Key infrastructure developments, tech-savvy population bode well for telecoms companies in Bahrain's ICT sector

Bahrain’s involvement in telecoms goes all the way back to the mid-19th century when the island became a way station for the telegraph cable linking India and Europe. The kingdom was also the first country in the Middle East to launch internet services in 1995, and was the first country in the GCC region to liberalise and open up its ICT sector to investment.

Bahrain now has a solid telecoms market with customers benefitting from a diverse array of services and increasingly competitive rates. The 2014 World Bank report “Broadband Networks in the Middle East and North Africa” singled out Bahrain as having the only mature broadband market in the MENA region, as well as being one of only two countries in the region to have a fully open telecoms market.

However, in a country with a population of 1.3m people, three major mobile operators, and dozens of data and internet service providers (ISP), the pressure is on to remain ahead of their rivals, which is good for customers but can prove a challenge for telecoms companies, which need to offer more and more advanced services in order to stay ahead of the game. This has helped to turn the kingdom into a regional leader when it comes to ICT.

TARGETS: The kingdom’s development strategy, Economic Vision 2030, is aimed at driving itself towards a more knowledge-based economy and identifies ICT as a major area of economic potential both in terms of growth but also as a facilitator for the economy.

Starting in 2003, the kingdom began releasing its National Telecommunications Plans (NTP), with the third released in 2012 and the fourth in 2016 (see analysis). The latter calls for almost universal access to ultra-fast broadband services and ensuring that Bahrain is among the top 20 countries in the world in important telecoms indices. If achieved, the plan’s targets will undoubtedly help the telecoms and IT sectors play an even more significant role in the growth and expansion of the Bahraini economy as a whole.

OVERSIGHT: In 2002 Bahrain introduced the Telecommunications Law of the Kingdom of Bahrain, which liberalised the telecoms sector for the first time by introducing open competition.

The kingdom also set up the Telecoms Regulatory Authority (TRA) to protect consumer interests, further open up the telecoms environment and promote increased transparency. “While the third National Telecommunications Plan was developed with good foresight, the fourth version of the plan is bound to have more of an effect now that there is a ministry in charge of enforcing it,” Rashid Al Snan, CEO of Etisalcom, told OBG.

The TRA has helped oversee the transformation of the sector into a major pillar of the economy, while keeping the system open to competition. In 2009 Bahrain Telecommunications Company (Batelco) was fined BD750,000 ($1.99m) for not opening up its cable system to its competitors, the first time a GCC telecoms regulator had fined an incumbent. Furthermore, in 2013 the TRA ruled that another telecoms operator, VIVA Bahrain, had exceeded bandwidth limitations and fined the company BD222,330 ($589,730) for unauthorised use of the spectrum. Spectrum allocation in Bahrain is guided by the 2008 National Spectrum Planning and Allocation Policy, which aims to create a transparent environment for current as well as future spectrum usage in the country.

COMPETITION: Bahrain’s three main telecoms players account for nearly 90% of telecoms sector revenue with former state-owned telecoms operator Batelco holding around 40-50% of the market and its two smaller rivals, VIVA Bahrain and Zain Bahrain, holding around 25-35% and 15-25%, respectively.

Competition for customers is high, with promotions and offers giving way to more direct competition based on lower prices. At the same time, the arrival of new entrants into the telecoms market over the last decade has expanded the range of services and products on offer and forced established operators to become more creative. Etisalcom was the first private internet service provider (ISP) to receive an operating licence in Bahrain in 2005, but it has since been followed by many others.

Nowadays, in addition to the main three telecoms players, the kingdom is home to an estimated 20 telecoms operators, offering a wide range of services including fixed lines, WiMAX, leased lines and ISP services. The first consolidation in the telecoms sector in Bahrain occurred in 2014, with Kalaam Telecom buying Jordan Telecommunications’ subsidiary Lightspeed, giving Kalaam a 17% share of the broadband market, second only to Batelco.

