The government’s sectoral strategy is entering a new phase

A key pillar of Vision 2020, Oman’s long-term development programme, the telecommunications and IT sector in the sultanate has seen major investment in recent years, both from government and the private sector alike. The industry stands on the cusp of a new era in its development, with fresh programmes and plans set to unfold in the months ahead. Under a new five-year plan and Vision 2040, revised targets will be set and a further rollout of services is due to take place. “Oman cannot afford to disregard the potential impact that technology will have on all sectors, the economy and the country as a whole. We must create an environment that is flexible and adaptive to fast-changing technologies,” Salim Al Ruzaiqi, the CEO of Oman’s Information Technology Authority (ITA) told OBG. “We must create an environment that is flexible and adaptive to fast-changing technologies.”

The foundation upon which Oman can adapt is solid. The sector meets challenges arising from its difficult geography and dispersed demographics, and Oman has been narrowing its digital divide, providing services that now stretch from isolated fishing villages in Musandam to mountain-top camel farms in Dhofar.

Some challenges do remain, including moving telecoms towards further liberalisation in a saturated market dominated by two main players. Another difficulty is in meeting the human resource requirements of the sector, when much future value-added depends on encouraging Omanis themselves to generate content, platforms and services. In the latter regard too, there is ongoing debate over the other meaning of liberalisation in the telecoms and IT sector and what future course platform and content restrictions should take.

Sector Bodies

On the government side, the Ministry of Transport and Communications (MoTC) is the main agency. Under this comes the Directorate General of Telecommunications Services (DGTS), which is directly responsible for the sector. In 2002, however, a royal decree was issued to establish the Telecommunications Regulatory Authority (TRA), which was given responsibility to liberalise and promote the telecoms sector. The TRA issues licences, proposes draft legislation and has the ability to intervene on issues of pricing, as well as in day-to-day regulation.

A further royal decree was then issued in 2006, under which the ITA was created. This was given similar responsibilities for the IT side. Meanwhile, the 1999 royal decree privatised the state-owned General Telecommunications Organisation, creating the Oman Telecommunications Company (Omantel), the country’s largest telecoms firm. The Omani authorities have also sought to advance development via a series of long and short-term plans – the former currently being Vision 2020, while the latter has consisted of a number of five-year plans. The current 2011-15 plan is due to run out soon and, at the time of writing, the 2016-20 plan was being finalised. These plans institute an overall, integrated developmental framework, while the sector also has its own, more tailored programmes. One of the original plans was the 2003 Digital Oman Strategy, endorsed by the Cabinet, with the Ministry of National Economy given responsibility for its implementation. This then led to the establishment of the ITA, which in turn has established an e-Transformation Plan for all government departments and services, along with other facilities.

Facts & Figures

Data from the National Centre for Statistical Information (NCSI) for 2013 shows around 351,000 fixed telephone lines, 496,000 post-paid mobile subscribers and 5.12m pre-paid mobile subscribers in the sultanate. In addition, there were 159,000 internet subscribers. These figures all rose in the first half of 2014, with the data for July that year showing a total of 360,930 fixed lines, 512,696 post-paid mobile subscribers and 5.37m pre-paid. Total internet subscribers had gone up to 170,549. Regarding this latter group, there had also been a continuation in the shift to broadband, with fixed broadband subscriptions in July 2014 up 8.3% on July 2013. The number of active mobile broadband subscribers had risen more than fixed-line, to 2.65m, or a rise of 8.6% between over the period.

The continuing popularity of fixed broadband may account for some of the increase in fixed-line subscriptions, which had been in decline – from some 300,000 in 2009 to 282,000 in 2010 and 287,000 in 2011. Telecoms firms now offer bundled broadband services, sometimes with TV options also available. Fixed line has also apparently benefitted from pre-paid, phone card services. These were up 12% between July 2013 and July 2014, reaching 28,916 users. According to NCSI figures, from the end of 2013, the sultanate’s population was 3.85m, with 2.17m native Omanis. This gave a penetration rate of around 133% for pre-paid mobile subscribers alone, or some 146% for mobile subscriptions overall. The market is thus highly saturated, with growth in the first half of 2014 further adding to the multiple lines. Indeed, TRA statistics for June 2014 show the mobile penetration rate reached 149.01%, on a population base revised upwards to 3.96m.

