The expansion of ICT services and infrastructure to further innovate the market in Kuwait

The government’s New Kuwait 2035 strategy has signalled ICT development as a key pillar that is expected to attract investment and boost the local economy. While government data does not collate information for the broader ICT sector, it does show the contribution of the telecoms sector to GDP. In 2016 telecoms accounted for 7.7% of non-oil revenue and 3.92% of total GDP at constant prices, according to the Central Statistical Bureau (CSB).

Though its contribution to the non-oil sector grew to 8.2% in 2017, its GDP share dipped slightly to 3.86%; however, sector contribution to GDP is regaining momentum, with telecoms accounting for about 5% in the first half of 2018. The sector generated KD572.1m ($1.9bn) at constant prices by the end of the second quarter of 2018, a year-on-year growth of 34%, and its positive trajectory is expected to continue, backed by the expansion of three international mobile network operators in Kuwait: VIVA, Ooredoo and Zain.

Regulators

As with many countries, the telecoms sector in Kuwait has evolved from a state-owned postal and fixed-line telephone service to a more complex marketplace, with mobile phone operators experiencing rapid growth in the 21st century and adapting their business models to offer a more comprehensive range of technological services. The Ministry of Communications (MoC) traces its history back to 1956, five years before Kuwait gained independence, and until 2016 it offered the country’s only fixed-line telephony and postal services, as well as regulated the ICT sector, including mobile operators. In 2016 the Communication and Information Technology Regulatory Authority (CITRA) took over as sector regulator following an Amiri decree issued in 2014. CITRA has an independent board of directors and is charged with overseeing the country’s long-term economic development plan, in addition to managing fair competition, licensing, release of spectrum, national cybersecurity measures and smart government strategies.

Another regulatory body, the Central Agency for Information Technology (CAIT), was founded by Amiri decree in 2006. It is attached to the Minister of State for Cabinet Affairs, and is responsible for devising, developing and overseeing public sector e-services and initiatives, including the Kuwait Government Online Portal, the Kuwait Government Call Centre and the Kuwait National IT Governance Framework. CAIT has commissioned detailed surveys of the ICT sector and has established the data and disaster recovery centres used by government ministries.

Indicators

From 2007 to 2016, the latter being the most recent year for which data is available, there are contrasting results for government-owned landline services and privately owned mobile telephone operators. Over the period fixed-line subscriptions fell by 17% from 538,219 to 446,699, while revenues from international landline calls fell by 80% from KD106.4m ($352.8m) to KD21.6m ($71.6m). Of the international calls made in 2016, 30% were to Saudi Arabia, 20% to Egypt and 18% to the UAE, generating KD3.7m ($12.3m), KD3.6m ($11.9m) and KD2.2m ($7.3m), respectively, collectively accounting for 44% of all revenue from international calls.

In contrast to these contracting revenues and customer numbers, private mobile phone companies saw their subscriber figures increase by 168% from 2.8m in 2007 to 7.5m in 2016, while mobile internet subscriptions surged by 784% from 350,134 in 2008 to 3.1m in 2016. Fixed-line internet services have also grown, but uptake has been much lower than in the mobile marketplace. Although a complete data set for 2016 was not provided by the CSB, between 2007 and 2015 the number of available internet lines grew by 345% from 97,338 to 431,700, while internet subscribers expanded by 68% from 74,689 to 125,338. The total number of internet users increased from 457,960 in 2007 to 635,485 in 2015, while high-speed internet user numbers rose from 35,373 to 116,527.

Data collated by the UN’s International Telecommunications Union (ITU), which draws on government statistics, measured penetration of telephone and internet usage in Kuwait. Per 100 inhabitants there were 10 fixed-line subscriptions, 1.3 fixed-line broadband subscriptions, 133.1 mobile phone subscriptions and 254.4 mobile broadband subscriptions in 2017. The ITU also reported that 83.5% of households had a computer, 77.7% of households had internet access and 78.4% of individuals were using the internet. When comparing wireless broadband and fixed-line broadband access in Kuwait to ITU figures for other countries, it is apparent there is a stronger preference for mobile broadband and a slower uptake of fixed broadband services. The average use of mobile broadband in developed economies in 2017 was under 100 per 100 inhabitants, while fixed-line broadband was used by more than 30 people per 100 inhabitants.

Low levels of fixed-line broadband uptake may be a reflection of Kuwait’s demographics, with almost 70% of the population, or 3.1m people, being non-Kuwaitis. In Kuwait, foreign nationals are not entitled to own property and their residence visas are connected to employment, so they may be less inclined to invest in a broadband line for their rented property. In addition, 1.1m of foreign nationals live in collective households.

