Expansion of Jordan's ICT sector remains a government priority

Jordan’s information and communications technology (ICT) sector is one of the most developed and robust in the region, bolstered by 15 years of industry-friendly policy and a young, well-educated and growing population of digital consumers. The sector is a major economic contributor, recording dramatic annual growth rates since 2000, and mobile penetration and internet usage have also risen sharply. With data demand increasing, operators are now poised to capitalise on 4G/long-term evolution (LTE) services, which began to roll out in early 2015.

The ICT sector faces a number of challenges, most notably a heavy tax burden, exacerbated by the government’s decision to double two key industry taxes in 2013. In addition, competition between Jordan’s big three telecoms operators has lowered prices, which benefits the consumer, but could also reduce the profitability of expanding 4G services.

Nonetheless, the sector remains strong and stable, supported by ongoing government initiatives and a young, tech-savvy population, with the kingdom’s robust network of IT incubators and accelerators expected to benefit from new initiatives supporting start-ups and entrepreneurship.

Market Structure

Jordan’s telecoms sector is mature, diverse and modernised and has the supporting ecosystem that would enable success. The kingdom was one of the first Arab countries to support ICT as a standalone economic sector, establishing the Department of Post and Telegraph (DPT) in 1921, and adopting international telecoms services in the 1930s. The Ministry of Post, Telegraph and Telephony succeeded the DPT in 1951, with a mandate to improve and expand postal and telephone coverage across the kingdom.

In 1971 the Telecommunications Corporation was established as a state-owned incumbent operator, later transforming into the Jordan Telecommunications Company, and then to the Jordan Telecom Group (JTG) with the advent of a privatisation programme in the 1990s, which saw the telecoms sector become fully liberalised by 2004.

The Higher Council for Science and Technology (HCST) was established in 1987 to oversee the development of science and technology, and manages three national research centres focusing on health care, human resources, and research and development (R&D). Today the Ministry of Information and Communications Technology regulates the ICT sector, while the Telecommunications Regulatory Commission (TRC), established in 1995, acts as industry watchdog, with responsibilities including spectrum allocation and telecommunications licensure. In 2000 the government established the Information Technology Association of Jordan (int@j), which helps produce national ICT strategies and collects data to measure industry performance.

Telecoms

The telecoms sector is dominated by three major players: JTG (Orange Jordan), Zain Jordan and Umniah. Incumbent carrier JTG was privatised in 2000 and made an initial public offering in 2002, with France Telecom acquiring a majority share in 2006. Today the company is majority-owned by France Telecom, operating as Orange Jordan, while the Jordanian government maintains a 30% stake.

Despite a successful liberalisation programme kicked off in 1995, Orange Jordan is the only integrated operator in the country, offering mobile, fixed-line, wholesale telecoms and internet services. Zain Jordan is the leading mobile provider, with a 40% market share and nationwide coverage across 2083 network sites, according to Zain Group’s 2014 annual report. Orange Jordan holds a 31% share of the market, while Umniah holds 29%.

Market Evolution

With the advent of mobile and mobile broadband services, fixed-line subscribership in Jordan plummeted. Mobile subscriptions outnumbered fixed-line customers by 2005, with fixed-line subscribership falling from 670,000, or 12.2% penetration in 2005, to 375,483 as of the fourth quarter of 2014. The TRC reported declines in both the business and residential fixed-line segments in 2014, with business subscriptions falling from 135,322 to 132,507, while residential subscriptions dropped from 243,803 to 242,976.

Mobile services have simultaneously shown tremendous expansion over the past decade, with mobile subscribership soaring from 3.13m users representing 57% penetration in 2005 to 11.1m users and 147% penetration at the end of 2014. Pre-paid users dominate the mobile sector, comprising 92% of total users, according to TRC data.

The telecoms industry has been strong and stable in recent years, with revenues rising steadily from $1.53bn in 2009 to a high of $1.72bn in 2011, although fierce domestic competition and a rising tax burden have had a negative impact of late, and revenues slid 8% between 2011 and 2013 to hit $1.58bn, equal to 4.8% of GDP, according to the most recent figures available from int@j. Since 2000 telecom industry revenue increased by 216%, from $500m in 2000 to $1582m in 2013.

