Telecom Charges in the GCC-Are they too high?

What is the structure of the telecom market in the GCC? How has it changed over the years?
The telecom market in the GCC has one of the highest penetration rates in the world with 170% mobile penetration and 77% internet penetration. The large number is attributable to ever rising population in the region and increasing number of expatriates. The number of subscribers grew from 87.97 million in June 2014 and is expected to reach 100 million by 2020. There are 235 companies that offer various telecom services mobile and fixed line telephony, fixed and mobile broadband, television services, mobile phone retail, modems, network equipment and other accessories and other telecom infrastructure equipment. Only 12 out of these 235 companies are listed, out of which 4 are fully government owned and the rest have different levels of government holding. Stakes of the government can be as high as 84% as in the case of STC.

Until the early 2000’s the GCC’s telecom companies were a monopoly of the state. It is only after 2005 that liberalization started and telecom regulators started issuing licenses to foreign players to break the monopoly. Despite the efforts, so far, Vodafone is the only foreign player to have its own network infrastructure in the GCC market, with operations in Qatar (Virgin & Lebara operate as MVNOs). The other countries do not have any foreign players. Table 1 shows the Mobile Virtual Network Operators and Mobile Operators in the GCC.

Table 1 : Mobile Virtual Network Operators (MVNOs) and Mobile Operators in GCC

What is the revenue structure of telecom companies? What are the steps they have taken to ensure revenue from voice calls is not impacted?
Telecom companies offer monthly fixed or flexible benefits plan to the consumers. A flexible benefit plan may or may not have fixed charges, but offer services like 2 GB data packs or 500 calls that the consumer can choose from.  According to Markaz, an average consumer uses about 2GB of data, makes 200 phone calls and sends 100 SMS a month. As the usage increases, rates may change.

ARPU which is the average combined revenue from data, voice and other services per user is a measure used to judge level of tariffs. If consumption among consumers is similar, a higher ARPU implies higher tariff.
Telecom companies are very protective of the existing players and protecting their revenues from voice calls segment. For this purpose, UAE has banned VOIP services such as WhatsApp calling, Skype and Google Hangouts.
 
Why is there a general feeling that telecom rates in GCC are higher than in other regions?
According to Gulf Business, the tariffs for fixed-broadband in UAE and Saudi Arabia are believed to be the highest in the GCC. Kuwait has the highest tariffs when it comes to monthly consumption of telecom services.
The following table compares the monthly tariffs of basic plans of countries in the GCC with other countries.

Table 2: Estimated monthly bills for equivalent benefits

Source: Respective company websites

From the table, it is clear that the monthly bills are highest in Kuwait and Saudi Arabia, while the other GCC countries are not far behind as compared to UK, USA and India. Fixed monthly charges in the GCC exceed that of USA, UK and India by a large margin.

Table 3: Country-wise Average Revenue per user (ARPU)
 

Source: Respective annual reports

Oman has the highest ARPU as compared to global peers, twice that of KSA, which by itself is higher than UK, USA and India. The mobile data segment tariffs are significantly higher. According to BQ magazine, charges for 1GB data starting from USD 6.34 in Saudi Arabia, USD 12.8 in Oman, USD 17.1 in Qatar and USD 27 in the UAE. 1 GB data in India costs USD 4. There is complete monopoly of operators in certain regions due to lack of infrastructure and telecom operators are able to impose high charges in these regions.  For example, Du and Etisalat in UAE are both offering overpriced services, as well as have in the past, hiked tariffs and plans without the consumer’s knowledge. Etisalat had to form a team to look into the issue after the Telecom Regulatory Authority (TRA) issued warnings to the companies on receiving multiple consumer complaints. Etisalat refunded excess money charged.
 
Why are telecom companies unwilling to reduce tariffs in the region?
Telecom companies in the GCC are in the diversification phase. Etisalat and STC are aggressively acquiring companies and partnerships with local information and communication companies within and outside their countries. Oredoo has operations in 15 countries through subsidiaries. Such diversification leads to increase in fixed costs which include spectrum, licenses and laying down required infrastructure which are recurring in nature. Thus, they have to stick to a high tariff to maintain high revenues and a healthy margin.

Secondly, Mobile Virtual Network Operators affect pricing of telecom companies. MVNO can offer voice, internet and broadband services, uses its own billing system, sales support representatives and customer support systems. MVNOs are cheap substitutes for conventional telecom operators as they use price as their Unique Selling Propositions (USPs) to attract customers. Saudi Arabia is the only GCC country to have 2 MVNOs, viz Virgin Mobile which uses STC’s infrastructure and Lebara which uses Mobily’s network. UAE, Oman, Kuwait, Bahrain and Qatar do not have MVNOs, which is why tariffs are very high in these countries.
 
Why is it important to reduce tariffs? What steps are being taken by GCC countries to break the monopoly?
Higher tariffs prevent digital inclusion of poorer sections of the society. The GCC has a large number of expatriates who draw very low salaries. They cannot afford high rates. Despite various e-governance initiatives and services by various countries, their effectiveness is mitigated thanks to high charges. Communication expenses form a major chunk of all businesses, thus making it more important to reduce tariffs to make businesses more competitive.

The telecom sector in Saudi Arabia is much more liberalized compared to other GCC nations. They have 5 operators and 2 MVNOs, but still have fewer players compared to developed countries. In the UAE, TRA allowed network sharing for voice and internet services in 2015, enabling consumers to choose operators in all areas. The TRA is planning to include infrastructure sharing for television services which is likely to break the regional monopoly of operators.