TELECOMS LEADER: Batelco was founded in 1981 as a state-owned enterprise but is now 36.67% owned by Bahrain Mumtalakat Holdings Company, the state holding company, while the General Organisation for Social Insurance holds 20.56% and Amber Holding Company a further 20%. The remaining 22.77% is publicly traded on the Bahrain Stock Exchange. Batelco is currently undergoing a period of transformation, with the company investing heavily in major initiatives and infrastructure in order to improve its communication offerings with the aim of becoming the leading integrator of digital solutions in Bahrain.

“We have major new initiatives to increase service and speed for consumers,” Abderrahmane Mounir, COO of Batelco Bahrain, told OBG. “This includes Bahrain Wi-Fi, which was launched at the F1 track and Seef Mall Muharraq and Juffair, and is being rolled out to other locations. We are going to be the first company in Bahrain to offer LTE advanced service to our customers, and fibre layout continues to grow as we lay more lines to thousands of homes across the kingdom. Increasingly complex enterprise solutions are constantly under development as well.”

In June 2016 Batelco announced plans for the roll-out of 4G+ LTE-Advanced (LTE-A) upgrades across its 4G network. This came a month after rival Viva Bahrain completed its 4G LTE network upgrade, which boosted its own mobile data download speeds from 100 Mbps to up to 150 Mbps. Batelco will be the first to roll out LTE-A in Bahrain, with its CEO, Muna Al Hashemi, saying that it will offer “better coverage, greater stability and faster performance”. The upgrade is being done in partnership with Swedish technology firm Ericsson.

In August 2016 Batelco launched a new residential broadband package, which is reported to be the fastest in the kingdom, with download speeds of up to 500 Mbps and upload speeds of 50 Mbps, in order to attract more customers.

EXPANSION: In recent years Batelco has evolved from being a regional Middle Eastern operation into an international telecoms firm with direct and indirect investments in 14 different markets, including Jordan, Kuwait, Saudi Arabia, Yemen, Egypt, and, after acquiring the island assets of UK-based Cable and Wireless in 2013, Guernsey, Jersey, Isle of Man, Maldives, Diego Garcia, St Helena and the Falkland Islands. Citing a lack of time, in March 2016 the company announced that it would not be selling Jordanian operator Umniah and instead plans to make acquisitions. In May 2016 it announced that a bid for Maltese telecoms operator GO had been submitted, potentially adding a 15th market to its network. The telecoms giant continues to expand its network overseas and invest heavily in infrastructure inside Bahrain and overseas.

Batelco’s gross revenues for the period ending September 30, 2016 were BD273m ($724.1m), down 2% year-on-year (y-o-y), with net profits at BD32.5m ($86.2m); the company blamed the marginal drop on competitive pressures in the markets where it operates. Overseas operations accounted for 59% of overall revenue, unchanged y-o-y, while net profits fell 21% y-o-y to BD32.5m ($86.2m), affected significantly by losses sustained by the company’s Yemeni subsidiary Sabafon. Yet despite the declines in key indicators, the group’s balance sheet remains strong with net assets valued at BD548.1m ($1.45bn) and significant overseas operations.

RIVALS: Bahrain’s second largest telecoms provider, Viva Bahrain, a wholly owned subsidiary of Saudi Telecom Company, entered the Bahraini market in 2010, after receiving the kingdom’s third GSM licence issued in 2009. In May 2016 Viva Bahrain finished upgrading its 4G network to handle data download speeds of up to 150 Mbps while also implementing a partnership with Chinese telecoms company Huawei, with what it claims is the world’s first triple-beam antenna. The installation is able to deliver almost triple the capacity of conventional mobile towers. “Jointly with Huawei, we have achieved a great technological breakthrough,” Ulaiyan Al Wetaid, CEO of Viva Bahrain, said about the project at the time.

The smallest of the three major players, Zain Bahrain, part of Kuwait’s Zain Group, began operating in Bahrain in 2003, making it the second oldest player on the market behind Batelco. At the end of September 2016 the company posted net profits of BD3.05m ($8.07m) a reduction of 10.4% y-o-y. However, despite declines in profit the customer base reached 969,000 people at the end of the third quarter 2016, 19% higher than the previous year.