Growth In 2014

Despite rising mobile usage, Zain Jordan reports that in 2014 the sector was characterised by significant price competition and falling voice revenues, following an extremely challenging 2013, when mobile service taxes were doubled to 24%, and mobile handset taxes doubled to 16%.

Zain Jordan’s revenue and net income both dropped by 5% in 2014 to $469m and $114m, respectively, mainly due to lower voice revenues, although data revenues, excluding SMS and value-added services (VAS), grew by 11% and represented 23% of Zain Jordan’s total revenue in 2014.

Orange Jordan reported similarly negative results in 2013, the most recent year for which data is available, with revenues falling 11.7% during the year, owing to a 150% increase in the price of electricity between 2012 and 2013, as well as changes to the tax regime. Orange Fixed, its largest business segment and Jordan’s main internet service provider, saw revenues decline by 5.6% in 2013 as a result of a contraction in its wholesale business line, while its mobile division recorded a 17.7% decline in revenues.

Price Wars

Umniah, which has tended to focus on affordable services at the lower end of the market, has seen its market presence expand considerably since it began operations a decade ago.

In its 2014 annual report, Batelco reported that Umniah’s mobile subscribers increased to over 2.7m for that year, with broadband subscribership rising 18% year-on-year as a result of infrastructure upgrades and network expansion. According to Batelco, Umniah’s broadband services have grown by 100% over the previous two years, enabling the company to extend wireless internet coverage to 80% of the Jordanian population. Since Umniah’s entrance the market has become increasingly competitive, with the company snapping up nearly 30% market share in 10 years, adopting a strategy tailored to prepaid users in which lower denomination cards allow users to refill more frequently at a lower cost, and rolling out per-second billing for pre- and post-paid customers, leading to price wars in the industry.

The company also operates its own brand of WiMAX technology called Umax, which enables users to access the internet without a landline, and launched a “3.75G” network in 2012, driving down data prices across the sector. Jordan now stands as the second-most-competitive telecoms market on the Arab Advisor Group’s 2014 Cellular Competition Intensity Index, scoring 73.16, and topped only by Saudi Arabia’s 75.86. Fierce competition and falling revenues, coupled with a rising tax and licensure burden, have led to a challenging outlook for the telecoms sector, although the rising demand for data is expected to offset near-term challenges.

3G & 4G Development

With data demand rising sharply in recent years, expansion of mobile broadband services will be critical for long-term industry growth, and two operators – Zain Jordan and Orange Jordan – have already moved to launch 4G/LTE services in the first half of 2015. In February 2015 Zain Jordan launched its LTE network, becoming the first full-service Jordanian 4G provider. With download speeds of up to 150 Mbps and coverage of all 12 governorates, the network comes on the back of a JD200m ($281.2m) investment, with a further JD100m ($140.6m) forecast to be spent in the next two years.

Orange Jordan followed suit in late May 2015, launching 4G services with mobile and wireless broadband speeds of up to 70 Mbps. While the network will initially be limited to the capital of Amman, the company is aiming to roll out nationwide coverage by the end of the third quarter of 2015. According to Orange Jordan, total investment in 4G network upgrades is set to cost a total of JD250m ($352.8m) – a figure equivalent to one-fourth of its total investment in the country since 2000.

Umniah has pursued a more gradual implementation strategy. Having first announced the successful completion of its network tests in 2013, the mobile operator was granted a 4G licence in June 2015.

However, companies have long complained of the comparatively high tax burden on the telecoms industry, with the government’s 2013 move to double mobile service and mobile handset taxes resulting in considerable backlash, and a boycott of subsequent 4G/LTE spectrum auctions. Although the government announced in February 2014 that it was considering reducing tax rates for telecoms operators, stakeholders argue the uncertainty regarding taxes is as frustrating as tax hikes.

Public-Private

As the Jordanian government increasingly seeks to bolster its revenue base, some operators have taken issue with its conduct with regards to telecoms policy. Orange Jordan took legal action against the government in 2011 for the violation of a 3G exclusivity agreement, while Zain Jordan called for legal action against the TRC following the 2013 tax hike (see analysis).

In April 2014 Orange Jordan considered pursuing legal action against the Jordanian government in light of what it viewed as unfair 2G licensing fees, with the TRC charging JD156m ($219.51m) for a 15-year renewal of Orange Jordan’s 2G licence. On top of that fee, the company paid JD70m ($98.5m) for a 4G licence in January 2015, while Zain Jordan paid JD192m ($270.16m) for the acquisition of a 4G licence and additional 3G spectrum in April 2014.