Telecoms Firms

Currently, a number of licences for mobile networks have been issued by the TRA, with the first going to Omantel and the second to its closest rival for market share, the Omani Qatari Telecommunications Company (Nawras), which rebranded as Ooredoo in 2014. As Nawras, this company broke the state incumbent’s monopoly when it entered the market in 2008. Four international gateway mobile licenses have also been issued, to Omantel and Ooredoo, along with Samatel in 2011, with this becoming operational in 2013, when Connect Arabia (FRiENDi) was also licensed.

There are also Class II licences, which allow mobile virtual network operator (MVNO) services, with a handful of these first available in 2008. The largest of these is FRiENDi, which launched over the Omantel network in 2009, beginning mobile 3G services in 2011. FRiENDi Mobile, Oman’s third-largest mobile services provider, is owned by Connect Arabia, which is itself owned by a consortium that includes the Virgin Mobile Middle East and North Africa group. Injaz International, Majan Telecom (which operates Renna Mobile), Mazoon Mobile and Samatel (which took the licence of Kalam Telecommunications) are the other entrants. These MVNOs also offer broadband services.

On the fixed-line front, in addition to Omantel, Ooredoo and Samatel, Awaser Oman was awarded a Class I, international gateway licence by the TRA in 2012 to provide public fixed services in Muscat.

In terms of over-the-top (OTT) services, Oman is a mixed picture. Skype, for example, remains unavailable, and other voice over internet protocol (VoIP) networks also blocked. However, the TRA has licensed five VoIP services. The TRA must issue licences for any such facility, a point emphasised when WhatsApp’s plans to add voice to its messaging app came under the authority’s scrutiny in early 2014. WhatsApp, Viber and WeChat have proven popular messaging services in Oman.

Dominant Position

The liberalisation of the sector has been a policy directive since the late 1990s, with some expectation generated that the market would become more diverse. The sector is dominated by Omantel and Ooredoo, with the MVNOs accounting for 10.5% of the market between them in early 2014, according to the TRA. The TRA is currently considering a new licensing framework to encourage greater competition and facilitate companies’ entries and exits. These changes were awaiting government approval in September 2014, according to industry observers who spoke to OBG. A consultation exercise on new interconnection and access regulations was held by the TRA in early 2014, with expectations that this would feed into new regulatory changes in the period ahead.

Omantel provides fixed, mobile and internet services on an integrated basis, following a merger of its fixed and mobile services begun in 2008 and completed in 2011. Majority owned by the government, in April 2014, the company divested a further, 19% government share, leaving the state’s stake at 51%. The divested share raised some OR204m ($528.2m), with the offering 1.05 times oversubscribed. The company’s 2013 annual report declared that Omantel had 4.02m customers at the end of 2013, a figure up some 7.4% from 3.83m in 2012. The firm’s total services revenue was also up 0.9% on 2012, growing from OR459m ($1.19bn) to OR463m ($1.2bn). Revenue growth in 2012 had been 1.4%, year-on-year, down from 8.6% over the 2010-11 period. The 2013 revenue total included receipts from the Oman Data Park, the Muscat-based data centre that is an Omantel subsidiary, and Worldcall Telecom, the Group’s Pakistani Wireless Local Loop operator.

