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MENAFN - Oxford Business Group - 04/06/2009

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(MENAFN - Oxford Business Group) Having undergone one of the biggest shake ups in its history at the end of last year, Kuwait's mobile telecommunications sector has now settled down into its new form and appears to be busier than ever.

With the entry of Viva into the marketplace at the end of 2008 as the third operator in Kuwait, there has been a flurry of activity in the sector as the newcomer strives to sign up subscribers and the two entrenched service providers, market leader Zain and Wataniya, work to retain customer loyalty and build up their own numbers.

The newly established Kuwait Telecom Company (KTC) operates Viva, and one of its biggest stakeholders is Saudi Telecom, which holds 26% of the company's shares, with the Kuwaiti government retaining 24%. Interest in the new operator was evident when it held an initial public offering for the remaining 50% of the firm's shares: the offering, which raised 93.6m, was oversubscribed 2.4 times.

Launched in September 2008, and commencing operations in December, Viva has tried to position itself as a strong alternative to Zain and Wataniya, offering a series of promotional deals and lower rates to win clients.

When first unveiled last year, Viva executives set a target of 10% market share by the end of 2009, a goal the company's CEO, Nagib Al Awadhi, said had been achieved in the opening quarter of 2009. Viva has now set its sights higher, aiming for a 20% share of the domestic mobile phone market, Al Awadhi told local media on May 28.

Both Zain and Wataniya, which is majority-owned by Qatar's Qtel, have responded to Viva's arrival by rolling out new services. Zain has extended its high-speed data accessing services at home and across the region through its One Network platform, and both it and Wataniya dropped all charges on incoming international calls.

Though Kuwait now has three mobile phone operators, there is still room for growth. In a region where more than 100% market penetration is not uncommon, Kuwait has a subscriber rate of around 90%. According to a recent study by Dubai-based Al Mal Capital, with the average age of the Kuwaiti population being just 27 and more than 23% of the country's residents being under the age of 15, there should be strong future demand for mobile telecommunications services.

While all three mobile operators are looking to expand their domestic client base, the global economic crisis may have some impact on their plans. Though Kuwait's population is expected to grow by 3.5% annually over the next few years, this rate of expansion could be reduced if economic conditions slow the flow of expatriate workers. With overseas residents making up some two-thirds of the population, should the influx of new potential clients ease or even reverse, there could be a partial drying up of the service providers' subscriber pool.

While Viva has declared itself content to focus solely on the domestic market, Zain has been looking further afield to broaden its revenue base in the international market.

In mid-May, Zain acquired a 56% stake in the Palestine Telecommunications Company (Paltel), adding a further 1.5m subscribers to its lists, with the potential to expand even further, give that the Palestinian market has one of the lowest rates of penetration in the region, just 35%. The deal consolidates Zain's presence in the area, as it is the sole owner of Jordan's largest mobile operator. As part of its Paltel acquisition, the Palestinian and Jordanian firms will merge as a single entity, with Paltel's other shareholders gaining a stake in the Jordan-based company in return for Zain securing majority control of the combined operation.

Saad Barrak, Zain's chief executive, said the Paltel deal was part of the company's wider view of the telecoms marketplace. "The Arab world, the Middle East and Africa is a direct strategic market and we have to be in every corner of our strategic markets," Barrak said on May 18.

Zain's expansion programme has had some problems. In late May the Iraqi government announced it was imposing an 18m fine on Zain for failing to meet specified service levels. Two other operators in the Iraqi market, Korek and Asiacell, were to be fined 1m under the cabinet ruling.

Despite its Iraqi difficulties, Zain recorded a 3% increase in profits for the first quarter of the year, earning 260.5m on total revenue of 1.9bn. According to a statement issued on May 5, the company's subscriber base rose 41% to total 64.7m.

Though continuing to increase its profits, Zain is also looking to cut costs and announced in May it would shed 2000 staff positions, mainly in its African operations this year and next.

Wataniya too has been active abroad, specifically in Saudi Arabia, Tunisia, Algeria, the Maldives and Palestine, though it has yet to start full operations in the last market. The company posted a slight fall in profits for the first quarter of 2009, though it still managed a 9.3% increase on its subscriber base compared to the same three months in 2008.

While the entry of Viva into the local marketplace may put pressure on Zain and Wataniya, they do have the advantage of being well established and with solid customer bases. It will take the newcomer time to build itself up as the third player, time the two existing providers can use to build domestic operations or to further expand their presence overseas.

 






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