Regulators work to maintain a balance between healthy growth and strong competition

After Qatar, Jordan was the second Middle East country to launch a global system for mobile communications, or GSM, and has not looked back since. More recently, advancements in data and the greater availability of smartphones are positioning the kingdom for another leap forward in the telecoms sector.

The state was the sole operator until the mid-1990s, when it slowly began to open up the sector to private players in a bid to increase competition, enhance efficiency and develop service quality. In 1994, the first private mobile operator was licensed and began services under the brand Fastlink, now operating as Zain. The pace of change picked up in 1995 when the kingdom re-evaluated its telecoms strategy, eventually issuing a new telecommunications law that introduced wide-ranging reforms. At the heart of the new law was the creation of the Telecommunications Regulatory Commission (TRC), which is charged with regulating ICT and the postal system in line with global best practices.

New Direction

These reforms ushered in a new era of private investment and competition. As part of the changes, the government-run Telecommunications Corporation was transformed into a state-owned entity, the Jordan Telecommunications Company (JTC).

Later, after Jordan’s accession to the World Trade Organisation, the kingdom launched a wave of privatisations as part of its membership obligations, and in 2000 the JTC opened a bidding process for 40% of its shares. With a bid of $508m, a consortium led by France Telecom (FT) won the lucrative management contract, taking 88% of the offered stake, with the rest being held by Arab Bank. By 2004, Jordan’s telecommunications sector was fully liberalised, preceding the majority of other countries in the region.

Further changes came in 2006, when the JTC combined all operations under one umbrella company, Jordan Telecom Group (JTG). The government also sold more of its private shares, allowing FT to take a controlling 51% holding. In 2007 JTG’s retail mobile operations rebranded as Orange, FT’s commercial arm.

Local Landscape

Besides Orange, there are two other mobile network operators, Zain and Umniah, and one mobile virtual network operator (MVNO) called FRiENDi. Each is part of a foreign parent group: Zain comes under Kuwait’s Mobile Telecommunications Company, Umniah under Bahrain’s Batelco and FRiENDi under the UK’s Virgin Mobile. The local mobile landscape remains dominated by pre-paid customers, but changes in consumer habits point to encouraging signs of growth in the post-paid segment. Factors driving this shift include an increased interest in smartphones, growth in data subscriptions and the prospect of faster 4G services becoming available.

The Numbers

ICT is one of Jordan’s fastest growing industries, despite the recent tax increases that have hit the telecoms sector. In 2013 the telecoms sector had revenues of $1.58bn, down from $1.69bn in 2012, according to the TRC. In the first quarter of 2014, Zain had 4,095,576 pre- and post-paid active subscribers, according to the TRC, followed by Orange (3,263,063) and Umniah (3,027,546). In the same period for 2013, pre-paid subscribers accounted for 8,745,120 or about 92% of the kingdom’s 9,475,171 subscribers.

Competition is serious in the pre-paid mobile sector. For customers in this segment, Zain remains the leader, with about 3.57m active subscribers, followed by Orange (3.09m), Umniah (3m) and FRiENDi (66,694), according to the TRC. One particularly attractive feature of pre-paid subscriptions in Jordan is the flexibility of the tariff structure, which allows mobile users to carry two SIM cards and switch between them to take advantage of seasonal deals. This reality is reflected in the kingdom’s mobile penetration rate, which rose from 120% in 2011 to 156% by the end of 2013, reaching nearly 10.7m subscribers, according to the TRC and Arab Advisors Group. The state body further estimates that this figure will hit 200% by 2018.

Tech Savvy

Nine out of 10 people in Jordan own a mobile phone, and a large and growing portion of these are smartphones. Fully 38% of the country’s mobile users own a smartphone, compared with 23% in Egypt, 17% in Turkey and 12% in Tunisia. With a 47% usage rate, Jordan ranked second in the Arab world by mobile data usage, according to a 2013 survey run by the Pew Research Centre’s Global Attitudes Project (GAP). Social media are also proving popular: Jordan ranks third in the Middle East for engagement in social networking sites, according to the GAP survey. Given its penetration and many operators, Jordan is the second-most-competitive mobile market in the Middle East after Saudi Arabia, according to the Cellular Competition Intensity index released by Arab Advisors Group in 2014.

Regulatory Environment

The TRC is responsible, principally through regulation, for ensuring stiff competition without stifling the sector, a task that has been challenged by a series of tax hikes in recent years. In 2012 the TRC released a “green paper” aimed at addressing a regulatory mismatch created by the differing competencies and jurisdictions of the TRC and its sister regulator, the Audiovisual Commission (AVC). The AVC regulates content delivered by terrestrial frequencies, but not that sent by satellite, cable or internet, though it licenses the entities that do so. Meanwhile, the TRC’s mandate covers the provision of data services over telecoms networks, but not content. One proposed solution is to develop a completely new set of rules, merge the TRC and AVC, and bring all content regulation under the authority of a new body.

