The right call: Mobile remains a sector highlight, while 3G access boosts demand

The telecoms market in Jordan benefits from being largely liberalised and highly competitive, particularly in the mobile sector, which dominates the voice and internet segments in terms of subscriptions. In the early days of mobile phone technology Jordan was something of a pioneer, but fell slightly behind on the implementation of 3G. However, by the end of 2012 all three operators will offer advanced forms of the service, with one committed to launching an LTE/4G LTE service within three years.

The main story of 2011 was the rapid uptake of mobile broadband, which contributed to significantly increasing internet penetration rates, as a second company entered the 3G segment with the launch of an HSPA+-based network in March. The authorities are planning several measures to support and increase competition in a number of segments.

Total telecoms revenues for 2010 were $1.19bn, according to the Information and Communications Technology Association of Jordan (Int@j). Investment stood at JD219.8m ($309m) in 2010, according to the Telecommunications Regulatory Commission (TRC), well above previous years. Of this, JD124m ($174m, 56%) went into the mobile segment, followed by JD80m ($112m, 36%) into internet. Jordan Telecom, the historical state incumbent that continues to operate the fixed network, posted revenues of $505.8m in 2011, down from $514.2m in 2010.

MARKET PLAYERS: There is currently one fixed operator, as well as three mobile operators, active in the country, all owned by foreign firms. Jordan Telecom controls the fixed network and also operates a mobile network through its subsidiary, Orange. The company was originally state-owned but the government gradually divested its stake between 2000 and 2008. France Telecom owns a 51% stake in the firm.

Other key shareholders include the Social Security Corporation, Noor Financial Investment Company and the Jordanian armed forces. In addition, 7% of the company’s shares are listed on the Amman Stock Exchange. Zain Jordan is owned by Kuwait’s Zain, which acquired the company, then known as Fastlink, in 2003. Jordan’s third full mobile operator is Umniah, which is 96%-owned by Batelco of Bahrain. A fourth operator, XP ress, launched an integrated digital enhanced network (iDEN)/push-to-talk service in 2004 and had an estimated market share of less than 3% at the end of 2009. The firm suspended operations in 2010 and had its licence suspended in early 2011 by the TRC. Telecoms firms employed 4739 people in 2010, according to Int@j. This was down on previous years; the figure stood at 5756 in 2009.

MOBILE: As the second country in the region – after Qatar – to launch GSM services, Jordan started out as something of a pioneer in the mobile sector, which has flourished as a result. “Jordan’s early entry into the GSM market is why the kingdom now has high voice penetration, especially when compared to Egypt, Syria and Lebanon,” said Eyad Abukhorma, the CEO of telecoms solutions provider Damamax. Total active mobile subscriptions stood at 7.5m at the end of 2011, up from 6.6m a year earlier, according to the TRC. This gives a mobile penetration rate of 120%, up from 108% at the end of 2010 and 78% five years earlier. However, penetration at the end of the year was more or less unchanged on the third quarter, suggesting that penetration growth is beginning to slow. “The room for growth in the traditional voice segment is limited,” Ahmad Hanandeh, the CEO of Zain, told OBG.

There were only 698,281 postpaid subscribers at the end of 2011, representing 9.2% of the total GSM subscribers, according to the TRC. However, postpaid is slowly gaining market share, having increased from 8.4% of total mobile subscriptions at the end of 2010. While growth in prepaid began to slow in 2011, the rapid uptake of 3G in the country means that more customers may seek post-paid deals. “Several trends in the market are benefitting consumers, including the ongoing roll-out of next generation handsets and services, reduced smartphone taxes and rising internet penetration,” Ihab Hinnawi, the CEO of Umniah, told OBG.

The mobile market in Jordan is highly competitive. The Arab Advisers Group ranked the kingdom as having the region’s second-most-competitive mobile phone market in its 2011 Cellular Competition Intensity Index, with a score of 75.4%, just behind Saudi Arabia on 76%. Jordan fell from first place in 2010, when factors such as the number of operators, the market share of the largest operator and the availability of 3G gave the market a score of 80.7%.

