Launch of 4G mobile data services in Jordan should consolidate ICT sector growth

With Jordan’s telecoms market keeping with global trends in its shift from a voice- to data-centric service model, 4G/long-term evolution (LTE) services are set to underpin expansion in the highly competitive sector. Jordanian consumers have welcomed the news of Zain Jordan’s 4G/LTE commercial launch, with Zain standing as the first operator to offer the services following an acrimonious licensing process.

All three of Jordan’s major telecoms operators have since moved to launch 4G services, investing significantly in new capital expenditure to ensure speedy, effective service rollout. Monetising the opportunities in mobile data remains a key challenge, however, and in addition to shouldering one of the highest tax burdens in the kingdom, the sector remains vulnerable to price wars which have previously impacted major operators’ 3G revenues.

3G Development

Development of next-generation mobile broadband has been a difficult process in Jordan, and major operators have frequently clashed with the Telecommunications Regulatory Commission (TRC) in rolling out 3G and 4G services.

In March 2010, 3G services were first rolled out when Orange Jordan launched the kingdom’s first network. In 2011, however, the company announced legal action against the government, claiming the TRC had breached the terms of its 3G licensing agreement, a 15-year, $70m deal signed in August 2009.

The TRC had granted Orange Jordan a 3G licence that guaranteed it a year of exclusivity from the date of commercial launch. Under the deal, Orange Jordan had six months to build the network, following which its 12-month period of exclusivity would begin.

Although Zain had already begun to build and market its 3G network in 2010, the company did not launch 3G services until March 2011, when it began offering customers 3G with speeds of up to 21 Mbps. Umniah, a subsidiary of Bahrain’s Batelco, subsequently launched its own 3G network in June 2012.

Data Market

The Jordanian market, in line with global trends, has seen consumers shift from personal computers and voice/SMS-centric mobile services to a data-driven mobile broadband market, with the popularity of 3G services increasing rapidly since their launch. This growth is expected to bring knock-on benefits, with equipment vendor Ericsson reporting that for every 10% increase in broadband subscriptions, a country’s GDP will rise by 1%.

Tarek Saadi, vice president and head of sales for the Middle East and North East Africa at Ericsson, told The Jordan Times in October 2014 he expects LTE services, which offer faster internet browsing, video-conferencing, high-definition broadcasting, and high-speed uploads and downloads, will improve the kingdom’s regional competitiveness and support government e-health and e-education initiatives.

Jean-Francois Thomas, former CEO of Orange Jordan, told OBG, “4G represents the best of what wireless broadband technology can offer, and the presence of customer-centric 4G services is integral to the overall evolution of Jordan’s ICT arena.”

Mobile broadband also offers considerable opportunities for retail vendors. According to global market research group Ipsos MediaCT, smartphone penetration grew by 107% in 2013, with prices expected to decline to around $100 per device by 2016.

According to Ipsos, 43% of the population had 3G access as of 2014, as well as 80% of smartphone users. Recent growth has been strong too; the TRC reported a sharp rise in mobile broadband usage in 2014, with subscribership reaching 1.43m in the fourth quarter, up from 1.13m in the first quarter, a 27% rise.

New 4G services will further underpin data growth; Zain Jordan, for example, expects data consumption on its network will double with the deployment of 4G.

At the same time, migration to 3G and 4G services will be costly for operators, as networks are still predominantly 2G-enabled. Zain Group’s 2014 annual report revealed $100m in planned spending for the company’s 4G rollout in 2015, following JD200m ($281.42m) of capital expenditure for 4G upgrades for the year, while new 4G spectrum was priced at between JD10.8m ($15.2m) and JD25m ($35.18m) per block. Orange Jordan, meanwhile, estimates capital expenditure on next-generation mobile broadband networks will cost $250m between 2014 and 2015, with the total volume of the firm’s investments since 2000 expected to rise to JD1bn ($1.41bn) as a result. With operators already investing millions in network expansion, a rising tax burden has posed a considerable challenge to 4G growth in recent years.

