Telecoms in the Middle East: Looking beyond 2012

The past year has seen some interesting developments in telecommunications in the Gulf States. Further substantive developments will occur over the next 12 months.

• The Kingdom of Bahrain (Bahrain) continues to lead regulatory trends, recently undertaking one of the first major competition enforcements in the region.
• The State of Qatar (Qatar) has accelerated its next generation network rollout by creating a special purpose company, the Q.NBN.
• Meanwhile, the United Arab Emirates (UAE) will be one of the few countries in the world to have achieved ubiquitous fibre coverage.

While each of these Gulf States exhibits its own regulatory nuances, this commentary identifies a number of common themes and trends. The recent developments in these Gulf States illustrate the future direction and pace of reform in the Middle East more generally.

Bahrain is ranked as the 12th most liberalised economy in the world, reflecting its desire to attract international investment to achieve its Economic Vision 2030. Pursuant to its National Economic Strategy, Bahrain was one of the first Gulf States to liberalise its telecoms market. While Bahrain has the smallest telecoms market in the Middle East by population, its market is now one of the most competitive.

Bahrain Telecommunications Company BSC (Batelco) is the incumbent operator in Bahrain and is subject to substantial regulation based principally on dominance designations. The Telecommunications Regulatory Authority of Bahrain (TRA-B) takes a proactive and strict approach to enforcement of that regulation, informed by competition policy concerns. The TRA-B often leads regulatory trends in the Gulf and recently won an award as the most progressive regulator in South Asia, the Middle East, and North Africa.

Bahrain is currently finalising its third National Telecommunications Plan. The second National Plan set policy objectives to increase competition, investment, and broadband usage, promote convergence and protect consumer interests. The third National Plan is expected to continue this emphasis but with a greater investment, innovation and competition focus. The TRA-B sets strategic priorities to give effect to the National Plan. For 2012, the TRA-B’s priorities are to promote competition, protect consumer interests, and address technological change.

During the last 12 months, a number of regulatory developments have occurred in Bahrain that reflect current trends and ‘hot topics’ in the Gulf region and Middle East more generally:

• New fibre deployment: In July 2010, the Government announced that the Bahrain Electricity and Water Authority would deploy a Bahrain National Broadband Network (BNBN). The BNBN is independent of Batelco and will involve the supply of wholesale bitstream services to licensees on an open access basis. However, deployment of the BNBN has been delayed and hence is not as advanced as in other Gulf States. The timing for Bahrain’s rollout will likely be determined by the third National Plan.
• Greater infrastructure access: Bahrain has more liberalised markets than other Gulf States, so has greater scope to promote competition by facilitating access to legacy infrastructure. In mid-2011, the TRA-B mandated local loop unbundling (LLU) in Bahrain with the objective of stimulating greater broadband competition via competitive ADSL deployment. ‘Other Licensed Operators’ (OLOs) may now access Batelco’s copper access network at regulated prices on a non-discriminatory basis.
• Implementation of number portability: In July and October 2011 respectively, mobile and fixed number portability commenced in Bahrain. Number portability is intended to increase competition by reducing impediments to customer churn between different licensees. Bahrain is the first country in the Middle East and North Africa to implement fixed number portability (FNP) and one of the first in the Middle East to implement mobile number portability (MNP).
• Continued economic regulation: Bahrain imposes extensive wholesale and retail price regulation on Batelco, linked to dominance designations. As competition has evolved, those designations are being progressively removed. However, determination of regulated prices has been a controversial matter. In December 2011, the TRA-B issued its final position paper on a new ‘bottom up’ cost modelling framework. The TRA expects to have completed development of its cost models by mid-2012. The framework focuses on economic costs, rather than accounting costs, as a means of determining prices and is more consistent with international best practice.
• Enhanced consumer protection: In January 2012, the TRA-B issued Consumer Protection Guidelines. The Guidelines are unprecedented in the region in their commitment to addressing consumer rights, consumer choice and consumer communications.

During 2011, the TRA-B also conducted one of the Gulf’s first complex competition investigations, again symptomatic of Bahrain’s more liberalised markets. The TRA-B deregulated Batelco’s retail mobile tariffs in early 2010. A new mobile licensee, Viva, entered the market and offered promotional “90 per cent off” pricing for calls to selected international destinations. Batelco responded by reducing its own retail mobile tariffs. Following wholesale customer complaints, the TRA-B issued an emergency order and commenced investigating an alleged vertical price/margin squeeze. The TRA-B issued notices of its investigation to Batelco and Viva in 2011. A final decision is pending.