RECENT EVENTS: Perceptions that the market has become less competitive may be related to the suspension in October 2010 of mobile services iDEN push-to-talk operator Xpress Telecommunications. The firm announced in late 2011 it would soon resume services, having found a new investor. However, in January 2012 the TRC revoked the company’s licence after it failed to pay debts to the government, though the regulator left the door open for its licence to be returned should it make the outstanding payments. Xpress’s troubles make it a potential acquisition target for firms wishing to enter the sector, as any purchase would include its licence should debts be cleared.

COMPETITION: The most notable consequence of this high level of competition is low prices, in particular on the voice side; prepaid tariffs in Jordan were the second-lowest in the Arab world after Egypt in 2009, according to research by the Arab Advisers Group. Competition in the dominant prepaid market is so intense that the average price for prepaid calls is, unusually, lower than that of post-paid calls.

Another indication of the competitiveness of the market is that no individual operator truly dominates the segment. At the end of 2011, Zain was the market leader according to TRC data, though only just, with 2.75m subscribers, or a market share of 36.8%. The company is more dominant in the (much smaller) post-paid sector, where it had a market share of 57.9%. In second place in terms of overall market share was Orange, with 2.69m subscribers, though it was the leader in the prepaid segment, with a market share of 36%, a whisker ahead of Zain. Umniah ranked third, with a total of some 2.04m subscribers, equivalent to a market share of 27.2%, of which just 46,327 were post-paid customers.

While there is little expectation of another full operator entering in the near future, virtual operators seem set to intensify competition in the mobile market. Jordan put in place a regulatory framework for mobile virtual network operators (MVNOs) in 2008, and 2010 saw the entry of the first operator in the segment when Friendi Mobile, which had previously launched MVNO operations in Oman, signed an agreement with Zain and launched services in the second quarter. However, the TRC appears to have ordered it to halt operations in August against the backdrop of a complaint by Umniah regarding the agreement.

The TRC’s chairman of the board and CEO, Mohammad Al Taani, told OBG in March 2012 that Friendi was in the final stages of preparation for its relaunch and that he expected it to begin operations soon, with the potential for other entrants in the future. “Expected entrants are waiting to see how well the first operator’s service will be taken up,” said Al Taani.

MOBILE BROADBAND & SERVICES: In 2010 Orange became the first Jordanian operator to launch a 3G service, followed by Zain in March 2011. Umniah brought its 3G service, Evo, to market in late June 2012. 3G uptake is growing rapidly, driving a rise in internet subscriptions and penetration, particularly since Zain joined the market, with Umniah’s entry set to boost it further. Orange has also announced plans for an LTE service within three years (see analysis).

With fixed penetration falling, signs that the mobile voice market is becoming saturated, and the roll-out of 3G allowing for more sophisticated products, the development of mobile content is becoming an increasingly important revenue driver for operators. “New sources of revenue will come from internet services that can deliver the latest data and multimedia offerings. In this context, we are dependent on application developers and creative content providers,” Hanandeh told OBG. Jordan is well placed to become a regional mobile content centre, given overlaps with the IT sector, in which it is a regional player.

There are 35 licensed companies focused on producing mobile content in Jordan, Issa Fakhoury, the general manager of Arabiacell, told OBG, though there are only three or four large players in the segment. “Islamic content is a major growth market,” Bashar Hantouli, the CEO of Beecell, told OBG, noting that the segment accounts for some 35% of its total sales.

Mobile financial services are also starting to take off. For example, in early 2011 Zain, working with Middle East Payment Services, launched its E-Mal mobile wallet service, which, in addition to allowing customers to undertake activities such as mobile top-ups and bill payments, can be used to make payments at over 6000 retail outlets and to send money to friends and family. The company has also teamed up with Jordanian microfinance lender Tamweel.com to allow customers to pay loan instalments via the service, and said it would be expanded to allow international remittances and utility bill payments.