Azzam Sleit, Jordan’s former minister of ICT, made clear that since the government still owns a 30% stake in Orange Jordan, it will ultimately pay roughly JD50m ($70.36m) of total licensing costs, and that the government had carried out in-depth market studies to ensure that the price was a fair one.

IT Overview

Despite challenges in the telecoms segment, Jordan’s IT sector remains strong, and has witnessed significant growth since King Abdullah II bin Al Hussein launched the kingdom’s first nationwide ICT strategy 15 years ago. Titled REACH, the initiative originally ran from 1999 to 2005, focusing on developing a supportive regulatory framework and enabling infrastructure, advancement programmes, human resources capacity and financing options.

Although gross IT revenues have fallen since 2009, the kingdom’s young, digitally literate population has benefitted its diversified IT sector, which continues to be attractive to outside investors. Rula Ammuri, president and CEO of PST (Professionals for Smart Technology), told OBG, “Jordan is a country of early adopters regarding IT. Having a young population of tech-savvy millennials helps and we see that even the older generations are open to technology. However, as many companies have trouble accessing finance and standing on their own two feet, they tend to delay the implementation of ICT enabler processes.”

At the same time, the prevalence of e-services has led Jordan to earn a reputation as a regional leader in e-government development. The kingdom was one of 46 countries with a score of 66.6% or higher in the whole of government category in the UN’s “E-Government Survey 2014”. Of 191 countries covered, it ranked 79th overall and 71st for e-participation.

IT Boom 

The IT sector grew tremendously between 2000 and 2005, with int@j reporting that total annual revenue in the sector rose from $60m to $581m; domestic revenues stood at $481.3m, up from $48m in 2000, while export revenues surged to reach $162.6m in 2005, up from $12m in 2000. At the same time, annual foreign direct investment (FDI) rose from zero in 2000 to $10.5m in 2005.

ICT became a major growth driver in the following years, as the government unveiled the second edition of the National ICT Strategy, running from 2007 to 2011. The strategy, and its successor, covering 2013 to 2017, introduced policies aimed at capitalising on new markets, enhancing market maturation, boosting investment in R&D, increasing regional exports, attracting FDI and improving human resources.

As a result, Jordanians have become some of the most digitally literate people in the region, with internet penetration rising from 29% in 2009 to 76%, or 5.9m users, by the first quarter of 2015. Internet subscribership, rose by 21.6% in 2014, from 1.46m users in the first quarter to 1.78m in the fourth. Mobile broadband users dominate the subscriber base, accounting for 1.43m subscribers, or 80% of the total.

The IT sector maintained strong upwards momentum until 2009, with annual revenues expanding by an average of 18.7% to peak at $962m in 2008. Average annual export revenue growth stood at 12%, and FDI hit a cumulative $111.36m in 2008.

Uncertainty

With the onset of the global financial crisis, the industry faced a series of external crises and hurdles. FDI fell from $13.6m in 2006 to $1.7m in 2008, while total IT revenues declined by 7% in 2009 to $895m. Export revenues and domestic revenues contracted by 7.6% and 6.8%, respectively, in 2009.

Growth has been somewhat volatile in subsequent years; total revenues contracted by an additional 18.2% in 2010 to hit $732m. Domestic revenues’ share of total revenues has dropped from a high of 82.5% in 2002, to just 49.1% in 2013, or $638m, indicating the knock-on effect of the domestic slowdown on IT growth. “Slower domestic economic growth has made Jordan particularly price-sensitive regarding ICT products. This has made business difficult for companies offering high-quality services,” Samer Haddadin, enterprise and systems sales manager, East Med, for Schneider Electric, told OBG. Further to this, Jordan’s ICT sector has faced increasing competition from other countries in the region, including from businesses in the UAE and Egypt.

However, despite tapering domestic growth, export revenues have exhibited a strong recovery following the 2009 crisis, and 2013 marked the first year export revenues outstripped domestic revenues. After contracting a further 3.46% in 2010, export revenues rose 14% in 2011, 30% in 2012 and 8.2% in 2013, the most recent year for which statistics are available, to rest at $332.55m. Annual FDI, meanwhile, rose in 2009 to reach an all-time high of $16.23m, and stood at $14.9m in 2010, before hitting a low of $1.4m in 2011, later rising to reach $2.5m in 2012 and $4.2m in 2013. With total telecoms revenues standing at $1.58bn in the same year, the combined value of the telecoms and IT sectors stood at $2.22bn in 2013, which equates to 6.6% of GDP at current prices.

