2010 Middle Eastern Digital Media, Broadband and Internet Markets

The broadband market in the Middle East is starting to move

Internet and broadband penetration rates remain low in many countries of the Middle East, access speeds are often relatively slow and tariffs are relatively high compared with other regions in the world but the region is making a strong push towards higher broadband penetration. The young population will be a driver for growth as they grow up with Internet use as the norm. In addition liberalisation and increased competition are producing a greater variety of services and mediums.

While broadband growth has taken off in the small, oil-rich and developed countries of the Gulf, wide income disparities across the Arab Middle East region as a whole are echoed by wide disparities in Internet and broadband penetration rates. Computer penetration levels are generally low. Qatar, Bahrain and UAE all have high household broadband penetration, particularly amongst nationals. The largest country in the region, Saudi Arabia, has low broadband penetration but it is rising quickly.

ADSL is the prevailing broadband Internet technology in the region. Only in Israel does cable have a significant market share. Services are provided by HOT Cable Systems Media, which is subject to the same broadband universal service obligations as is DSL network operator Bezeq. This has resulted in broadband being available to 99% of all households.

Much is being promised by WiMAX across the Middle East region. In Bahrain services from Zain Bahrain and Mena Telecom, both with country-wide networks, have rapidly gained over 30% market share. It is also having a significant impact in Saudi Arabia and Jordan.

All the GCC, Israeli and Turkish operators offer HSPA mobile broadband services. Saudi Arabia’s second mobile operator, Mobily, has claimed a 70% share of the country’s broadband market.

Fibre to the Home (FttH) is likely to revolutionise the broadband market in the most advanced countries. Both Israel and the UAE will have nationwide fibre networks in the next two years.

One of the reasons for slow Internet and broadband subscriber growth in Arab Middle East countries has been a lack of sufficient content in Arabic for users to need a high-speed broadband connection in their daily lives. There has been too much emphasis on hardware and the latest must-have gizmo and not enough on creativity. This is beginning to change with the increasing digital content produced by the flourishing Direct-to-Home (DTH) satellite TV sector, including entertainment, educational programming, news and sports. At least 60-70% of homes across the Middle East have access to multi-channel TV, much of it free to air DTH satellite. Around 70% of the 400+ channels are privately owned.

A further impetus was gained from the sale of Jordan’s Maktoob to Yahoo. This immediately prompted venture capital funds to take a greater interest in the sector. Advertising provides only a very small revenue for digital media companies. The UAE’s advertisers allot a 3.5% share of their budgets to online advertising compared to a regional average of 1%.

Market Highlights

Israel

Israel has one of the highest household broadband penetration rates in the world. Market competition is fierce, both between cable and DSL infrastructures and between ISPs. Competition is also fierce between Bezeq’s satellite TV subsidiary YES and cable TV operator HOT. Israel’s very high broadband penetration rate provides great potential for triple play and digital media market developments and competitors are manoeuvring for position.

Bezeq commercially launched an NGN in September 2009. It had 374,000 subscribers connected to the network at end-2009 and 580,000 by early May 2010 (around 25% of Israeli households). Bezeq plans to make the NGN available to approximately 50% of Israeli households by end-2010 and 90% of households by end-2012. The network is ‘fibre to the curb’ and allows for an up to 50MB bandwidth offering.

Jordan

Licensed WiMAX operators are beginning to make inroads into the Jordanian broadband market, with over 17% market share of the small broadband market by late 2009.

Jordan is an important base for regional digital media and Internet companies and seems to be particularly successful in breeding viable start-up companies. Whilst Dubai is home to the regional HQs of more established companies, Jordan’s cheaper operational costs, relatively open economy and pool of talent favour younger companies. The best known of these is the Maktoob Group. In August 2009, the Maktob.com portal, with its news, financial information and social networking services, was bought by Yahoo!, at a purchase price variously reported as being between US$75 and US$85 million. Services have been co-branded as ‘Yahoo! Maktoob’.

Saudi Arabia

The broadband market has been slow to grow in Saudi Arabia. Penetration rates for both fixed lines and ADSL are very low for the level of development, only partly due to large household sizes. This has provided fertile ground for the development of mobile and wireless broadband services, with alternative operator Mobily claiming to have the busiest HSPA network in the world.

Whilst few Middle East media companies are based in Saudi Arabia, most of the larger ones are Saudi owned, including the most watched FTA channel MBC, two out of the three regional satellite pay TV operators, and TV and digital media company Rotana.

UAE

Incumbent UAE telco Etisalat and alternative operator du are vying to offer faster broadband packages over a mixture of ADSL, mobile broadband and FttH in a market that already has one of the highest broadband penetration rates in the Middle East.

Etisalat’s FttH project, known as ‘eLite’, is being completed in phases. The first batch of Abu Dhabi subscribers received last mile FttH access in January 2008. By end-2009 Etisalat claimed to have completed 60% of the network. It expected to make Abu Dhabi “the first capital city in the world with 100% fibre deployment” by 2010 and at end-2009 had completed the roll-out for 85% of Abu Dhabi households. Completion of the entire national network is expected by 2011 at a total cost of AED5 billion.

Etisalat is building the network as a commercial decision, to enable its customers “to enjoy multiple high bandwidth applications such as IPTV and online gaming in an integrated single interface for landline, Internet and television-based services, providing a truly converged digital home experience”.

UAE governments, at both federal and emirate level, have been very interventionist, with programs to encourage computer and Internet use. Government policy has also included encouragement for media, IT and Internet related businesses and Dubai has become a regional centre for the industry. Around 25% of the region’s large DTH satellite TV industry is headquartered in the UAE.

Data in this report is the latest available at the time of preparation and may not be for the current year.