Just 20 years ago, Qatar’s leadership set out to liberalise the country’s telecoms sector, transforming its state-run monopoly operator into a market-driven firm. This was part of an effort to transition the Qatari economy away from its traditional mainstays, oil and gas. To that end, the ICT sector has been instrumental to a broader process that continues today. As state and private players team up to roll out advanced infrastructure and increase ICT device penetration, they are driving growth in one of the country’s most dynamic non-energy sectors, improving communications, and building up infrastructure and expertise vital for the development of a knowledge economy.
Market Structure
In 1994 Qatar became one of the region’s first countries to offer mobile GSM services. A year later the administration of Sheikh Hamad bin Khalifa Al Thani, the father emir, laid out plans to liberalise the telecoms sector. After the privatisation of the state-owned monopoly Qatar Telecom (Qtel) in 1998, the firm listed on the stock exchange in Doha in the same year, followed by listings in London in 1999, Abu Dhabi in 2001 and Bahrain in 2002. Qtel underwent a brand transformation in 2013 to become Ooredoo, Qatar’s largest telecoms provider, as measured by customer and revenue shares, with operations in several other international markets.
As part of the introduction of market-driven forces to the state’s telecoms market, the administration of Sheikh Hamad also announced plans in 2006 to introduce a second player to the market. In June 2008 the government formally granted an operating licence to Vodafone Qatar, a joint venture between Vodafone Group and Qatar Foundation, a science, education and research non-profit organisation.
Growing Network
Thanks to a combination of private sector investment and coordination with the government, Qatar’s population has access to some of the most sophisticated ICT networks in the world. Mobile phone penetration in the country surpassed 190% in 2015, indicating that for every person in the country there are nearly two mobile phone subscriptions. In December 2015 the incumbent operator, Ooredoo, reported it had reached 3.4m subscribers, or about 70% of the local market. Vodafone’s customer base, meanwhile, stood at 1.5m customers as of December 2015, an increase of 6% from the same period the year before, accounting for over 30% of the market. In terms of revenues, Ooredoo generated the lion’s share, reporting QR7.9bn ($2.2bn) in earnings for the year ending December 2015, while Vodafone’s revenues amounted to QR2.1bn ($576.2m) for their financial year ending March 2016.
The recent performance of both companies reflects an evolving ICT market in Qatar. Prices for pre-paid services have decreased and in August 2014 both carriers launched promotions that lowered their effective local calling rates to QR0.10 ($0.03) per minute. The summer of 2015 also signalled changes ahead in mobile pricing practices. Following a GCC meeting in Doha the governments of the GCC countries agreed to reduce roaming charges for mobile customers making calls within the six-country bloc. In compliance with the agreement, price ceilings were implemented in Qatar in April 2016.
By The Numbers
Even in an environment of stiff pricing competition between the country’s two carriers, the market continues to produce healthy revenues. Ooredoo’s Qatar business reported that its earnings in 2015 represented a 10% increase compared to a year earlier. The company attributes the results to gains across the board, pointing to increased sales in mobile data, fixed data and other products. This growth helped make Qatar Ooredoo’s most lucrative market in terms of revenues, generating 25% of the company’s earnings in 2015 despite accounting for only 3% of its overall customer base.
These results are partly due to the high incomes present in Qatar. In 2014 Qatar’s GDP per capita was in excess of $100,000, according to recent data from Ministry of Development Planning and Statistics – among the highest in the world. Large disposable incomes seem to bode well for telecoms spending. Ooredoo’s average revenue per user (ARPU) for fixed and mobile services in Qatar was QR118.5 ($32.52) as of the end of 2015, significantly ahead of the value generated in the next-highest-ARPU countries, Kuwait and Oman, which stood at QR71.7 ($19.67) and QR67 ($18.38), respectively, during the same period.
Vodafone Qatar’s annual results also reflect the effects of a changing mobile pricing landscape. The 6% growth in the company’s customer base to nearly 1.5m outpaced the natural growth of the population. At the same time, however, the company saw an 8% dip year-on-year in total revenues, from QR2.3bn ($631.1m) to QR2.1bn ($576.2m). The company attributed the drop to a combination of internal and external factors, including price cuts in the pre-paid services market. “The past year has been difficult for the company with the impact of structural changes in our industry, namely the increasing use of data at the expense of international voice traffic, and sustained price competition, particularly in the pre-paid market, severely impacting our revenue performance,” Rashid Fahad Al Naimi, acting chairman of the company, commented on the release of the March 2016 year-end results. “Meanwhile, our cost base has increased in line with the growing scale of our business operations, collectively leading to a reduction in earnings.”
Pre-paid service revenues dropped by 13% year-on-year, from QR1.5bn ($411.6m) in March 2015 to QR1.3bn ($356.7m) in March 2016, while revenues in post-paid services saw a welcome boost, rising over 10% from QR421m ($115.5m) to QR497m ($136.4m). According to international press, moving forward, the company aims to acquire a larger share of post-paid customers, whom it says are more likely to remain with Vodafone and spend more on services. With Qatar’s population and economy both continuing to grow, industry figures are optimistic that carriers will be able to seize these opportunities for expansion.