Qatar has the world's highest per capita GDP and is one of the world’s fastest growing economies. During 2011, Qatar’s telecoms markets experienced significant growth, driven by expansion of access to broadband services and by increasing mobile subscriber penetration. Around two thirds of telecoms services in Qatar are now mobile-based.

Qatar’s telecoms sector is not yet fully liberalised and is still heavily regulated. ictQATAR is the independent industry regulator in Qatar. Qatar Telecom (Qtel) QSC (Qtel) is the incumbent fixed and mobile network operator. The second licensee, Vodafone Qatar QSC (Vodafone), operates competing mobile infrastructure with a fixed network deployment underway. ictQatar has indicated it will consider licensing a third fixed operator during 2012 and may also consider whether a third mobile operator is required.

In June 2011, ictQATAR published Qatar‘s National ICT Plan 2015 as a roadmap for ICT sector development over the next five years. The Plan is aligned with Qatar‘s National Vision 2030. Key objectives include increasing the ICT share of GDP, doubling the ICT workforce, achieving 90% Internet adoption, moving government services online, and deploying high-speed broadband services to 95% of households in Qatar.

During the last 12 months, regulatory developments in Qatar were broadly consistent with those in Bahrain, but with some unique Qatar-specific nuances:

• New fibre deployment: In July 2011, ictQATAR authorised Qatar National Broadband Network (QNBN) to deploy passive fibre-to-the-home (FTTH) infrastructure on a wholesale open access basis. The QNBN is intended to supplement and accelerate Qtel’s and Vodafone’s fibre rollouts on an ‘infill’ basis, rather than duplicating those rollouts. Unlike Bahrain, Qatar is deploying fibre via a dedicated State-owned entity rather than an existing network utility.
• Greater infrastructure access: Qatar is favouring fibre-based local access competition between its two fixed licensees rather than copper LLU. QNBN intends to supply Qtel and Vodafone Qatar with wholesale bitstream access over the QNBN, thereby facilitating competition where QNBN deployment has occurred. In non-QNBN areas, Qtel and Vodafone will require reciprocal bitstream access to each other’s networks.
• Implementation of number portability: Following Bahrain’s lead, ictQATAR has been working with Qtel and Vodafone to implement MNP in Qatar. At this stage, MNP is expected to be launched in Qatar in the first half of 2012. FNP will use the same platform as MNP and its launch should follow shortly thereafter.
• Continued economic regulation: Over 2010 and 2011, ictQATAR reviewed its historic market definition and dominance designations, providing the basis for imposition of key regulatory obligations. Qtel continued to be designated as a dominant service provider (DSP) in all 14 retail and wholesale markets recognised in Qatar. Vodafone continued to be designated a DSP in the two wholesale terminating markets. As Qatar’s markets are less liberalised, there is less scope for regulatory rollback based on the development of effective competition.
• Enhanced consumer protection: As with Bahrain, Qatar focussed on enhancing consumer protection. In October 2011, a new consumer affairs department was created within ictQATAR, with a dedicated call centre. The department is tasked with ensuring that telecoms consumers are made aware of their rights and have an appropriate avenue for complaint.

During 2011, a controversial enforcement action by ictQATAR resulted in the Virgin Mobile brand departing the Qatar market. Virgin Mobile had licensed Qtel to supply Virgin Mobile branded services. Vodafone complained that such branding was misleading as it created an impression there was a third mobile licensee. ictQATAR agreed with Vodafone and directed Qtel to cease using the Virgin Mobile brand.

As with its neighbours, the UAE has one of the world’s highest per capital incomes. The UAE is currently ranked as the 14th best nation in the world for doing business, based on its economy and regulatory environment. The UAE has relatively mature telecommunications markets serving business centres in Abu Dhabi and Dubai that act as a hub for the Middle East region and surrounding nations.

As with Qatar, the UAE telecoms sector is not yet fully liberalised and is heavily regulated. The Telecommunications Regulatory Authority of the UAE (TRA-U) is the independent industry regulator. Emirates Telecommunication Corporation (Etisalat) is the incumbent fixed and mobile operator. Etisalat provides fixed access in most areas of the UAE and operates a 4G LTE mobile network. The second licensee, Emirates Integrated Telecommunications Company PJSC (Du), operates a rival 3.75G HSPA+ mobile network and owns significant fixed infrastructure in the ‘free zones’ and new housing estates of Dubai. A number of satellite providers have also been licensed to provide services.