In mobile marketing services, a shortage of information is a constraint on development. “It is difficult for content providers to precisely target specific consumer segments. Generally, marketing is conducted through mass SMS campaigns,” Hantouli told OBG. The problem is partly a cultural one. “Some operators have customer profile information, but heads of families often put all of the lines being used by various family members in their names, making gathering information difficult. People also change SIM cards a lot given that you can get a new line for same cost as buying new phone credit. Things are improving – some mobile applications get profile information by connecting to customers through social media for example – but it will take time.” In January 2012, in a move towards more targeted services, Umniah formed an agreement with Telecom Enterprise to launch a WAP-based tailored mobile advertising service.

FIXED: Jordan Telecom is the country’s sole fixed-line operator. Penetration is low and continues to fall as the mobile segment becomes increasingly dominant. Customers also have a range of alternatives to choose from, such as Voice over Internet Protocol (VoIP) and WiMAX, which can involve lower set up costs. Fixed subscriptions fell from 439,919 in the first quarter of 2011 to 419,533 in the same period of 2012, dropping from a penetration rate of 8% to 6.7%, according to the TRC. Penetration is down from 11% in 2006. Residential lines, which account for two-thirds of subscriptions, fell slightly faster than business line usage during 2011. Investment in the fixed segment stood at JD15m ($21.1m) in 2010 according to the TRC, down from JD24m ($33.7m) the previous year and representing just 7% of total investment in telecoms.

While Jordan Telecom currently controls the fixed network, the TRC is working on a local-loop unbundling project, which Al Taani said should be achieved in 2012, following a market review that began in 2010. “We are hoping loop unbundling will open new business opportunities that will contribute to the growth of the fixed segment,” said Al Taani. Unsurprisingly, later entrants to the market want this to happen as fast as possible. “For a fair regulatory environment, fixed technology needs to be available to all, whereas currently it is owned by the incumbent,” said Khaled Nuseibeh, the consumer marketing director at Zain. “You cannot have fair competition in the segment while this remains the case.” However, some are sceptical that this will happen, saying that plans to unbundle local loops have been in the pipeline for years and that the incumbent is resisting the plans.

REGULATION: The telecoms industry is regulated by the TRC, which was established in 1995 in accordance with the Telecommunications Law passed the same year, while the Ministry of Information and Communications Technology (MoICT) is responsible for formulating policy for the sector. “Jordan’s telecoms industry evolved in three stages: first, monopoly in the early 1990s; second, the transition to competition in the latter part of that decade; and third, a maturing market with a high degree of mobile penetration, which is where we are now. The current stage is also defined by new technologies and the introduction of 3G+ services,” Al Taani told OBG. “The main focus in the next phase will be on smart regulation, with a focus on allowing competition rather than regulation to lead, in particular in the mobile market,” he said.

Ensuring that competition continues to thrive is a key objective for the TRC. “We are constantly looking to identify any presence of dominance and to implement industry best practice in terms of imposing remedies and decomposing any such identified dominance” said Al Taani. Recent regulatory developments include the relaunch by the TRC of a consultation on mobile number portability (MNP); the body previously carried out a similar exercise in 2003. Speaking in March 2012, Al Taani said the consultation was due to be completed in the second quarter of 2012, adding that there would be no need for new legislation for the TRC to issue instructions mandating MNP.

Late 2011 saw the TRC and the EU conclude an agreement on a twinning programme to strengthen the TRC’s regulatory capacities. Under the programme the TRC will work with a consortium of regulators from France, Italy and Spain for two years, with a focus on issues such as digital broadcasting and management of digital dividend, conducting market reviews and legal framework approximation and convergence.