Revenue Breakdown

IT revenues were dominated by wholesale and computer software sales, which comprised 37.3% of total revenues in 2013, followed by computer programming activities at 20% and software publishing at 12.9%.

Data processing and hosting comprised 10.2% of total revenues and computer repair activities contributed 6.8%, while call centre revenues accounted for $10.3m, or 1.6% of the total, in 2013, demonstrating that Jordan’s position as an outsourcing hub remains strong; indeed, the kingdom rose two places to 20th place on the 2014 A.T. Kearney Global Services Location Index, which ranks outsourcing attractiveness across 51 countries.

With the International Telecommunication Union reporting in 2012 that 75% of digital Arabic content is generated in Jordan, the kingdom’s attractiveness in this sector has given it a considerable competitive advantage, with Amman ranked in the best 10 places worldwide to open a telecoms firm.

Kick-Startups

Grappling with regional instability, declining foreign investment and rising competition from Dubai, the ICT sector faces a more challenging future than it did 10 years ago. Both the government and private sector have moved to meet these challenges, with start-up funding and start-up incubators expected to drive the next wave of industry growth.

In 2003 the HCST established one of its first tech incubators, iPark, at El Hassan Science City. Offering entrepreneurs the chance to develop their business in collaboration with the Queen Rania Centre for Entrepreneurship and Intellectual Property and Commercialisation Office, iPark announced it had expanded its facilities in 2013, estimating the value of its graduate companies at $50m that year.

In 2010 the government launched its flagship early-stage seed investment company, Oasis500 to support 500 new start-ups. The company provides between $30,000 and $70,000 in seed funding for various start-up enterprises, and had invested in 95 companies by early 2015, with plans to invest in a further 75 by 2016. In October 2015 the government announced a range of incentives, including an income tax reduction on ICT companies, a sales tax reduction and Customs exemptions on specified items.

E-Commerce & New Funding

Approximately 25% of the Oasis500’s investment portfolio is comprised of e-commerce ventures such as Jamalon, Feesheh and Stal Arabia, with e-commerce offering considerable opportunities for future entrepreneurs.

“The Arab world is not unified and the e-commerce market is fragmented. In a country like Jordan with a relatively small domestic economy, e-commerce is the only path for exponential overseas growth,” Yousef Hamidaddin, CEO of Oasis500, told OBG.

This strategy will help the kingdom adjust to an export revenue-based model, while the company has also targeted funding programmes to attract the best of foreign and Jordanian talent. Oasis500 plans to begin divesting from its current investment portfolio in 2016 and will launch two new funds in the coming years, one targeting the creative industries, and one called the Space Ventures fund, which targets commercialisation of space technology. The latter will see the company partner with the European Space Agency to offer between €50,000 and €250,000 of seed funding for start-ups, based on their maturity.

“Professionals with four to five years of experience are the best opportunity for Jordan to regain its leadership position and bring the kingdom back to the forefront of tech innovation,” Hamidaddin told OBG.

Private Support

In addition to Oasis500, private players have also moved to support IT entrepreneurship in the country. In November 2014 Zain Jordan inaugurated the Zain Innovation Campus (ZINC), an entrepreneur support centre offering start-ups the opportunity to connect with international experts. ZINC offers working space, 3D printers and high-speed internet, in addition to a robotics corner, simulation lab, a virtual reality lab and a tele-presence room connecting Jordanian entrepreneurs with the UK’s Coventry University and US-based 500 Startups. ZINC will join Orange Jordan’s Technocentre, a research facility designed to quicken the move from concept to market, started in Amman in 2008.

Outlook

Despite rising regional competition and slower domestic economic growth and a tough regulatory environment, ICT remains one of the kingdom’s greatest strengths, and its ongoing expansion remains high on the list of government priorities. With a history of forward-thinking tech and telecoms development, Jordan is well positioned to continue capitalising on its bright population. The sector’s long-term growth prospects, buoyed by private sector ambitions and strong government leadership, should see its recovery continue in 2015 and beyond.