Kuwait: Expanding and competing

With the highly competitive Kuwaiti telecoms market becoming increasingly saturated, the country’s three mobile operators are jostling for position. Central to all of their strategies is a greater focus on mobile data services.

Earlier this month, the third entrant to the market, Viva, which is owned by the Saudi Arabia-based STC Group and has been active in Kuwait since 2008, announced the launch of data roaming bundles for GCC countries. The service, called “GCC Roaming Surf-On”, will allow postpaid customers with smartphones to access a range of internet services throughout the region. Prices for the package range from a daily rate of KD1 ($3.60) for 5 Mb of data to a monthly rate of KD10 ($36.08) for 50 Mb.

The move follows the announcement in May that the operator is focusing on the development of its fiber optic network in anticipation of the roll out of 4G services. Viva’s push for greater capacity and competitiveness on mobile data services comes at a time when the volume-driven voice market is beginning to look like it is reaching saturation point. There were 4.8m subscribers as of June 2011, equating to a year-on-year increase of 13.9%, according to Global Investment House, a Kuwaiti asset management company.

While this growth rate is not at its peak, it is still well above countries within the region such as Qatar and the UAE, which recorded rises of 5.6% and 4.7%, respectively, for the same time period, according to the company.

Within the Kuwaiti market, however, slowing growth is beginning to put greater pressure on the operators to maintain their market share and revenue base. Zain, for example, which is publicly listed and was the first operator to enter Kuwait, saw moderate subscriber and revenue erosion in the12 months to June 2011.

The operator’s subscriber market share fell from 44.8% in the second quarter of 2010 to 42.1% a year later. The biggest beneficiary has been Viva, which has increased its market share from 15.6% to 17.9% in the same time period, while the third operator, Wataniya, has maintained its share around the 40% level. Zain also witnessed a decline in revenues of 1.8% to KD345m (1.24bn) in 2010, according to Global Investment House.

The past 12 months have been particularly difficult for the company, with its share price falling 38% in 2011 to KD0.93 ($3.36) in early November. This drop has been attributed to a lack of clarity over the company’s wider strategy and its inability to raise liquidity by selling off a $12bn controlling stake to the UAE’s Etisalat, or find a buyer for its Saudi operations, which are valued at $950m.

However, it is not all bad news for the region’s first mobile operator or for the Kuwaiti market as a whole. Zain added 133,000 new subscribers, the highest share in the market, while its subscriber base grew by a further 17% in the third quarter of the year, bucking the trend from the second quarter of the year.

Perhaps more importantly, revenue inched up by 1.1%, while the operator has also been able to retain its impressive average revenue per user (ARPU) levels at $51, amongst the highest in the region, according to research firm Business Monitor International.

The challenge now will be to prevent further subscriber erosion while maintaining its high ARPU levels. A third-quarter 2011 Kuwait Telecommunications report by Business Monitor International notes, “In future, we expect mobile operators to focus on revenue growth using higher value services. This will largely depend on the roll-out of mobile data networks and the migration of subscribers onto postpaid contracts.”

There is certainly much scope for growth. In the region as a whole, data services accounted for only 13% of mobile revenues in the second quarter of 2011, according to Informa Telecoms & Media, a UK-based research and consulting company. The firm also estimates that smartphone usage will grow rapidly in many markets within the region, while long-term evolution (LTE) subscriptions, often considered as a future fourth generation technology, will increase from 1.94m at the end of 2013 to 15m by the end of 2016.

“We are tracking an extraordinary surge in broadband data consumption here in the Middle East and around the world, and we are expecting a 10-fold increase in mobile data traffic by 2016,” Anders Lindblad, the president of the Middle East and North Africa for Ericsson, told media in late November.

With a high GDP per capita of $41,365, and a fairly concentrated market of 2.7m people, according to the World Bank, Kuwait is certainly positioned to bolster its data services penetration levels. According to a 2010 report by consulting and research firm Frost & Sullivan, data revenues accounted for 9% of overall revenues in Kuwait, below the levels in the UAE (12%), Qatar (10%), Saudi Arabia (9.8%) and Egypt (9.5%).

However, the country has a high postpaid segment by regional standards, reaching 27.5% in early 2010. This suggests operators should be well placed to offer bundled packages and value-added services to this segment. As such, Viva’s move into bundled data services across the GCC may represent another step towards greater competition and penetration of mobile data services in the Kuwaiti market.