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Mobile telephony in Bahrain
Introduction
Bahrain now has two competing operators in mobile telephony – Batelco and MTC-Vodafone.
Batelco, the Bahrain Telecommunications Company, held the monopoly in telecommunications provision in the country since it was established in 1981, until last year. The Government of Bahrain owns 36% of Batelco. Another 20 per cent is owned by Cable & Wireless (U.K.), with which Batelco has strong technical links. The remaining shares are listed on the Bahrain stock exchange. Batelco introduced digital mobile telephone services into Bahrain in 1995.
MTC-Vodafone is a partnership created in 2002 between Kuwait’s Mobile Telecommunications Company (MTC), and the international telecommunications company Vodafone (U.K.). The partnership with Vodafone gives MTC access to Vodafone’s international mobile services. MTC owns 60 percent of MTC-Vodafone Bahrain and Bahraini investors own the remainder.
MTC was established in 1983 and has been a dynamic driver of telecommunications in Kuwait. It is now marketing itself vigorously in other parts of the Gulf, having successfully bid for a mobile licence in the southern part of Iraq. The company is now contending for mobile licences in both Saudi Arabia, with a projected investment worth $1.5 billion, Oman and also the UAE, which broke its telecoms monopoly in April.
Crown Prince Sheikh Salman bin Hamad Al Khalifa, Commander in Chief of the Bahrain Defence Force (BDF), announced the end of Batelco’s telecoms monopoly in February 2001. Sheikh Salman has been personally overseeing the opening up of the telecom market and the transition to a regulated environment for telecoms competitors together with Transportation Minister Sheikh Ali bin Khalifa Al Khalifa.
Speaking in February 2001, Sheikh Salman said, “We are against all monopolies as the island is opening up its market to pave the way for solid growth. In fact the decision to end this monopoly and open up the telecom market was taken after the National Action Charter was submitted on December 23. Now we are in the first week of February and this shows we are moving fast. The aim is to foster competition-led growth which will optimise investment and job creation.” He declared that the government would open the telecom market to all, including international companies.
On the global stage, Bahrain was obliged, as a member of the World Trade Organisation, to open up its telecoms sector and end monopoly by 2005.
The Telecommunications Regulatory Authority (TRA)
The government set up the Telecommunications Regulatory Authority (TRA) under Legislative Decree No. 48 of 2002 promulgating the Telecommunications Law, to oversee the liberalisation process. The TRA is an independent body and its duties include, among other things, protecting the interests of subscribers and users and promoting effective and fair competition among existing and new licensed operators.
The TRA issued the invitation to apply for the second mobile licence in Bahrain on 1st January 2003. Ten companies vied initially for the licence. MTC-Vodafone Bahrain beat its rivals, Kalaam and Wataniya Telecom Bahrain, to win the licence on 20th April 2003. The process of issuing the licence was managed by Intercai Mondiale Ltd .
Incentives for the bidding companies included an upfront license fee of $265,000, a modest annual license fee of 1 per cent of gross revenues against 10 per cent at least in other Arab countries, unbundling of Batelco's ducts and fibre infrastructure, national roaming with Batelco for a year, the option but not the obligation, to rollout 3G services and the right to lease circuits from Batelco for International Long Distance service provision.
MTC-Vodafone
MTC-Vodafone Bahrain’s new mobile service began in December 2003. The company has a 15-year concession to offer GSM services for local and international calls. The company has decided to exercise the option to develop third generation (3G) technology, and has disclosed plans to invest some $120 million in Bahrain, a sign of its long-term commitment to the country. In order to ensure fair rivalry, the TRA has warned of consequences for anti-competitive behaviour, notably price-fixing between the Bahrain Telecommunications Company (Batelco) and MTC-Vodafone Bahrain.
MTC-Vodafone Bahrain signed a contract with Siemens Mobile, with whom MTC has had a ten-year association in Kuwait, to install its new network encompassing mobile technologies from GSM to W-CDMA. This 3G service, the first in the Middle East, enables MTC-Vodafone to offer its customers a wide variety of new applications, including personalized messages and home pages, multimedia messaging, animated chat, video-streaming, and multimedia shopping.
The company already has 80% Bahrainisation, and is expected to employ 400 people.
Mobile penetration and the market
The Economic and Social Commission of Western Asia determined that Bahrain had the fourth highest mobile phone penetration of all its member states in 2003.
