 304,747 before easing to their current levels. Penetration, meanwhile, declined steadily but only slightly between 2005 and the second quarter of 2012, decreasing from 11 to 10.67 subscribers per 100 inhabitants. Fixed-line ARPUs have come down in recent years as well, falling from OR17 ($44.30) to OR14.20 ($37) per month between 2007 and 2011, according to TRA data. Despite the decreases, the sector still remains a significant revenue source for operators, with fixed-lines’ monthly ARPU higher than mobiles’ OR8.60 ($22.41). Even though large segments of the population will likely continue moving toward mobile technologies, opportunities in fixed as a niche area will likely persist, thanks to existing infrastructure and higher revenues per user.
Outlook
The telecommunications market in Oman has several strengths moving forward, with an evolving regulatory framework, multiple competitive players and a steadily growing customer base. The market, however, could hit some stumbling blocks as it matures. Regulation has come quite far in the past few years, but communication among state entities, private operators and consumers is set to be crucial to ensure that legislation continues to accommodate growth. Competition could also present a challenge, given the number of operators. Several players, however, could also encourage innovation, boost consumer choice and keep prices from rising too high.
Adaption to technological innovations will likely be important as well, as applications and more data-based services are already transforming the ways users interact with telecommunications networks. With both operators investing heavily, the results could be continuing competition and infrastructure upgrades – both key goals on the government’s communications agenda.