Breaking down Omantel’s revenue stream presents a clear reflection of overall market trends. Fixed-line revenue has been falling consistently over the last three years – from OR62.1m ($160.8m) in 2011 to OR36.4m ($94.3m) in 2013 – while internet and data services have grown from OR50.8m ($131.5m) to OR68.2m ($176.6m) over the same period. Mobile services have also seen growth, from OR256.2m ($663.4m) in 2011 to OR275.8m ($714.2m) in 2013. Fixed-line subscriber numbers, however, have continued to rise, thanks largely to broadband bundling sales – the figures show fixed-line subscriptions up 3% between 2012 and 2013, with around 7000 new subscribers. Average revenue per user (APRU) for fixed-line declined 9% over the two years, from OR10.50 ($27.19) per month in 2012 to OR9.50 ($24.59) in 2013. APRU for total internet services also declined, despite higher revenue, due to increased service off-take that year, according to Omantel.

In mobile services, total subscribers reached 2.72m in 2013 – 310,000 pre-paid and 2.41m post-paid – giving Omantel a 62.5% market share in post-paid and a 53.1% market share in pre-paid, when compared to the end of 2013 NCSI figures. This share increases if re-sellers are included, with these adding a further 560,000 subscribers. In terms of mobile broadband, with 780,000 subscribers in 2013, Omantel had 29.4% of the market. Overall, Omantel maintains its position as the largest telecoms firm in the sultanate, yet the market is becoming increasingly saturated, with growth continuing, yet slowing – mobile subscription growth grew 12%, year-on-year, in 2012; in 2013, it grew 7%.

The Challenger

During 2014, Nawras rebranded as Ooredoo to connect with the global brand name. The firm operates in some 15 countries worldwide, including Qatar and Kuwait within the Gulf region. Ooredoo started out itself as the Qtel Group and owns Nawras, which, like Omantel, is traded on the Muscat Securities Market. According to its 2013 annual report, that year saw total customers reach 2.39m, up from 2.19m in 2012, growth of 9.3%. Total revenue reached OR202m ($523m), up from OR194m ($502.3m) the previous year, meaning 4.4% growth.

In fixed services, customer numbers showed strong growth – up 45% from 44,261 to 64,287. In mobile, postpaid growth was 4.3%, from 179,182 in 2012 to 186,917 in 2013. In pre-paid, the numbers grew from 1.97m to 2.14m over the same period, up 8.9%. When these numbers are matched with the NCSI figures, they give Ooredoo a mobile post-paid market share of around 38%, and a pre-paid market share of around 42% – generally consistent with Omantel’s figures and suggesting that competition between the two giants has been fiercest in the pre-paid mobile segment.

Nawras has made significant investments in its infrastructure, with OR16m ($41.4m) in network and IT-related capex as of the end of 2013 and OR400.8m ($1bn) since 2004. This has hurt profitability, which dropped 10.5% between 2012 and 2013, to OR33.1m ($85.7m). However, the growth scheme rolled out in southern Oman in 2014 doubled the network’s 3.5G capacity in and around Salalah. Ooredoo also planned to activate a third 3G carrier on the 900-MHz band, improving call quality and coverage in the south.

Salalah and the Dhofar region pose unique challenges for telecoms companies, primarily in that the population swells considerably during the khareef( monsoon) season. The season, which lasts for some three to four months, demand for mobile voice and data services jumps – 431,105 tourists visited the region during the 2013 khareef. For the rest of the year, however, demand is much less. The company recorded APRUs of OR5.10 ($13.20) for pre-paid mobile in 2013, and OR22.40 ($58.17) for post-paid mobile, both of which were slightly down on 2012, when the respective figures were OR5.60 ($14.54) and OR24.20 ($62.84). This illustrates the competitive environment in mobile in particular and the level of saturation.

Mobile MVRO

Among the re-sellers, FRiENDi has around 70% of the MVRO mobile market, according to September 2014 statements by the company in the local press, where they also gave a subscriber number of around 700,000. The firm announced plans in 2014 to launch 4G services by September 2015, using Omantel capacity. FRiENDi also plans to raise the total number of its stores from three to five by the end of 2014.