Regulators have long been concerned about the quality of the service operators provide. In August 2011 Azzam Sleit, the minister of ICT, raised the issue at a TRC meeting. “We all suffer because of the bad quality at present,” he said. “We do not want free calling minutes when every minute there is a disruption in the call.” Still, major mobile providers note that Jordan has one of the lowest dropped call rates in the region. According to TRC’s year-end 2013 report, Orange dropped the most calls with 0.42%, while Umniah dropped the least with 0.28%. Network availability was 99.68% for Orange, 99.98% for Umniah and 99.99% for Zain.

Market Shake-Up

In 2012 the TRC announced it would open a bidding process for frequencies in bands of 800 MHz, 2100 MHz, 2300 MHz and 2600 MHz to pave the way for the kingdom’s first 4G services. Included in the tender document was a clause allowing for the possibility of a potential new entrant to participate in the bidding. However, in June 2013 the three main operators united against the tender, arguing that a fourth operator would affect capital investment, have a negative impact on an already saturated market and erode earnings at a time of increased tax burden for the sector. A price war would ensue, they said, drying up funds for long-term sector investments.

Taxation Challenge

This resistance belied a broader challenge: major operators are grappling with a steep rise in taxes on mobile subscriptions. In July 2013 the government – in an attempt to raise short-term capital, and spurred by a combination of factors including an unexpected energy crisis in 2012 – raised sales taxes on voice and value-added services for mobile users from 12% to 24% (tax on data usage remained at 8%). The sector is at the same time subject to direct taxation, paying both income tax and a revenue-sharing levy, and has further suffered from electricity rate increases of nearly 150% in 2013.

The three major operators thus united in opposition. In a special report on the tax increase, Zain, Orange and Umniah argued that combined revenue had fallen by 9% since the taxes came into force, while profits had dropped by 30-40%. The providers further asserted that the additional taxes will hurt long-term investment as funds earmarked for development would be diverted for disbursement to the state.

Aftermath

In time, however, the fierceness of the opposition waned, and all providers have now begun looking for ways to diversify their revenue base. In an annual report on its 2013 consolidated financial performance, Zain’s parent company, Zain Group, said that the higher state tariffs will slow market expansion. “These taxes have effectively acted as an impediment to the sustained growth of the telecom sector in the country in the short term,” the statement said.

The effects on the market have been far-reaching. JTG, the country’s sole fixed-line operator, reported a 37.8% drop in net profits in 2013, to JD51.7m ($73.03m). While the three main providers have come out against the new tax scheme, intense competition has significantly lowered costs for consumers and profits for the operators. “They are rushing to lower prices when they should be working together to weather the difficult tax climate the industry currently finds itself in,” Rafat Al Nawawi, CEO of FRiENDi Mobile, told OBG.

In the end, the tender process was closed due to the non-compliance of the two bidders. Zain Jordan then applied for the 4G spectrum and was granted it, but without any exclusivity that would prohibit existing operators from acquiring similar spectrum under the same terms. By winning the first such licence in the kingdom, Zain hoped to stay on top of the market with the largest number of subscribers, and is expecting to offer 4G services by the end of 2014.

The government has shown a willingness to reduce some levies. To further stimulate the expanding smartphone market, it exempted these products from a sales tax in August 2011, causing prices for high-end handsets to fall by between $124 and $140. This exemption also boosted smartphone sales and, by extension, the demand for 3G data services.

Smartphones

Smartphone sales continue to grow, as mobile broadband in the country is already well established – about 36% of mobile subscriptions include access to mobile broadband services, according to the TRC. Looking forward, Zain and other providers are looking to capitalise on this through the introduction of ultra-fast 4G mobile web services. “Smartphone penetration in Jordan stands at 41% and is rising,” Ali Toukan, research manager at Ipsos, a global research group, said at an industry event covered by The Jordan Times. “The increase in usage of smartphones is changing the behaviours of Jordanians and this represents an opportunity for businesses.”

According to a separate study released by Ipsos, 43% of mobile users in Jordan currently have broadband, and eight in 10 smartphone owners have data subscriptions on their devices. The recent introduction of low-cost smartphones is also further expanding the market base. A typical high-end smartphone can cost between $500 and $700, around the average monthly salary in Jordan. Low-cost models now carry price tags of around $150 or less, creating even more opportunities in the kingdom’s mobile broadband industry.

