Steps forward: Plans are under way to expand services, upgrade networks and strengthen oversight

Since the year 2000, when the internet penetration rate was just 5%, the local IT market has come a long way. Nearly 40% of Kuwaitis are now online, with recent growth driven by mobile internet subscriptions. In 2004 the government released the National Strategy for Building an Information Society, which visualises ramping up the IT sector as a means of driving economic growth. The country has made substantial investments in technological infrastructure, and the public sector remains the biggest consumer of IT services; in the private sector, demand is still growing.

The country has some of the region’s highest prices for broadband access, though the government is taking action to ensure internet service providers (ISPs) bring prices down over time as the market develops. As residents and businesses demand faster internet, broadband network expansion will be essential and telecoms players are laying the groundwork for 4G.

ACCESSING THE INTERNET: According to the most recent data from the International Telecommunications Union, there were 1.1m internet users in Kuwait as of June 2010, or 39.4% of the population. This is up from 150,000 users, or around 5.8% of the population, in 2000 and 600,000 users, about 22.8% of the population, in 2005. “Demand will keep on increasing as people and companies are moving into e-business services. The market is getting more competitive and open,” said Khalifa Al Soulah, the managing director and CEO of Zajil Telecom, one of four ISPs in the country.

Some players believe there is still room for the market to improve, however. “Demand for mobile internet is being threatened by the restrictive nature of the service,” Waqar Qureshi, the senior manager for products and business development at Qualitynet, another local ISP, told OBG.

Indeed, compared to the rest of the Gulf, Kuwaitis pay a relatively high rate for broadband. World Bank data shows a monthly broadband subscription in Kuwait cost $46.27 in 2008, while the price in Saudi Arabia was $39.73, $26.69 in Bahrain and $21.53 in the UAE.

The Ministry of Communications (MoC) called on ISPs to lower their prices in June 2011. Customers subsequently reported on internet forums ISPs had instituted “fair usage” bandwidth caps to protect revenues and prevent users from abusing bandwidth access.

“Consumers have started to realise that mobile internet speeds are inversely proportional to the number of subscribers in a certain area and that there is a conservative cap on downloading,” Qureshi said. However, the MoC and ISPs reached an agreement in July 2011 to lower prices by 15-25% and remove bandwidth caps.

There are four major ISPs – Zajil Telecom, which is run by the MoC; Qualitynet; Gulfnet; and FAST telcom – and around 50 sub-ISPs operating in the market.

Sub-ISPs typically resell bandwidth bought from the major ISPs to customers via pre-paid cards. Internet cafes are also prevalent. In September 2010 the government announced it was formulating a draft law to establish a shareholding firm to offer WiMAX and internet access.

GOVERNMENT OVERSIGHT: Management of the IT sector falls under the MoC. While few countries in the region have their own ministry dedicated to information and communications technology (ICT), Kuwait is the only GCC country lacking a telecoms regulator as well, so there are no specific laws governing ICT enterprises. “Part of what may be holding Kuwaiti IT back from becoming truly competitive in the region and beyond is the lack of a dedicated regulator,” said Abdulaziz Al Gharabally, chairman of Al Alalamiah Technology Group, a regional IT company, told OBG.

However, the government has indicated a separate telecoms regulator will be established soon, and has stopped issuing licences to ISPs until this happens. In addition, in June 2011 a state official told local press that an ICT institute was being formed to study and address issues like expanding the broadband market.

Currently ISPs must block out sites featuring offensive content themselves. Internet cafes, likewise, are obligated to log their patrons’ names and identification numbers. However, according to local press, there are a number of loopholes that enable users to access illegal content. The MoC announced in May 2010 that, along with the Ministry of the Interior, it would establish a central monitoring system to block illegal content and to combat cyber-crime.

Voice-over-internet protocol (VoIP) has been banned since 2008. The MoC controls and collects revenue from the international call gateway, which is the only legal way for Kuwaitis to call abroad. However, VoIP programmes such as Skype can be accessed through proxy servers. As the UAE lifted its own VoIP ban in early 2011, there is hope Kuwait may soon follow suit.

MARKET REACH: Under the government’s National Strategy for Building an Information Society, ICT was recognised as a top priority. The Kuwait Financial Centre (Markaz) forecasts that in 2011-13 $16.5bn will be spent on ICT infrastructure, including telecoms equipment such as cables, hardware and software. Telecoms are expected to account for $12.7bn of the spending, with $3.74bn going directly to IT.

Mobile data traffic has sharply increased in recent years, putting pressure on available bandwidth. According to Zajil Telecom, there were 427,716 wireless broadband subscribers (including 3G, 3.5G and 3.75G) in 2010, up from 392,400 in 2009. The firm predicts this figure will reach 466,210 in 2011, 508,169 in 2012 and 553,905 in 2013. A much smaller percentage of the population opts for fixed-line broadband, with 127,351 DSL subscribers in 2009 and 136,266 in 2010.

Kuwait’s three telecoms operators (Zain, Wataniya and Viva) maintain 3G networks and advertise download speeds of up to 21.6 MB ps. Devices like the Blackberry, iPhone and iPad have amassed a large following, and in spring 2011 Viva and Wataniya launched the iPhone 4. The arrival of 4G, which allows for faster streaming and download speeds of up to 100 MB ps, is imminent, with Viva testing a long-term evolution network in 2010. In these trials, the company achieved download speeds of around 70 MB ps. Additionally, to accommodate rising demand across the GCC for highspeed internet, a deal has been signed for a new undersea cable system that will connect Kuwait, Bahrain, the UAE and Qatar. Indian telecoms firm Tata Communications will construct the 4469-km cable, which will start in Mumbai and end in Kuwait.

