Telecom Sector Update September 2011 - Cairo Amman Bank sector 2011.pdf · telecom market is the...

Telecom Sector Update

September 2011

Prepared by: Research Department Cairo Amman Bank

Research Department

Firstly: Sectoral Review

The Jordanian telecom sector is considered one of the fastest performers during the last decade.

However, the telecom market started to witness slower growth and fewer revenues last year

due to some combined factors starting from the slowdown that hit the Jordanian economy, the

deteriorated purchasing power of the Jordanian citizen in addition to the fierce competition

amid the market participants that is somehow affecting the prices.

The fixed phone market is facing persistent 6 year decline according to the data issued by

Jordanian Telecom Regulatory Commission stemming from the intensive substitution of cellular

phones.

Nonetheless, mobile phone services remained the cash cow and major revenue source of the

telecom industry supported by the rapid modernization of services and the introduction of G3

services. Mobile penetration rates continued to increase reaching 108% in 2010 and 112% in the

first quarter 2011. If we calculate the penetration rates of mobile phones over the population of

15+, the rate will substantially edge higher to 168% in 2010 and 173% in the first quarter of

2011.

Internet services market still has huge potential buoyed by increasing household and business

usage of internet lines yet this subsector remains hindered by numerous small investments and

limited purchasing power in addition to limited internet literacy in the rural and desert areas

outside the capital.

However, we can't deny that the transport and telecom sector- as classified by the Central Bank

of Jordan- contributed around 13.85% to national GDP in 1st quarter 2011; 10% a direct

contribution while the rest is indirect contribution as added value to other sectors.

Research Department

Source: Department of Statistics

Concerning the structure of the sector, Jordan has one of the most deregulated

telecommunications market in the MENA region, in our view. It began liberalising its telecom

sector in 1995, when a new Telecommunications Law was passed creating the

Telecommunications Regulatory Committee. Many legal changes came up during that period but

still these changes did not provide the needed framework to boost this sector .

Currently, there is one fixed line provider, three highly competitive mobile services providers

while the fourth ending its services, eleven providers of ADSL services and 5 Wi-Max service

providers. Moreover, Zain and Orange offer advanced internet services through the mobile

phones.

Assessing the future of the sector, we find that the major growing factor for the Jordanian

telecom market is the introduction of new services at competitive prices in addition to the

growth in the population estimated at (1.8%) according to the latest World Bank Studies.

Additionally, a speedier economic boosted by the 5-yr economic development plan by the GCC

will bolster the corporate sector in Jordan causing a higher growth in the telecom industry.

Sectoral GDP and Investments

According to the GDP data issued by the Department of statistics, the transportation and

telecom sector posted an average growth of 2.75% in 2009, compared with a growth rate

exceeding 7% in 2008. This moderate growth is due to the aftermath of financial crisis on Jordan

coupled with decreasing purchasing power for the Jordanian citizen and tougher competition

that partially erodes the profitability of the firms operating in this sector.

* JD Million 2006 2007 2008 2009 2010 1st Q 2011

GDP at Market Prices 1181.9 1292.3 1322.3 1347.1 1417.2 580.8

Growth YoY 16.6% 6.0% 19.0% 9.0% 13.4% 5.9%

Average 5 yr Growth rate 12.8%

Source: CBJ

However, net investments grew in this sector in 2010; reaching JD 219.8 million in 2010

compared to JD175.5 million in 2009 posting growth rates around 25.24%.

Research Department

Source: Telecommunications Regulatory Commission

The highest addition in net investments came in the internet sector that more than doubled

given the speedier advancement of internet services .This subsector added JD49 million

investments in 2010.