Insert Figure 1 – Voice, mobile and PC penetration, ESCWA members 2001-2003 (base this on Figure 19 in File: figures from ESCWA report)
A report published in 2002 by the Amman-based Arab Advisors Group for strategic research services revealed that, despite the small population of the island (740,000), the market for mobile telephony in Bahrain was far from sated. Bahrain was projected to have a GSM subscriber penetration of 77 per cent by 2006, an increase from a figure of approximately 43% in 2001. In 2002, the International Telecommunications Union (ITU) put mobile penetration in Bahrain at 58%. Mobile telephone subscribers represented 69% of all telephone subscribers in 2002, which indicates how popular digital mobile services are.
According to the Arab Advisors Group report, Bahrain has a more diversified economy than other Gulf states, and wealth is more evenly distributed. Thus there is more scope for post-pay pricing plans in the country, in contrast to other countries in the region, where the depth of mobile phone penetration has been largely due to the take-up by low-income, first-time mobile users.
Authors of the report anticipated that future average revenue per subscription (ARPS) in Bahrain could be boosted by a higher rate of post-pay contributions compared with other Gulf States. Figure 2 suggests that, along with UAE and Kuwait, Bahrain has a much higher mobile penetration amongst lower-income inhabitants than does Oman, Qatar or Saudi Arabia
Insert Figure 2 (GDPcapita_mobile_penetration)
Competition
Nevertheless, a review of tariffs being offered by both Batelco and MTC-Vodafone suggests that both companies continue to target the pre-paid market. Batelco’s simSim and MTC-Vodafone’s eeZee pre-paid plans offer similar tariffs, with eeZee taking the edge perhaps on its eeZee Extra plan in terms of price per minute. However, Batelco has launched new, lower-price international calling rates to India, Pakistan, Philippines, Sri Lanka and Bangladesh. Batelco also cut mobile phone rates by up to 35% in 2003. The market has been flooded by cheap handsets from Asia, which makes mobile telephony affordable to a peripatetic expatriate population.
The other market segment to be targeted by the mobile companies is the growing 14-20 year age group, for whom the ability to download ring tones, chat and exchange multi-media messages as well as SMS is important.
MTC-Vodafone Bahrain launched its chain of shops in January this year, which are designed to give its customers a taste of what its 3G mobile service can do. Chief operating officer Khalid Al Farkh said that, “The shop is set out to maximise opportunities for interaction between customers and the MTC-Vodafone service team. MTC-Vodafone has introduced consultation desks, ''download'' zones, ''feel at home'' areas and dedicated areas for ''business'' users, waving good bye to the traditional customer service offer of queues, tickets and waiting.”
Following MTC’s lead, Batelco announced in February that it would open more of its own shops with the same customer-friendly approach.
Next moves
First quarter figures since introduction of its service show that MTC-Vodafone Bahrain has already captured 10% of the mobile phone market. An international gateway licence to be awarded in July 2004 will enable the company to provide cost-competitive, state-of-the-art international connectivity to its Bahrain customers.
On 9th May this year, the Bahrain government announced that it plans to make a strategic exit from its shareholding in Batelco, valued at 200 million Bahraini dinars ($530.5 million). Mahmoud Kooheji, director of public shareholdings at the Ministry of Finance and National Economy, said that the government may sell its stake in the company to "a UK-based telecom giant.
The HSBC bank in London has been appointed as consultant to carry out the feasibility study on the sell-off of the government’s shares, which is expected to take three to four months. Kooheji stressed that the sale of the shares would be carried out in "the greatest transparent manner" and in light of recommendations by the consultant firm.
"This is purely a part of the government's ongoing initiative to enhance the role of the private sector in major companies,” he added.
In 2002, Batelco’s largest revenue stream was provided by mobile telephony, accounting for 38% of the company’s overall gross revenue for the period. Total revenue in 2003 increased by three per cent to BD192.1 million. Net profit, before appropriations, rose by five per cent, reaching BD60.7 million at the end of 2003. This amounts to a 22 per cent return on average capital employed during 2003.
The next few years are likely to see a shift in the market. Customers will be looking for value-added services if they are to consider exchanging their mobile phones or phone packages. They will need to be wooed by loyalty plans, discounts and promotions, creative offers, good service, reliability of the networks and greater content and flexibility. Operators who rise to this challenge will be the ones who will survive.
Published in Oman Economic Review, June 2004