4G Development

The development of 4G services in Jordan began early, with Zain Jordan announcing plans in March 2010 to study offers from international equipment vendors in a bid to introduce LTE services to Jordan, including Motorola, Ericsson, Huawei and Nokia Siemens. At the time, Abdel Malek Al Jaber, CEO for Zain Jordan, told media that the company was awaiting information from the TRC regarding the award of licences, with a trial network expected to launch in 2011. Once again, the licensing process was acrimonious, this time as a result of plans to raise sector taxes.

In July 2012 the TRC announced that it was considering increasing industry taxes. At the time, the sector was subject to a 10% revenue sharing tax, as well as an 8% sales tax, 12% mobile subscription tax and 24% income tax. Mohammad Taani, chief commissioner for the TRC, told local media that the regulator was considering introducing a gradual increase of 2%, with the revenue sharing tax not expected to exceed 20%, citing the example of Iraq, where the revenue sharing tax stood at 18%, as regional best practice.

The tax issue came to the forefront in December 2012, when the TRC announced it planned to auction frequencies in the 1800-MHz, 2100-MHz, 2300-MHz and 2600-MHz bands. It said the tender was open to both potential new market entrants and existing operators. Prices were set at JD32.5m ($45.73m) per block of 2G, 3G or 4G frequency on the 1800-MHz band, JD25m ($35.18m) per block of 3G frequency on the 2100-MHz band, JD2m ($2.81m) per block of fixed broadband frequency on the 2300-MHz band, JD10.8m ($15.2m) per block of 4G frequency on the 2300-MHz band and JD18.75m ($26.4m) per block of 4G frequency on the 2600-MHz band. The government set the deadline for bids in January 2013, though it did not open its 4G auction until June 2013.

Boycott

The response from Jordan’s big three operators was less than enthusiastic. All three CEOs publicly denounced the proposed tax hike, which eventually doubled sales taxes on mobile phones from 8% to 16%, and from 12% to 24% on mobile subscriptions. Ihab Hinnawi, CEO at Umniah, argued the government was treating the sector as a cash cow, forcing firms to lower their investment and recruitment, reducing available revenues for taxation.

Ahmad Hanandeh, CEO of Zain Jordan, called for legal action or international arbitration to fight the decision, and all three companies boycotted the 2013 spectrum auction in protest against the government’s tax policy. The TRC later invited each company to submit individual requests to acquire 4G frequencies, with media reporting in April 2014 that an unnamed company had ended its boycott and submitted an offer for the new spectrum, and in the same month Zain Jordan announced it had spent JD192m ($270.16m) to acquire new 3G and 4G frequencies – JD142m ($199.8m) for 4G frequencies and JD50m ($70.36m) to acquire additional 2100-MHz spectrum. The company said it would launch new 4G/LTE services offering speeds of up to 150 Mbps in early 2015.

Orange Jordan followed suit in January 2015, announcing it had secured a licence for JD71m ($99.9m), which includes two 10-MHz blocks in the 1800-MHz band. In mid-June 2015 Umniah obtained a 4G licence from the TRC for JD71m ($99.9m).

4G Rollout

In February 2015 Zain Jordan became the first operator to offer commercial LTE services, rolling out a 1000-site network covering the entire kingdom. Offering speeds of up to 150 Mbps, Zain Jordan’s 4G services are available on a pre- or postpaid basis, with monthly subscriptions ranging from JD25 ($35) for 10 GB of data and 500 minutes of calls to JD50 ($70) for 40 GB and 5000 minutes. Pre-paid LTE plans cost JD10 ($14) for 1 GB, JD15 ($21) for 3 GB and JD20 ($28) for 7 GB. The following month, Orange Jordan signed an agreement with Chinese equipment vendor Huawei covering the deployment of an LTE network. Under the agreement, Huawei will also upgrade the company’s 3G and 4G services.

In late May 2015 the company announced the launch of 4G services in Amman, with plans to extend its coverage nation-wide by the third quarter of the year, CEO Thomas told local media. The prospects for next-generation services in the kingdom thus remain strong, with wider 4G rollout expected to help soften the impact of a rising tax burden and market competition, supporting ICT development and telecoms expansion in the kingdom. The government’s February 2014 announcement that it is considering reducing the 24% mobile subscription tax is also promising.