Among the 1.4m Kuwaiti nationals, there were 300,629 family homes as of June 2018, with 34% of citizens living in homes with 10 or more of their relatives, all potentially sharing one fixed-line broadband connection. In contrast, the results for mobile broadband penetration suggest that consumers have often owned more than one sim card or mobile phone number, enabling them to shop around for the best deals, and separate work and leisure commitments.

Zain

Founded in Kuwait as the Mobile Telecommunications Company in 1983, Zain remains the country’s leading operator. In its 2017 annual report, the company noted that it had 46.6m customers in eight countries across the Middle East and Africa. According to the report, the company had a 37% market share in Kuwait, with VIVA and Ooredoo accounting for 32% and 31% of customers, respectively. By the end of the first quarter of 2018 Zain reported its market share had increased to 39%, equalling 2.8m customers, while VIVA and Ooredoo held shares of 31% and 30%, respectively. Zain Kuwait remains the most profitable company in operation in the Zain international group and has the highest average revenue per user (ARPU) at $24, with 69% of its subscribers on pre-paid plans. In the first quarter of 2018 Zain Kuwait reported ARPU of $25.

More broadly, however, the company’s financial performance over the past years demonstrates a downward trend, which is reflective of the fierce competition in the telecoms market in Kuwait. Between 2016 and 2017 Zain saw an 8% drop in customer numbers, from 3m to 2.7m, and an 11% fall in net profits, from $298m to $265m. ARPU also fell over the same period, from $27 to $24. Nevertheless, the company grew its revenues by 2% to reach $1.1bn by the end of 2017. Of those revenues, 32% came from data consumption at an average of 1460 TB per day, with customers consuming an average of 18 GB per month. Across its international companies, including Kuwait, Zain reported total revenues of $3.4bn and a net income of $527m, demonstrating a compound annual growth rate of -6.1% and -8.9%, respectively, during the 2013-17 period. In the first three months of 2018 Zain Kuwait recorded revenues of KD259m ($858.7m) and net profits of KD42m ($139.2m), up 4.9% and 7.7%, respectively, on the first quarter of 2017. As of June 2018 the company reported a market capitalisation of KD1.8bn ($6bn).

Ooredoo

The Qatari-owned company Ooredoo began trading in Kuwait in 1999 under the name of Wataniya Telecom, and it is listed on Boursa Kuwait as the National Mobile Telecommunications Company. According to its 2017 annual report, Ooredoo Kuwait saw a 6% decline in subscribers from 2016 to 2017, and a 5% drop in the first quarter of 2018 compared to the same period in 2017. As of the final quarter of 2017 its customer base stood at 2.2m and it held a market share of 30.7%. Ooredoo attributed the decline in subscriptions to intense competition in the market, which affected its annual income. Company revenues hit KD222.7m ($738.3m), up 13% on 2016 figures; however, net income fell by 80% from KD11.3m ($34.5m) to KD2.2m ($7.3m). In the first quarter of 2018 there was an upturn in financial performance, with revenues increasing by 37% year-on-year from KD48m ($159.1m) to KD66m ($218.8m), which the company attributed to increased sales of handsets. Ooredoo saw a ten-fold increase in device sales in 2017 after deciding to focus on this aspect of the business as an additional revenue stream.

VIVA

The newest of the three mobile phone operators in Kuwait is VIVA, which began operations in December 2008, and listed on Boursa Kuwait in December 2014. In the course of a decade the company has made inroads into the market, claiming in its first quarter report for 2018 that it held a 32% share of both subscribers and mobile operator revenues, and 34% of net profits made by the three companies. Though the number of subscribers declined from 2.4m in 2016 to 2.3m in 2017, its annual revenues climbed from KD279.1m ($925.3m) to KD287.7m ($953.8m) and net profits from KD39.8m ($132m) to KD42.8m ($141.9m). VIVA estimated that the decline in the number of mobile subscriptions in Kuwait saw penetration rates fall from 227% to 200% by the end of 2017, but noted that this was the highest level for any country in the MENA region.

Telco Firms

In addition to the three aforementioned telecoms operators, there are two additional telecoms companies listed on Boursa Kuwait: AAN Digital and Hayat Communications. AAN Digital, formally known as Hits Telecom, is headquartered in Kuwait and focuses on acquiring stakes in mobile network operators in emerging markets. In 2017 AAN Digital recorded losses of KD6.9m ($22.9m), up from KD5.4m ($17.9m) in 2016. In the first quarter of 2018 the company recorded a loss of KD239,597 ($794,000), an improvement on the loss of KD357,122 ($1.2m) incurred in the same period in 2017.

Hayat Communications works in partnership with telecoms companies across the Middle East by supplying and installing towers, rooftop equipment, generators, as well as providing fibre and fibre-laying services. According to its 2017 annual report, company revenues increased from KD19m ($63m) in 2016 to KD22.5m ($74.6m) in 2017. In contrast, net profit declined from KD289,877 ($961,000) to KD187,365 ($621,000) over the same period.

