February 20, 2008

Broadband in the MENA Region - Trends, Opportunities, and Challenges for Operators

With market liberalization, increased competition, and ‎new network technologies, consumer demand for ‎broadband access is rapidly increasing. ‎

Dubai, UAE, 20 February – A new report by Booz & Company has found that since 2003, the broadband environment in the Middle East and North Africa (MENA) region has experienced rapid change. With market liberalization, increased competition, and new network technologies, consumer demand for broadband access is rapidly increasing.

The study found that most MENA countries experienced double or triple-digit growth rates in broadband subscribers in 2006, resulting in significant opportunities for telecommunications operators. At the same time, however, operators face difficult marketing, technical, and operational decisions.

“The broadband environment is changing, and operators will face challenges in finding the right answers to complex service differentiation questions - in selecting the most favorable network technology options, and in building the optimal customer service model going forward,” commented Ghassan Hasbani, a Vice Principal with Booz & Company.


Good News for Regional Broadband Players

Telecom operators in the MENA region have had unprecedented growth since 2005 with broadband penetration estimated at 1% of the total population in 2005. Broadband potential in the region is hampered by late market liberalization, poor infrastructure, and high prices.

“Despite these factors, the region’s number of broadband subscribers is expected to more than double over the next three years, largely because of the increasing availability of broadband access channels, reductions in cost, and the enormous demand for broadband content. In 2006, the number of broadband subscribers in the region experienced double- and triple-digit growth rates,” said Hilal Halaoui, a Principal with Booz & Company.

Telecom operators are positioned to take advantage of this shift. Although broadband access could be provided via different technologies, the vast majority of broadband access in the MENA region is expected to be delivered through DSL—that is, through the wires of local telephone networks—providing a semi monopolistic opportunity for regional telecom operators.


Solid Growth Drivers for Broadband

Five key factors are driving increased demand in the MENA region for broadband:

1. Greater Availability of and Demand for Digital Content
Over the past decade, satellite TV services have proliferated in the region, as opposed to traditional state-run television, causing a surge in the creation and distribution of various types of content including entertainment, educational programming, news, and sports.

2. Burgeoning Youth Market
In the MENA region, the population is young, with 33 percent under 12 years old who are generally technologically savvy. Most have grown up with the Internet; and expect to receive high-quality digital pictures on satellite television and high-quality sound from their MP3 players. These are the consumers driving the adoption of broadband in the region.

3. Increasing Regional Prosperity
The region is an emerging market, with many countries liberalizing what were traditionally government-controlled sectors of the economy.

“Rising oil prices, an abundance of natural resources, and an upsurge in investment have raised the living standards for many. For the wealthy, services once considered luxuries like broadband, are quickly becoming “necessities.” Those on the lower economic tiers represent potential customers for broadband providers,” commented Hajj, an Associate with Booz & Company.

4. Competition and its Effect on Broadband Penetration
The liberalization of the telecommunications market is facilitating the use of broadband. A deregulated telecommunications sector ushers in competition leading to improved services and reduced costs.

“As more countries in the MENA region move toward a competitive structure, more opportunities will become available for ISPs and operators with global presence, to share in the local broadband market,” stated Halaoui.

5. Network Technology Advancements
It is becoming more possible to provide high-speed broadband economically, using different technologies as network technology improves, reducing the barrier for entry into the broadband market to new operators and making the market increasingly profitable for current operators.


Future Broadband Challenges and Strategies

As broadband subscribers in the region continue to grow, operators are expected to face a new set of challenges:


Marketing and Differentiation Factors

“Offer¬ing high-speed Internet access will become an essen¬tial qualifier for any operator in the market, causing prices to rapidly decrease. Operators will likely shift mar¬keting emphasis away from speed and price, and begin differentiating services from their competitors’, based on other elements,” stated Hasbani. Differentiating elements are observed in the marketing strategies currently adopted by international telecommunications operators, and can be classified under three main groups:

1. Offering Value-Added Services that Fall Outside the Realm of Traditional Internet Services.
“Marketing schemes that focus on value-added services emphasize a rich set of features that come packaged with standard broadband service,” said Halaoui. “Multiple email addresses, web site hosting, partnerships with content providers that offer music, video, news, sport events, educational features, and radio stations and Voice over Internet Protocol (VoIP), are just a few of the services on offer,” he added.

2. Exploring Pay-As-You-Go Schemes Targeted at Lower-End Users.
Operators are also segmenting the market by reaching out to low-end users. Some operators are offering pay-as-you-go plans that mimic those that mobile service providers originally and successfully marketed to low-end users.

3. Offering Guaranteed Quality of Service.
Telecom operators now have the ability to guarantee quality of service for premium customers, as opposed to the “best effort” level of service offered by most providers. These services allow operators to promise users that their applications, VoIP conversations, or online gaming sessions maintain a flawless connection—even if the user started to download a large file, for example.


Technology Choices

“In addition to marketing and differentiation challenges, regional operators are facing key challenges in terms of broadband technology choices,” continued Hasbani. “The richer the services and applications offered by broadband providers, the faster and more reliable their broadband connection must be,” he added. The question for many telecommunications operators remains, which technology is best?

“If customers are located in close proximity to an opera¬tor’s exchange, and the copper wire connecting the customers to the exchange is of suitable quality and length- DSL may be the best option,” commented Halaoui. In terms of fixed technologies, asymmetric DSL2Plus (ADSL2+) is being championed as the next-generation DSL solution, under which operators hope to achieve speeds of up to 24 megabits per second (Mbps). In order to limit the negative effects of factors such as loop length and limited network infrastructure, many operators are considering an xDSL solution—which combines ADSL2+ with “fiber to the node.

“There is potential for FTTP to reduce operating costs associated with the access network in the long term by simplifying the access network. In addition to fixed technologies, nomadic and mobile technologies—such as WiMAX and EV-DO—are evolving to the point where they can provide high speeds in an economical manner,” added Hajj. “Mobile technologies offer “wireless anywhere” broadband connections that are maintained while a subscriber moves from cell to cell through the service area. Operators worldwide are beginning to seriously consider using these technologies to complement, or even replace, their fixed technologies.”


Customer Service Models

As Internet and broadband use becomes wide¬spread, installation becomes more straightfor¬ward, with simple self-installation kits and checklists available for new subscribers. As broadband use reaches beyond tech-savvy early adopters to the mainstream public, fewer new customers will be technologically adept, and operators will consequently be less able to rely on them to facilitate installation and troubleshoot problems. Higher levels of customer service must be backed by responsive customer call centers.

“Another way to improve customer service is to adopt remote methods for managing Customer Premises Equipment (CPEs), giving broadband service providers visibility into, and control over, home networking services. Such services greatly reduce operators’ support costs, as well as customer downtime and frustration,” said Halaoui.

“Customer service should be viewed as a core function for all broadband providers—even those operating in regions that traditionally lacked a service-oriented culture,” concluded Hasbani.


Conclusion

Demand for broadband is growing in the MENA region, and there are numerous opportunities for telecommunications operators to capture a share of the market. In order to successfully do so, operators have to consciously make a set of decisions in a number of key areas, to ensure they capitalize on the opportunity.

Telecommunications operators that address these questions head-on and carefully develop a strategic approach to service delivery, have an excellent opportunity to seize a portion of the market by leveraging the growing consumer demand for broadband.


Contact

Booz & Company
Jad Hajj
[email protected]

Ghassan Hasbani
[email protected]

Hilal Halaoui
[email protected] 

MS&L
Smriti Singh
Tel: + 971 4 3676156
Fax: + 971 4 3672615
[email protected]