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Middle East telecom market weathers the storm

Global economies have had to face the heat of recession in recent years. Sectors that were growing by leaps and bounds and were at a time the most sought after markets to invest in, turned to dust in no time. During such trying times, the only sector, which has remained unscathed, has been Telecom.

A recent study done by Frost & Sullivan on ‘Telecom Companies Capital Expenditure’ for Middle East and South Asia market reveals that this sector has shown resilience not only in the revenue generated by operators but also in their spending capacity. The sector will see investments in developing markets like India, Sri Lanka, and Bangladesh as well as in mature markets like the U.A.E and Saudi Arabia.

This Frost & Sullivan study states that the Telecom network in the U.A.E. is one of the most technologically advanced in the world with 3.5G (HSDPA) and 3.75G (HSUPA) networks being deployed. The introduction of a second operator in the U.A.E has led to some rationalization in tariff levels and also increased spending levels in the market. The country has one of the highest GDP per capita in the world and hence despite penetration levels being around 160 percent, ARPU of the operators will continue to be high. The total telecom spending in the UAE market was estimated by Frost & Sullivan at USD 1,263.8 million in 2008; is expected to decline with a negative CAGR of around 0.02 percent between 2008 and 2015 to reach USD 1,261.9 million.

Saudi Arabia is the largest country in the Middle East and also has the highest spending levels. The entry of new operators has spurred spending in the market. According to Frost & Sullivan, the total telecom spending in the Saudi market was USD 6,576.5 million in 2008 and is expected to decline with a negative CAGR of around 1.59 percent between 2008 and 2015 to USD 5,875.1 million. Broadband penetration is one of the lowest in the region; this segment will constitute a major portion of CAPEX of the operators in the next 3-4 years.

Girish Trivedi, Deputy Director, South Asia and Middle East, Frost & Sullivan states “While fixed line services will have lesser investment, mobile services are anticipated to constitute major CAPEX in the South Asia and Middle East region. Technological advancements like 3G will continue to spur the spending pattern. Investments in Broadband and Carrier networks and multimedia and value-added services will gain significant traction in these regions.”

The study also finds that the Indian market with its sheer size will continue to dominate the spending in the region. The total telecom spending in the Indian market was USD 21,553.1 million in 2008; this is anticipated to grow at a CAGR of 2.2 percent till 2015 to reach USD 25,128.9 million. The CAPEX will be driven by 3G operations that are expected to start in the next 1-2 years and the thrust on broadband and carrier services by incumbent larger operators.

The high competition amongst the Sri Lankan telecom companies market for a relatively small population of 20 million has impacted investments in the country. The spending was led by two big operators while other operators struggle to survive. Frost & Sullivan estimates that the total telecom spending in the Sri Lankan market was around $589.4 million in 2008; this is expected to grow at a CAGR of around 0.08 percent between 2008 and 2015 to reach $592.68 million. The end of the civil war has opened up the northern and eastern parts of the country thereby driving the country’s CAPEX levels.

The Bangladesh telecom market is plagued with taxation issues and the introduction of SIM tax has adversely affected growth in the sector. Most of the operators are partly owned by global telecom firms and hence spending capacity will be impacted in the next 1-2 years due to the current economic situation. In line with current trends, Frost & Sullivan estimates that the total telecom spending in the Bangladesh market was USD 1,744.9 million in 2008; is expected to grow at a CAGR of around 2.4 percent between 2008 and 2015 to reach USD 2,060.1 million. The growth in spending will be led by the foray into the untapped rural market.

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