Global Players
Qatar’s operators are part of larger international telecoms groups. Vodafone Qatar is part of the UK-based Vodafone Group, which has a global presence across Europe, Africa and Asia. Ooredoo, meanwhile, has built itself up from Qatar’s state-owned national carrier into a global telecoms player, owning or holding majority stakes in telecoms operations in 13 countries outside Qatar, covering markets in the Middle East, North Africa and Asia.
Ooredoo Group posted profits of QR996m ($273.3m) for the first quarter of 2016, almost double the QR500.3m ($137.3m) registered in the same period a year earlier and even surpassing the QR827.1m ($227m) reached in the third quarter of 2015, when the company received a boost from the sale of its 40% stake in Philippines-based Liberty Telecommunications. Ooredoo had originally invested there with the aim of developing a WiMAX business in the country, but in July 2015 it sold its 426.8m common shares and 1.53bn preferred shares to its partner in the joint venture, San Miguel Corp. Ooredoo announced the completion of the sale and all legal formalities in September 2015.
As for global revenues, Ooredoo posted QR32.2bn ($8.8bn) for the year ending December 2015, down by 3% from the previous year. Local currency revenues rose across all of Ooredoo’s markets, except in Iraq and Tunisia. However, currency fluctuations in Indonesia played a negative role in the company’s earnings. Indosat, Ooredoo’s Indonesian affiliate, had accounted for the largest revenue share among the company’s 14 operations between 2012 and 2014, and in 2015 Indosat continued to perform strongly, generating Rp26.8trn ($2bn) compared to Rp24.1trn ($1.8bn) the year before – an increase of 11%. The value of the Indonesian rupiah, however, fell from around Rp9900 to the US dollar to Rp11,500. Since Ooredoo reports its financial results in Qatari riyals, which are pegged to the dollar, these changes made Indosat’s revenues appear to fall, even as revenues in local currency continued to rise.
Ooredoo’s operations in Myanmar have continued to make progress. Ooredoo was one of two carriers awarded a 15-year licence to operate in Myanmar in June 2013. During the previous period of military rule, restrictive measures meant telecoms were out of reach for the vast majority of the population. As a result, Myanmar presents a significant opportunity for telecoms operators in terms of mobile penetration. According to local media, in 2011 only 3% of the country’s 55m population owned a mobile phone.
In its first full year of operations, Ooredoo Myanmar has grown quickly. It generated QR1.1bn ($301.8m) in revenues and more than doubled its customer base, from 2.2m at the end of 2014 to 5.8m at the end of 2015, according to the company’s 2015 financial statements. As one of the first outside carriers to begin operations in the country, Ooredoo Myanmar has invested heavily in infrastructure development. When it first switched on its 3G network in August 2014, the company had 620 towers in operation, Rene Meza, CEO of Ooredoo Myanmar, told local press in October 2015. A year later, that number had risen to 2500 towers, covering 72% of the population. The firm’s infrastructure rollout received a welcome boost in October 2015, when it signed an infrastructure loan agreement worth $150m with the International Finance Corporation, part of the World Bank Group. The loans are specifically earmarked to support Ooredoo’s network build-out in the country.
Rules Of The Game
In 2016 Qatar’s Ministry of Information and Communications Technology ( ictQATAR) was merged with the Ministry of Transport to form the Ministry of Transport and Communications (MOTC), in recognition of the central role the two sectors are expected to play as part of the state’s national strategy to develop into a knowledge-based economy under Qatar National Vision 2030. Among the MOTC’s ICT sector responsibilities are the oversight of infrastructure development, the promotion of e-government platforms and digital literacy, and the implementation of policies that support a competitive and investor-friendly market.
The government has also created a separate independent body, the Communications Regulatory Authority (CRA), with a mandate focused on safeguarding a competitive and consumer-friendly business environment. In order to achieve its mission, the CRA regulates the communications sector’s fixed and shared resources, like radio spectrum, domain names and phone numbers. It also operates mediation services to resolve disputes that may arise both among telecoms players, and between players and their end users. In June 2015 Mohammad Ali Al Mannai was appointed president of the CRA, after serving as the CEO of the Qatar National Broadband Network (Qnbn) and senior director for network rollout at Ooredoo. According to Mohammad Hammoudi, general manager for the digital manufacturer Cisco Qatar, the creation of the CRA signals a positive shift in the market to maintain a fair and open playing field. “If it is executed in a manner that ensures proper delivery of services to the consumer and end users, then it will have an overall positive impact on diversification efforts within the industry,” he told OBG.
In October 2015 the CRA issued a new competition policy to safeguard the Qatari market against anti-competitive behaviours, including price-fixing, market sharing and agreements for fixed and minimum resale price maintenance. The idea is to ensure a level playing field for all stakeholders as well as competitive prices for consumers.