During the last 12 months, regulatory developments in the UAE were broadly consistent with those in Bahrain and Qatar, but with some unique UAE-specific nuances:

• New fibre deployment: The UAE commenced fibre deployment at an earlier state than Qatar and Bahrain. Du’s fixed network was initially deployed as FTTH. Etisalat will shortly complete its FTTH upgrade, making the UAE one of the first countries in the world to achieve ubiquitous fibre coverage.
• Greater infrastructure access: As UAE local access infrastructure is fibre-based, there is no need for copper LLU and the TRA-U has instead favoured wholesale bitstream access. In December 2010, the TRA-U directed Etisalat and Du to provide reciprocal bitstream services to each other, thereby enabling each operator to use the other’s fibre access network. A limited ‘soft launch’ of wholesale bitstream occurred in 2011 and a full commercial launch is due in 2012.
• Implementation of number portability: While the TRA-U looked to launch MNP earlier than Bahrain, significant delays have occurred in its practical implementation. MNP is finally due to be launched in the UAE in early 2012, although Du has successfully realised a near 50 per cent market share in mobiles without it. FNP is due to be introduced by the end of 2012.
• Continued economic regulation: Economic regulation in the UAE is less advanced than in Bahrain and Qatar. Over 2009 and 2010, the TRA-U issued policies addressing ex ante and ex post regulatory safeguards. During 2011, the TRA-U determined the relevant markets in the UAE for the purposes of applying those policies and undertook public consultation on its proposed market power designations. The TRA-U issued its competition assessment of the relevant markets on 29 March 2012 and held that regulatory remedies were required in all markets, although the mobile access and call origination market is becoming increasingly competitive. The TRA-U is currently consulting on the regulatory remedies.
• Enhanced consumer protection: Consistent with the greater focus on consumer protection in Bahrain and Qatar, the TRA-U published draft Consumer Protection Regulations in August 2011 and commenced public consultation. The final form of the Consumer Protection Regulations will likely be promulgated during 2012.

Unlike Bahrain and Qatar, the UAE did not experience a major enforcement action during 2011. The TRA-U’s threat to suspend Blackberry services in the UAE during 2010 was the most controversial recent development. That threat involved a directive given to Etisalat and Du that they were required to suspend the supply of Blackberry Messenger, Blackberry Email and Blackberry Web-browsing in the UAE on 11 October 2010 if certain interception requirements were not met. Following negotiations with Research in Motion, the TRA-U removed its directive on 8 October 2010, a few days before the date for implementation of the directive.

Given the above comments, we can expect the following developments in 2012 and beyond:

• New fibre deployment: Bahrain, Qatar and the UAE are each deploying fibre, but under different rollout models and time frames. The UAE should shortly achieve ubiquitous fibre deployment. Qatar will reach an advanced state of deployment by the end of 2012. The timing for Bahrain’s rollout will depend on the approach adopted in its third National Plan. The different rollout models adopted in the Gulf States illustrate that Governments are more likely to become involved in fibre rollouts where a faster pace of fibre rollout is required or the private sector is unwilling to rollout fibre to less profitable geographic areas.
• Greater infrastructure access: Fixed market competition will occur in Qatar and the UAE via wholesale bitstream access. Bahrain will also experience ADSL-based broadband competition via copper LLU services. The approach adopted in the Gulf States illustrates that where fibre rollout is advanced, bitstream-based competition may be preferred in other Middle East jurisdictions. However, where copper remains as the primary access infrastructure, LLU may still be perceived as a more effective means to stimulate competition.
• Implementation of number portability: The UAE and Qatar should join Bahrain in implementing MNP and (potentially) FNP. We would expect other Middle East jurisdictions to follow this trend, to the extent they are not already doing so.
• Continued economic regulation: Economic regulation remains at different stages of evolution in the different markets. The UAE will continue to implement regulation. Qatar and Bahrain will continue to refine its application. Bahrain will also continue to assess whether selective rollback is required. In the wider Middle East, most nations remain at the implementation and refinement stage. As competition develops in the more liberalised markets in the region, we should expect regulatory rollback to progressively occur in a manner consistent with the approach adopted in Bahrain.
• Enhanced consumer protection: Each of Bahrain, Qatar and the UAE is focussing on consumer protection to a higher degree. Again, we expect greater consumer protection to be a trend that flows into other Middle East jurisdictions.

We hope this commentary is useful. Please contact the authors if you have any questions or require any further information.