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Battle to roll out broadband hots up

21 мая 2009

With mobile subscriptions often exceeding the number of inhabitants in some Gulf countries, cash-rich, former monopolistic telecommunications operators are looking for a new revenue stream with growth potential.

Increasingly, their eyes are alighting on providing high-speed internet access – or broadband.

High-speed internet remains rare in the Gulf outside certain population pockets. A main problem for Arab households has been the cost: broadband and good-quality computers cost more in the Gulf than in many other markets, says Fouad Alaeddin, managing partner at Ernst & Young Middle East.

There has also been a cultural resistance to the internet in some parts of the region. Mr Alaeddin adds: “Many families worry that it could expose their children to unwanted influences.”

Telecoms providers have also had other priorities. Leading operators have focused on acquisitions of extra-regional operators or licences to expand, perhaps to the detriment of internet services, analysts say.

Telecoms companies also have to grapple with difficult decisions on whether to invest in physical infrastructure, such as extensive but expensive fibre optic cable networks, or wireless broadband.

“There are always question marks as to what is the best access technology to deliver broadband, and that is distracting investment,” says Victor Font, managing partner of Delta Partners, a telecoms advisory and private equity group.

“For most operators, returns on investment are more certain in the case of an acquisition of an operation in a new country than in betting what the new broadband access technology standard will be,” he says.

But as the mobile phone market has become increasingly saturated, operators have shifted their attention over to internet services – both wired and wireless.

Etisalat, the United Arab Emirates’ largest telecoms provider, is rolling out fibre optic cables across the country, and hopes to have 90 per cent of UAE homes online by the end of 2011. It is also pushing 3G mobile internet in Saudi Arabia through its subsidiary Mobily.

Etisalat hopes to derive half its revenue from data in three years time, up from about 20 per cent today, Mohammed Omran, the company’s chairman, recently told the Financial Times.

Qatar Telecom, until recently the only telecoms provider in the gas-rich peninsula, says broadband penetration in Qatar exceeded 50 per cent of households for the first time in March.

But the operator plans to continue investing in broadband infrastructure, which it says is “an important social contribution to the nation [and ensures] that Qtel remains at the forefront of a technology set likely to deliver significant returns in the future”.

Until swifter technologies gain ground, WiMAX wireless broadband seems to have won through in the Gulf. Seven licences have been granted in the region, mostly to incumbent operators, in addition to four in Jordan.

But the well-established telecoms giants are not the only companies eyeing the potentially lucrative broadband sector, analysts say.

“For incumbents the broadband revolution is an opportunity to protect their dominant position in the market, [but] for newcomers leading broadband growth is an opportunity to establish a differentiated position in the market and generate very relevant returns,” says Mr Font.

The barriers to entry in wireless broadband are much lower than for other telephony and data services. It costs between $50m and $100m to set up a WiMAX network for a small town or area, and licences only cost about $15m, estimates Ernst & Young.

More competition in broadband services would not only cut costs for consumers, but also help many Gulf countries achieve their aim to become more knowledge-based economies.

Источник: Financial Times

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