One complaint some industry figures make about the legislative and regulatory framework is that licence taxes on the sector are too high. Operators pay 10% of revenue to the government under the country’s telecoms revenue sharing scheme, plus up to another 1% to fund the TRC’s operations, in addition to licence fees. “Taxes, new players in the market, new regulations, revenue share and other governmental fees are our main concern,” said Khaled Hudhud, the director of government relations at Umniah. Telecoms firms pay a corporate income tax rate of 24%, compared to the standard rate of 14%, and customers pay 16% sales on mobile voice calls, plus a “special tax” that was raised in 2010 from 4% to 8% and then again to 12%, resulting in the highest telecoms sales tax rate in the region according to a 2011 study by the Arab Advisers Group. Deloitte’s annual “Global Mobile Tax Review” put tax as a proportion of the total cost of mobile ownership at 23.4%, apparently based on figures before the special tax was increased.

CALL CENTRES: Jordan has a rapidly growing call centre industry, which generated revenues of $2.8m in 2010, according to Int@j. Around 75% of this was accounted for by exports. The segment is dominated by two business processing outsourcing (BPO) firms, CrystelCall and Extensya. “Jordan is still only a 1000 seat or so outsourcing market but just two years ago the figure was around one-third of that,” said Ramez Kalis, the CEO of CrysTelCall. Some 80% of CrysTelCall’s business is in the voice call segment, and the firm has plans to employ many more people in the coming years. “As a relatively new sector, the call centre industry is continuing to expand quickly despite a difficult wider economic situation,” said Kalis. Indeed, economic problems may actually help support the growth of the industry. “The crisis will likely bring more business to call centre companies, as outsourcing can reduce costs and improve quality. Previously, firms were investing in building their own infrastructure, but now they are outsourcing to avoid the big initial investment necessary,” Kalis told OBG. Telecoms firms are among the key clients: for example, in March 2012 Orange Jordan announced that it would be outsourcing some call centre traffic to CrysTelCall.

Jordan has a significant advantage as an exporter of call centre services to the region in that the local accent and colloquial spoken Arabic are closer to those in the Gulf – the main market in the Arabic-speaking world for BPO services – than most other forms of spoken Arabic. The industry is also competitive in other aspects. “Egypt entered the BPO sector before Jordan, has a much larger population and is slightly cheaper, but we are very competitive given the availability of skilled labour, good-quality technology and infrastructure, and a fully liberalised telecom market that allows for services such as VoIP,” said Kalis.

Recruitment of skilled candidates for Arabic-speaking positions, which account for 70% of the firm’s business, is not an issue, but it can be harder to find staff for English-speaking roles. “We give additional language training to recruits, but we need candidates who are already at a good level – which can be hard to find – or the training costs would be prohibitive,” Kalis told OBG. The industry is working with partners such as the government and the US Agency for International Development to make more language training available for graduates. “The government realised the impact call centres could have on unemployment and is stepping up help to the sector,” said Kalis.

OUTLOOK: With the mobile segment highly competitive, the decline in fixed-line penetration appears set to continue, though the completion of plans for local-loop unbundling could boost competition. The rapid growth of mobile voice penetration is likely to slow. Conversely, mobile broadband use is set to continue to grow in 2012 and beyond, with Umniah’s entry further shaking up the market. “With average revenue per user declining, the industry can head in one of two directions: first, towards continuous innovation based on launching new products and services: second, towards price wars and unhealthy competition,” Nayla Khawam, the CEO of Orange Jordan, told OBG.

Expanding 3G access and the reduction in tax on smartphones are also likely to stimulate further demand for mobile content, a segment that is well placed to grow rapidly given the overlap with Jordan’s booming IT industry. Competitive advantages suggest the call centre market may grow further as well.

Since Jordan’s first 3G network was launched in 2010, and especially since the arrival of competition with the launch of a second network in March 2011, 3G subscriptions have risen very rapidly. Uptake of the service is driving major growth in internet subscriptions and penetration. The increasingly sophisticated 3G market is also stimulating a range of other ICT segments. Although data costs remain comparatively high, the planned entry of a third player to the segment will bring further competition at a time when operators are also starting to look ahead to the eventual launch of the next generation of mobile internet.