Samatel, meanwhile, uses the Nawras/Ooredoo network for its MVNO services. The company was acquired by Al Zaman Investments and Communications World in 2013, with this expected to herald new investments in the network in the period ahead. As a closed public company, the TRA’s licence conditions mean it is obliged to go for an initial public offering within three years of receiving approvals by the market authorities. A date for this was unavailable as this was being written. Samatel operates MVNO services, yet also possesses a Class I, international gateway license. It also offers fixed-line services. Elsewhere, Renna Mobile uses Omantel’s network. In 2012 the Oman Brunei Investment Company acquired a majority share in the company, which has tried to concentrate on mobile and broadband packages, while also offering reduced international call rates, targeting Oman’s large expatriate community.

Bridging The Digital Divide

With Oman characterised by its difficult, often mountainous terrain and widely dispersed population, a danger in telecommunications development is that once in private hands, it may bypass the less inhabited – and less profitable – rural areas. To address this, the government – and the TRA – have undertaken a number of strategies.

One of these is ensuring a universal service policy (USP) in telecoms licences. This obliges companies to roll out their services to all areas if they are to enter the market. The USP specifies minimum standards for all areas, allowing for a phased approach but setting clear targets. The rollout of the country’s broadband network has also been shaped by the policy of ensuring nationwide coverage. The MoTC has been central in this, and in April 2014 it announced that it was establishing the national Oman Broadband Company (OBC) to draw up plans for the deployment of fibre-optic broadband across the sultanate.

This initiative builds on what has already been put in place – namely the cooperation between Omantel and Haya Water – Muscat’s recycled water company – to lay fibre-optic cable to houses at the same time as they were being connected to Haya Water’s network. The MoTC provided financial support to Haya for this. Oman also has its own fibre-optic cable manufacturer in the shape of Oman Fibre Optic Co. (OFO).

At the same time, the MoTC has also allotted some $130m to provide mobile telecoms with more spectrum, enabling wider service coverage as well as the shift to 3.5G and 4G. This began in 2012, with the TRA, the MoTC and the Ministry of Finance engaged in migration of significant non-commercial use of spectrum to make room for additional commercial space. The TRA has also freed up spectrum in the 2.3-GHz band for mobile broadband services. A concrete example of how all these initiatives have come together has been the joint programme between the TRA, Omantel and Nawras to provide 250 remote villages across the sultanate with mobile services. Begun in early 2014, the target is to connect these locations within two years, with some 200 new base stations being installed.

Omanisation

As with other sectors of the sultanate’s economy, telecoms is obliged to follow the Omanisation policy. This sets quotas for different sectors for Omani national and non-national employment, with the central idea being to increase the level of Omani participation in the workforce, while decreasing the number of expatriates. In the telecoms sector, TRA statistics state that 3954 people were employed at the end of 2012, with service providers achieving an Omanisation rate of 89.4%. The TRA itself achieved 92.6%. In its 2013 annual report, Omantel stated that it had 2675 employees, with a 90% Omanisation rate, while Nawras claimed a similar percentage. As a result, the telecoms sector has a strong reputation for hiring locals. Yet the employment market is not without challenges. In recent times, public sector wages have risen, lowering incentives for Omanis to enter the private sector.

Outlook

The year ahead will likely see continued growth in revenues for the major telecoms firms, along with growth in mobile and internet subscriber numbers – if at a steadily declining rate. The broadband roll-out and plans to bridge the digital divide will continue. The challenges identified by many sector insiders continue to be the geography and demographics of the country, with these impacting capex and profitability. At the same time, there is concern that the drive to further liberalise the sector may not be entirely without its costs, as the market is already saturated in many respects. Some of the smaller players may indeed find themselves squeezed in the months ahead, particularly if OTT services expand. A country with under 4m people may not need so many MVNOs. At the same time, the sultanate is moving towards high-speed, universal coverage, with all of the benefits that will bring to the economy, as Omanis become yet more connected.