Looking at recent data from the GSMA, it is easy to assume that the Middle East and North Africa is well ahead of the curve in terms of connectivity. Indeed, according to the GSMA’s ‘Mobile Economy – Arab States 2015’ report, there will be 350 million 3G and 4G mobile broadband connections in the Arab States by 2020, accounting for 69% of the region’s total connections by 2020 – and this is up from just 34% at the end of 2014.
But while these figures may paint a superficially rosy picture of internet penetration in the region, the report’s authors are keen to stress that levels of development across the region vary significantly. In this light, the telecommunications sector needs to face some challenges and focus on various regulatory issues to promote connectivity in the region. In order to encourage governments to promote mobile broadband, Jawad Abbassi, head of MENA and government and regulatory affairs at the GSMA, explains that the region needs to address spectrum harmonisation issues, revise taxation models and balance the OTT competition model.
The GSMA encourages governments in the region to adopt policies that will further accelerate mobile broadband adoption, for example by releasing more internationally harmonised spectrum; introducing incentives that encourage the deployment of infrastructure in remote and economically challenging areas; and revising taxation and regulatory policies that can negatively impact uptake of innovative new mobile services in the region.
John Hoffman, CEO and director for GSMA, says that governments in the region must take a more holistic look at taxation models. “You need to amend the whole taxation model, including OTTs. We need to think why the SMS is so heavily regulated while the OTT message option is not regulated. We need to reduce the regulatory constraints on operators. Taxations in many countries does not help to promote investment,” Abbassi adds.
“We do not believe in eliminating the taxation model. When the revenues are good, we [operators] can pay so that we are sustainable. We are looking for a reasonable tax structure that promotes investment but also increases GDP for the country,” Hoffman explains.
Abbassi says that the ideal scenario would be a market in which operators can continue to invest, consumers benefit from competition, and governments benefit form economic development and direct taxation. “If one of these three pillars do not work, it is when we are facing issues in the market and there are problems when investing in the future networks,” he explains.
Nevertheless, despite these issues, the GSMA report is positive and believes that there is a rapid migration to higher-speed mobile networks which is being driven by operator investments in 3G and 4G networks and rising smartphone adoption. The number of smartphones connections in the region is forecast to almost triple between 2014 and 2020, reaching 327 million, says the report.
According to the report, over the last four years, mobile operators across the Arab States have spent more than $40 billion on capital investments, or approximately 18% of total revenue. Investments have focused on improving network coverage, increasing network capacity, and deploying 3G and 4G mobile broadband networks.
When asked about where in the region we can find this scenario, the UAE comes to mind. However, there are some places in the Middle East and Africa where connectivity is not a reality. “Rural Egypt, rural Saudi Arabia and Sudan might be some places with this issue [not developed connectivity],” Abbassi explains.
As the GSMA report explains, the levels of market maturity vary considerably across the region in line with economic development; the Arab States are home to three countries — Bahrain, Kuwait and the UAE — that have penetration rates above 75%, but also four (Palestine, Sudan, Syria and Yemen) where fewer than half the population has a mobile subscription.
“You can look at other parts of the world where the GDP is very low and we have harmonised spectrum where they have balanced the investments along with the economic GDP growth and social economic benefits. We have very good case stories that you can apply to Northern Africa. You can have very good business models with relatively low income levels. There are examples around the world and we just need to replicate them,” Hoffman says.
“It is the role of the industry and the regulators to act on each specific scenario. The will need to identify what is not working why those areas are challenging. Infrastructure sharing or commercial agreements can be one way to face this or you can offer lower taxation for that area. There are some solutions and we need to think case by case. Luckily, in most of the Arab markets, we do not have that issue,” he adds.
As the GSMA explains, the mobile industry is also a key source of jobs and public funding in the region. It calculated that the industry directly and indirectly supported 1.3 million jobs across the Arab States in 2014, a figure expected to surpass 1.5 million by 2020, according to the GSMA.
The mobile ecosystem also made a total tax contribution to the public finances of the region’s governments of $12.6 billion in 2014, excluding regulatory fees and spectrum auction payments. This contribution to public funding will rise to $14.3 billion by 2020.