Equity Shares

In many GCC countries, sovereign wealth funds and state pension plans own majority stakes in their country’s leading mobile network operators. This is not the case in Kuwait, where government bodies own just under 25% equity in Zain and VIVA. Indeed, in recent years largely state-owned GCC telecoms companies have increased their stake in the Kuwait market. In 2016 Saudi Telecom Company (STC), in which the Saudi Public Investment Fund and state pension organisations own more than 84% of the equity, increased its stake in VIVA from 26% to approximately 52%. The government of Kuwait owns 24% equity in the company through a number of different state funds, while the remaining 24% is owned by public shareholders.

In Oman, the government has a 51% stake in Omantel, which operates both mobile and fixed-line services. In 2017 Omantel became the second-largest shareholder in Zain Group, purchasing 9.8% of the issued shares in August for $846.1m before acquiring an additional 12.2% in November 2017 for $1.4bn, taking its total stake to 22%. Through Kuwait Investment Authority, the government of Kuwait remains the company’s largest shareholder with 24.6%.

In Qatar, state bodies own 68% of the equity in Ooredoo, while the sovereign wealth fund Abu Dhabi Investment Authority owns 10%. In the UAE, the state owns 60% of the equity in the Emirates Telecommunications Corporation and the Emirates Integrated Telecommunications Company, while in Bahrain state-owned holding companies and pension funds own 55% of Bahrain Telecommunications Company.

Over the Top

A key challenge for telecoms companies across the globe has been responding and adapting to the growth of over-the-top (OTT) applications, which have increasingly taken over traditional revenue streams from voice and messaging services. In 2017 global consultancy firm McKinsey estimated that OTT apps, such as Apple’s FaceTime, Facebook’s Messenger, Instagram and WhatsApp, and Microsoft’s Skype would capture a 60%, 50% and 25% share of messaging, fixed voice and mobile voice revenues, respectively, by the end of 2018.

Many telecoms providers in the GCC have been cushioned from these financial pressures by some of the world’s most restrictive regulations on OTT services, including voice-over-internet-protocol (VoIP) applications. VoIP services have been banned in the UAE, unless they are provided as a paid service by its own mobile phone operators, and are restricted in Oman and Qatar. Saudi Arabia lifted its ban in September 2017. The bans, or partial bans, on VoIP applications in these countries have helped protect revenue streams for largely state-owned companies such as STC, Omantel and Ooredoo; however, these companies have invested in telecoms firms in Kuwait, where consumers are free to use OTT services. As of September 2018 WhatsApp was the most popular free application for Apple and Android users in Kuwait, while Messenger, Snapchat, imo and Viber ranked among the top 20 for both mobile operating systems, according to global digital market intelligence company Similar Web.

Infrastructure Management

As they seek to adjust their business models to changing patterns of consumer behaviour, mobile network operators in Kuwait are placing more scrutiny on their capital expenditure on infrastructure. All three companies are committed to preparing for 5G technologies and have invested in network improvements, but they are also seeking to address costs associated with infrastructure management. In October 2017 Zain reached an agreement to sell and lease back its mobile tower network in Kuwait, making it the first deal of its kind in the Middle East. IHS, an international telecoms infrastructure company paid $165m for the network, a transaction which was approved by CITRA. In its 2017 annual report, Zain noted that the income, as well as future cost savings from the agreement, would enable it to invest in new technology and improve customer service. Zain operates 2292 network sites in Kuwait, including 1600 towers, and recorded $87m in capital expenditure on its network in 2017. IHS managed 23,300 towers in five countries across Africa, Europe and the Middle East at the time of the agreement.

Also in 2017, Ooredoo expanded its network in Kuwait, adding 160 new sites to reach over 1200 locations, while VIVA noted it had invested KD316m ($1bn) in infrastructure in Kuwait from the end of 2008 to 2017. In February 2018 CITRA announced its intention to support both mobile and fixed-line operators in sharing the burden of network expansion. Salim Al Ozainah, chairman and CEO of CITRA, told international media that 30% of the mobile towers in Kuwait are shared by operators, while 100% of lastmile, fixed-line infrastructure is shared by internet service providers (ISPs). He added that government departments, including the MoC, would be encouraged to share underutilised existing infrastructure – such as ducts, fibre-optic cables, towers and poles – with commercial operators.