The company credited increased investment in marketing and network capabilities for the surge in new customers, and the introduction of pre-paid and post-paid mobile packages, which offer unlimited data. Batelco has since initiated a similar plan to attract a larger customer base.

FIXED LINE: According to the latest figures available from the TRA, at the end of the second quarter of 2016 there were 230,636 fixed telephone lines in Bahrain, down 3% from the end of 2015, when the number stood at 239,521.

Despite a global trend in the declining number of fixed landlines, at the end of 2015 the penetration rate for fixed lines in Bahrain was 20%, which is largely in line with steady rates since 2009, which are between 21-24%. However, at the end of the second quarter of 2016 the penetration rate in the kingdom declined to approximately 16.4%.

Furthermore, the amount of traffic on fixed lines dropped by 12% between 2013 and 2014, largely due to the shift in users towards mobile devices; notably, according to the TRA, 71% of national traffic originating from fixed lines was placed to mobile phones in 2014, echoing current worldwide trends.

Fixed-line revenue also dropped, by 7% y-o-y in 2014, from BD14.1m ($37.4m) in 2013 to BD13.1m ($34.8m) in 2014, with business subscribers accounting for BD10.5m ($27.9m), compared to BD2.6m ($6.9m) for residential landlines. Average revenue per user for fixed-line user, including international calls, stood at BD5.7 ($15.1m) a month, down from BD6.1 ($16.2m) in 2013 following current worldwide trends.

MOBILE: According to the World Economic Forum’s “Global Information Technology 2016 Report”, mobile network coverage in Bahrain is at 100%, with 173.3 mobile phone subscriptions per 100 people.

According to the latest figures available from the TRA, by the end of the second quarter of 2016 mobile penetration in Bahrain had risen to 201%, up from 185% at the end of 2015 and 176% at the end of 2014. The number of mobile phone subscribers rose 11% to 2.8m from 2.5m six months earlier. This is on top of a previous 8% increase from 2014 to 2015 and up from 1.77m in 2013. The mobile market in Bahrain remains predominantly pre-paid, with non-contract subscribers representing around 80% of the total mobile market share in 2016.

Meanwhile, mobile revenues dropped by 2.7% between 2013 and 2014, from BD197m ($522.5m) to BD192m ($509.3m), though they were on a par with 2012 and 2011 figures, which were BD193m ($511.9m) and BD192m ($509.3m), respectively. The reduction in mobile user costs resulted in a drop in the average revenue per subscription by 49% for post-paid and 31% for pre-paid over the last five years. Average revenue per mobile subscription was BD35 ($92.8) in 2008, dropping to BD32.2 ($85.4) in 2009, BD28.4 ($74.3) in 2010, and so on down to BD16.6 ($44) in 2014. Meanwhile, according to the TRA, at the end of 2015 there were 1.41m mobile subscribers with mobile broadband subscriptions, which include pay-per-use, add-on and bundles, compared to just 800,000 in 2012, an increase of 76%.

E-COMMERCE: The high penetration of mobile phones in the region could potentially bode well for growth in the e-commerce segment. In February 2015 market research firm Frost & Sullivan forecast that e-commerce in the GCC region would experience a 40% growth rate by 2020, reaching over $40bn. However, despite Bahrain being considered one of the more open countries in the region when it comes to e-commerce, penetration is limited. “There are a lot of smartphones in this region, but when it comes to financials people don’t really trust electronic money for now. There are few banks in Bahrain that accept online payments through debit cards, and most of them had to come up with a solution of pre-paid cards,” Danial Jawaid, director of IT at SADAD Electronic Payment System, told OBG.

OUTLOOK: The telecoms market in Bahrain is experiencing some growth, as mobile devices become more and more prevalent and the number of customers rises rapidly. However, users are demanding better packages and increased options, forcing companies into cost-cutting measures to maintain profitability and satisfy customer demands.

Despite challenging revenue numbers and marginal declines in profit, the main telecoms operators have cause for optimism because of further developments in key infrastructure and an increasingly tech savvy population. Although new service providers are likely to put additional pressure on existing companies, there are signs of burgeoning consolidation in the market, a process that may continue into 2017.