The growth in recent years has already been strong. Between 2012 and 2014, mobile broadband subscriptions in Jordan grew from 800,000 to 1.2m. According to a separate World Bank report, 35.9% of mobile subscribers use mobile broadband services, compared with 32.4% in Kuwait. Such sector growth is having an effect on the behaviour of service providers. Umniah is the latest and final major service provider to complete a 3G roll-out in Jordan, complete with a lively campaign of attractive offers for low-cost smartphones. “The concept of MVNO is new to the MENA region, and we expect it to thrive in Jordan after successful launches in the US and Europe,” Al Nawawi told OBG.

3G Effect

As the voice market declines and gives way to 3G wireless networks and low-cost smartphones, the mobile data market offers the most promising area for new revenue streams in Jordan. All major carriers currently offer 3G services, and Zain is scheduled to release the kingdom’s first 4G service in late 2014. “We now see devices sold at below $100, and operators can subsidise part of that if needed,” Ihab Hinnawi, CEO of Umniah, told the media after the company launched its 3G service. “We are seeing a pick-up in the growth of mobile content in the region, especially with the emergence of social media and other apps.”

Another healthy sign for the sector is that software designers are focusing on mobile content to deliver new products. Zain regularly partners with popular celebrities in the region to leverage its mobile platform. In May 2012 local singer Omar Al Abdallat partially released his album on Zain’s mobile network. Other providers, meanwhile, offer exclusive mobile content such as Orange’s Min Al Akher 2 campaign, which bundles an application for unlimited music and content streaming with SMS messaging and talk time.

Growth in social media applications is the most attractive selling point for mobile content in the country. Facebook, Google and the video-streaming platform YouTube have the greatest reach in the kingdom. Video-chat applications such as Skype and Apple’s FaceTime have also boosted data demand in the sector.

E-Commerce

Building on the successful reach of mobile data, telecoms companies are moving forward with e-commerce, billing platforms and mobile money transferring schemes. Zain has partnered with SLA Mobile, a multinational operator, to offer direct operator billing services – a first in the region. The service will allow Zain’s customers to pay for digital goods from a third party or service by charging the transaction to their monthly phone bill or using pre-paid credit. In addition, Zain selected Ericsson to offer greater billing flexibility for its pre- and post-paid subscribers. The new charging and billing in one solution allows users to try new services without running into unexpected costs.

Orange continues to expand its mobile money portfolio in Jordan. It now reports about 10m customers for its Orange Money service in 13 countries throughout the Middle East and Africa region, and says some $3.4bn in transactions were conducted through it in 2013. With Jordan’s growing population of expatriates and foreign workers, the service is widely popular in the kingdom. Such growth in non-voice products is an example of the steady replacement of voice-based services in the kingdom. “The telecoms industry will drive Jordan on the path to an e-economy – and the private sector will build the networks to make this possible,” Jean Francois Thomas, CEO of Orange Jordan, told OBG.

Fixed Lines

As mobile subscriptions grow, phones with cords are becoming rarer. In 2013 total fixed-line connections fell from 392,869 in the first quarter to 379,911 in the fourth, according to the TRC. Penetration rates for these also dropped to 5.2% in the last quarter of 2013. A fall in residential fixed lines, from 252,788 in the first three months of 2013 to 243,191 at year’s end, contributed to a dip in the sector’s performance. Business fixed lines also declined, but more slowly, slipping from 140,081 to 136,720 over 2013. JTG remains the kingdom’s sole provider of fixed telephone lines. However, the TRC decided in its July 2010 “Fixed Broadband Market Review” to begin local loop unbundling.

Partnership

Work is continuing on a National Broadband Network (NBN) with funding from the GCC. Currently estimated to be about 35% complete, the NBN will aid the development of e-commerce, e-services, e-health and e-education schemes across the kingdom. The NBN aims to connect all schools, hospitals and government institutions into one network, enabling them to provide additional services to citizens. Jordan is looking to capitalise on the growth of electronic platforms by launching e-education initiatives to help raise the quality of instruction. One such project set to begin in 2014 is a three-year partnership with Barcelona’s Universitat Oberta de Catalunya, which aims to develop education standards through e-learning initiatives.

Outlook

The core health of Jordan’s telecoms industry is robust thanks to high penetration rates, strong competition and liberal regulation. However, the tax climate has created short-term challenges to realising its full potential. While data demand continues to rise sharply, partly due to Jordan’s growing tech start-ups and e-commerce sector (see IT chapter), the TRC remains in the delicate position of maintaining sector health by facilitating investments to foster innovation and improve service, all while avoiding putting too much pressure on providers’ margins. Deeper integration with EU mobile standards, furthermore, will help local regulators keep competition lively without curtailing growth.