Data Centre

In addition to a nationwide fibre-optics infrastructure, officials are also planning to construct a KD1.4bn ($4.6bn) solar-powered data centre to serve the information storage needs of its northern neighbours. The Tier-3 facility, with two dedicated 500-MW power stations, is expected to sit at the centre of a 20-sq-km ICT zone on Boubyan Island, which will also host 600 ICT firms, ranging from local start-ups to international companies. Plans for the facility are included in a feasibility study entitled “Silk City and the Islands”, which was commissioned by the Kuwait Direct Investment Promotion Authority to provide a blueprint for Kuwait’s economic diversification strategy over the next two decades. The study predicts that companies will be attracted to the ICT zone’s high-tech infrastructure, business-friendly environment and availability of skilled labour. An estimated 6900 people would work in the zone, 75% of which would be Kuwaiti citizens. This means that a quarter of the workforce is to be made up of foreigners, helping transform the zone into an international technological hub. The scope of the long-term plan illustrates Kuwait’s ambition to elevate the role of the ICT sector in the economy.

New Strategies

Given the shifting trends in the global telecoms industry, operators in Kuwait are offering services that might previously have been the domain of IT firms as they seek to diversify revenue streams and remain competitive. In 2017 Zain signed a KD22m ($72.9m) development, management and operation agreement with the Ministry of Electricity and Water (MEW) to develop connectivity support for its smart meters programme. The project is designed to provide the MEW real-time automated data on water and electricity consumption using automation and machine-to-machine technology. Zain will work alongside international partners including EY, Ericsson and NXN to construct and install smart meters over a two-year period and then manage their operation for a further five years, with the project expected to reach completion in 2024.

In 2016 Ooredoo signalled its move into the ICT sphere with the acquisition of Kuwaiti ISP FAST telco, and in 2017 the company launched a Tier-3 data centre offering cloud hosting and managed co-location services to help businesses reduce company expenditure on IT departments, while potentially improving their cybersecurity measures.

Fibre Optics

FAST telco is one of four ISPs using the fixed-line network provided by the MoC. QualityNet, bOnline (formerly Gulfnet) and KEMS serve residential, government and commercial customers, but all four rely on the MoC’s rollout of fibre-optic cabling, or a Gigabit Passive Optical Network (GPON), to enable them to offer speeds that can compete with mobile broadband services.

A progress update on Kuwait’s fibre-to-the-home (FTTH) services was presented at the FTTH Council MENA conference in Tunis in September 2017, which noted that the MoC had initially laid fibre to homes in 16 areas and that it hoped to have 50% of the country covered by the end of 2018 in its second phase, with plans to cover the entire population in its third phase. The GPON will offer speeds of up to 100 Mbps and enable the provision of internet protocol television. By September 2017, 14.6% of fixed broadband consumers in Kuwait were using higher speed fibre connections.

The three GCC countries leading the way with FTTH infrastructure are Saudi Arabia, the UAE and Qatar, with 3.2m, 1.5m and 400,000 connected homes, respectively, in 2017. The UAE has the highest number of subscribers at 1.6m, followed by Saudi Arabia with 729,000 and Qatar with 337,000. Kuwait’s plan was to reach 67,000 homes by the end of 2017 and 100,000 by the end of 2018. A swift rollout of the fibre network is vital if they are to retain and increase customer numbers. “Nowadays, customers are hungry for bandwidth and they are not satisfied with 2 Mbps or 6 Mbps, and so our only option is to put pressure on CITRA,” Essa Al Kooheji, chief commercial officer at QualityNet, told OBG. “Any delay would really weaken the position for fixed operators competing with mobile companies.”

Cloud Comparisons

The distribution of fibre networks was one of the factors used by non-profit industry association MENA Cloud Alliance to draw up its Cloud Competitiveness Index 2017, which assessed the six GCC countries. The status of network infrastructure falls under the connectivity pillar of the index, with scores also given for regulation, talent, government and business. Kuwait ranked sixth overall, and also placed sixth for government, talent and regulation. It has the fourth-most attractive business environment and the second-best connectivity, with some of its highest scores in telecoms infrastructure and affordability. Notably, Kuwait received the highest score among the six countries for business risk. Contrary to the country’s performance on the index, however, Microsoft sees Kuwait as a leader in cloud and technology adoption in the region. “The appetite for new technology is high in Kuwait, and we are working on our partner programme to engage with customers, and to offer training and knowledge transfer,” Charles Nahas, general manager of Microsoft Kuwait, told OBG. The entrepreneurial mindset of young Kuwaitis has spawned success stories such as Talabat and Carriage, app-based food delivery services developed in Kuwait and subsequently expanded. Both companies now operate under the umbrella of Delivery Hero, which is based in Berlin.

Outlook

The appetite of the young population has driven the early adoption of new technology in Kuwait, and with it, the demand for data-driven services. This has been met to date by the three mobile operators in an intensely competitive market place, but with plans to build new communities under way, fibre connectivity could play an increasingly important part in the infrastructure of new smart cities.