IT SPENDING: While personal computer usage is on the rise, hardware sales are driven by the public sector and, to a lesser extent, businesses. International vendors such as Apple and Dell account for the majority of computer sales. According to Business Monitor International, Kuwait is the third-largest computer market in the GCC, with sales totalling approximately $341m in 2010. Total IT spending was estimated at around $761m that same year.

Microsoft has established a strong presence in Kuwait, having signed a strategic partnership with the MoC in 2007. As a result of this agreement, all government departments use Windows and Windows-based software. A further three-year KD10.1m ($36.4m) licence agreement was signed in June 2011, allowing government agencies to update software and for government employees to use the products at home. The software giant is also fostering local start-ups through its BizSpark programme, launched in Kuwait in June 2011.

GROWING LOCAL INDUSTRY: The World Economic Forum’s “Global Information Technology Report 2010-11” placed the country 75th out of 138 countries on its Networked Readiness Index, a ranking based on ICT environments. This is one place up from 2009-10, but demonstrates that ICT is not being exploited to its full potential relative to GDP. Indeed, the report singles out Kuwait as “the only high-income economy outside the first half of the rankings”. While the country did relatively well in terms of individual ICT usage, it scored rather poorly (128th) in business readiness, indicating a need for better ICT staff training and university-industry collaboration for research and development.

The government is the biggest client for local IT companies, as private firms have been slower to integrate technological solutions. Al Gharabally of Al Alalamiah Technology Group told OBG the government accounts for around 85% of its business, and that, while there was some increase in private sector spending in 2010, businesses are still recovering from the effects of the 2008-09 global financial crisis. Due to the absence of a regulator, entry into the IT market is relatively easy, and smaller players have started to feel pressure from savvier large companies, many of which are foreign.

“There is a prevalent lack of advertising geared towards IT services. Any IT company has the opportunity to storm the market with creative advertisements and claim a leadership role,” Qureshi said.

However, there is still a need for more tailored solutions to increase businesses’ spending, and this is an area where local firms can excel. Qureshi told OBG, “It is imperative for IT companies to have a solution-based approach rather than a transaction-based one. Instead of selling ‘out-of-the-box’ packages, customers require a customised solution that fits their needs. Basically, a pay-for-what-you-use model.”

IT firms could also take the lead in dictating the need for IT exhibitions and seminars. “Active participation in these would give a leadership role to IT companies, hence creating word-of-mouth, which is a strong channel to market in a rather small country,” Qureshi said.

Others agree on the need for ICT outreach efforts. Al Soulah told OBG, “Education is integral to growth in the market, as we need to educate the customers about which technology suits their requirements and how new technologies will benefit them in the successful running of their operations and reduce communications costs, thus saving time and money.” In one such education effort, the National Technology Enterprises Company, run by the Kuwait Investment Authority, launched the Global Bridge Initiative at the start of 2011. In partnership with the US-based IC2 Institute and the University of Texas, the four-year initiative will train ICT entrepreneurs and help to commercially develop small and medium-sized enterprises. As of June 2011, a total of 24 Kuwaiti professionals had been trained under the Global Bridge Initiative, including eight at the University of Texas.

E-GOVERNMENT: The 2004 National Strategy for Building an Information Society included a roadmap to setting up e-government services. Eight years later, many government services are available via an online portal. Fixed-line telephone bills can be paid on the portal, as can water and electricity bills and fines for misdemeanours such as traffic and immigration violations. Citizens may also renew their IDs and business licences online and apply for construction projects.

However, “while there have been some successful projects in e-government, there needs to be unified national consolidation in this area for greater uptake to be achieved,” Al Gharabally told OBG. Ranking 10thhighest in Asia on the UN’s “2010 e-Government Survey”, and third highest in the Middle East, Kuwait was part of the 7% of countries surveyed maintaining an “updated calendar of events on e-participation that allows people to plan ahead of time if they want to participate.” Nonetheless, the e-government website is becoming more widely used, with traffic growing 44% year-on-year in the first quarter of 2011.

“Some 398,400 online users accessed the e-government website during the first three months of 2011, compared to only 276,000 during the same period last year,” said Ittihad Al Bahar, the chief specialist in applied systems at the Central Agency for Information Technology. A total of 55,000 e-payment transactions were made that quarter, more than double the 24,000 made during the first quarter of 2010.

OUTLOOK: Lower internet prices will help bring more Kuwaitis online, while interest in high-speed mobile internet is only set to grow in the future. As the third-largest ICT market in the Gulf, Kuwait has the potential to be a more competitive regional player by fostering a better business environment, especially through the creation of an independent regulatory authority.

“The future success of the Kuwaiti IT industry would seem to depend both on successful foreign partnerships as well as a more serious commitment to encouraging an entrepreneurial spirit,” Al Gharabally told OBG. With programmes in place to both foster IT start-ups and educate businesses on the benefits of new technology, the government is on the right track towards making the IT industry an engine for economic growth.