Building Connections
The state has come a long way in boosting connectivity within its own borders. Household internet penetration increased from 84% to 96% for the population between 2010 to 2013, according to the latest available household survey published by ictQATAR in 2014. That rate is double the 40.3% rate for households with internet at home among Arab states, according to data published by the UN’s International Telecommunications Union in November 2015. In September 2015 the country ranked first globally among developing countries for the percentage of individuals using the internet, at 85%, first among Arab countries and second globally in the percentage of households with internet access, according to the 2015 edition of “The State of Broadband” report released by the UN Broadband Commission for Digital Development.
Meanwhile, the devices used to access the web have shifted over time. Laptops have remained the most popular gateway, with 85% of individuals reporting they used one for internet access in 2013. Smartphones, however, have made major gains. The percentage of individuals in Qatar using smart phones to connect to the internet doubled from 35% to 71% between 2010 to 2013, according to ictQATAR. In conjunction with growing smartphone usage, both carriers have rolled out 4G LTE Advanced (4G+) networks, and they have also begun using carrier-aggregation technology to utilise existing mobile broadband infrastructure more efficiently (see analysis).
Fixed Networks
Many countries still rely on DSL technology to deliver high-speed internet services. DSL internet works over copper-wire infrastructure, which already exists in most countries that have landline telephone networks. Fibre internet, on the other hand, relies on an entirely new infrastructure based on fibre-optic cables – silica glass drawn into strands slightly thicker than human hair that transmit data as light signals. These light signals are able to move data much faster than copper wire. In Qatar, Ooredoo has led the way in laying fibre-optic infrastructure, with the company first offering fibre-internet services to its customers in January 2012. Since then, it has connected over 225,000 homes to its fibre network, covering about two-thirds of the country, according to Waleed Mohammed Al Sayed, CEO of Ooredoo Qatar, in conversation with the local press in October 2015.
The government has also announced major goals to increase fibre-optic connectivity as part of its broader strategy of building up Qatar’s ICT sector. In pursuit of these goals, the authorities created Qnbn, a state-owned company with a mandate to construct and administer a fibre network throughout the country. The organisation aims to provide all schools, hospitals and government institutions in Qatar with access to at least 1-Gbps download and upload speeds by the end of 2016. It also aims to provide every household with download speeds of 100 Mbps and upload speeds of 50 Mbps. To ensure competition, it wants these services to be offered by at least two operators. Although its rollout of commercial services has been slower than Ooredoo’s, Qnbn has connected residences and businesses to its network in parts of Doha, including Barwa City and Barwa Commercial Avenue. Work is also in progress in areas of the downtown West Bay district.
Vodafone, for its part, has worked closely with Qnbn to connect fibre customers in the aforementioned areas, as well as specific areas in the West Bay district. In October 2014 the company reached a non-binding agreement with Qnbn to buy all of its 21m shares, a move that would have put Vodafone in the driver’s seat to compete head to head with Ooredoo in the fixed broadband segment. In November 2014, however, Vodafone Qatar announced in a statement to the Qatar Stock Exchange that it and Qnbn had decided not to proceed with the transaction. As a result, Qnbn has remained public.
Final Frontier
The authorities in Qatar have also been encouraging investment in expanding the country’s role in the international telecommunications sector through the deployment and operation of communications satellites. To that end, in 2010 they created the Qatar Satellite Company, better known as Es’hailSat. The company is charged with launching and operating a fleet of communications satellites from Qatar, providing a national asset with both commercial and strategic value. The December 2013 launch of its first satellite, Es’hail 1, has already been counted as a success. Qatar-based sports network beIN Media Group accounts for 80% of current capacity, while other customers include Al Jazeera Media Network, Qatar TV and Al Bidda TV in addition to security departments of government ministries.
A fleet of communications satellites operated from Qatar will create important international communications infrastructure, providing an alternative to European or North American satellites, which leave the MENA region on the margins of coverage. The fleet is also set to grow. “We signed the manufacturing contract for Es’hail 2 in July 2014 and signed with Space X to launch the satellite in the fourth quarter of 2016 from the US,” Ali Ahmed Al Kuwari, CEO of Es’hailSat, told OBG. “We also recently signed the contract for the construction of the teleport of Es’hail 2, which will be controlled from the north-west of Qatar. Es’hail 1 is controlled from Paris.” With the development of the second satellite well under way, the company is also starting to make plans for a third, according to Al Kuwari. “Es’hail 3 is in the planning stages,” he said. “We expect to be a self-revenue-generating company by 2018, at which time we will look at financing options for the third satellite.”
Outlook
Qatar’s ICT sector has made major strides. The country’s small size and fast-growing population have helped telecoms companies roll out infrastructure quickly and tap into a consistently growing customer base for revenues. A friendly but competitive environment between the country’s two service providers is a sign of the market’s developing maturity. The trick will be finding price points that are sustainable for providers and competitive for consumers. Meanwhile, the increasing smartphone penetration could create a larger market for apps, e-commerce and other mobile web services. The formation of a more powerful regulator in the CRA also bodes well for the sector, and as Qatar’s ICT market moves into its next stages of maturity, maintaining open lines of communication between public and private players is set to be crucial for the sector’s continued expansion.
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