* JD Million 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Fixed Phone 90.1 38.2 11.5 10 12.3 12.7 12.2 23 24 15

Mobile Phone & Radio Trunking 89.2 93.3 91.9 100.3 137 138.9 92.5 65 120 124

Internet 5.5 3.5 1.5 0.7 5.6 2.3 11.1 22 31 80

Other Telecom Services - 2.6 1.1 0.4 0.4 1.5 0.5 5 0.5 0.8

Total Telecom Investment 184.8 137.6 106 111.4 155.3 155.4 116.3 115 175.5 219.8


Revenues of the Telecommunications Sector

Official sources estimated that the ICT sector has earned revenues of JD 1.12 billion in 2010,

compared to JD 1.077 billion in 2009, thus posting an increase of 4%. Sources also confirmed

that these revenues include all companies in fixed, mobile, internet and other telecom services.

These resources have stated that mobile services still claim the highest chunk of these revenues

while internet services claim the lowest.

Employment in the Telecom sector

Despite the speedier growth in 2010, the sector created less jobs opportunities directly and

indirectly. In 2010, the sector lost nearly 1017 jobs.

Research Department


All telecom subsectors have lost jobs in 2010 given the slowdown in the general economic

conditions and the corporate sector’s tendency to trim recurring expenditures.

2002 2003 2004 2005 2006 2007 2008 2009 2010

Fixed Phone 4,548 3,663 3,048 2,701 2,432 2,303 2,212 2,060 1,958

Mobile Phone & Radio Trunking 1,168 1,249 1,641 2,124 2,251 2,283 2,079 2,296 1,886

Internet 408 294 353 450 415 498 644 1,080 830

Other Telecom Services 53 45 52 50 294 135 345 320 65

Total Telecom Employment 6,177 5,251 5,094 5,325 5,392 5,219 5,280 5,756 4,739


Telecom Sector Competitiveness Ranking

Jordan was ranked 7th amid 14 Arab states and 50th amid 138 states ranked in the global telecom

competitiveness report 2010/2011. The report rates the ICT sector in a country according to

three pillars:

1. Technological environment pillar 2. Technological readiness pillar 3. Technological usage pillar

This year’s ranking reflected a deterioration in the ICT sector performance and infrastructure as the kingdom assumed the 44th rank last year. The table below shows Jordan’s ranking compared to other Arab states:

Research Department

Arab Ranking State Global Ranking

1 United Arab Emirates 24

2 Qatar 25

3 Bahrain 30

4 Saudi Arabia 33

5 Tunisia 35

6 Oman 41

7 Jordan 50

8 Egypt 74

9 Kuwait 75

10 Morocco 83

11 Lebanon 95

12 Algeria 117

13 Syria 124

14 Libya 126 Source: Ministry of ICT

SWOT Analysis

Modern infrastructure

Qualified labor

Relatively cheaper services than regional peers

Public private partnerships

Special Royal Interest

High labor turnover

Limited integration in public sector

Relatively cheaper services than regional peers.

Expensive due to deteriorating purchasing power.

Saturated fixed and mobile markets

Mass providers with small capitals

High corporate demands

High potential in internet

market

Qualified to attract foreign

investment

Modernization of public

sector and e-government

Population growth

High competitiveness

harming prices

Geopolitical situation

Slowing economy

Lack of solid legal

framework

Research Department

Telecommunications Sector Performance in Amman Stock Exchange

There are only two ICT companies listed on Amman Stock Exchange, Jordan Telecom with its JD

250 million paid in capital and Al Faris National Co. for investment and export.

Subscribed shares

Market cap. Major financial data Time report

P/E

(time)

Non Jordanian ownership

(%)

Book value Net income

Cash dividends

JORDAN TELECOM

250,000,000 1,400,000,000 410,615,008 95,082,809 97,500,000 2010 14.724 62.4

AL-FARIS NATIONAL CO.

FOR INV. & EXPORT

34,000,000 13,600,000 8,083,977 -4,020,356 0 2010 - 16.6

Technology and Communication

284,000,000 1,413,600,000 418,698,985 91,062,453 97,500,000 14.724 61.9

Source: Ministry of ICT

Moreover, Jordan Telecom is the 4th largest company in market capitalization with JD 1.4 billion

constituting 7.1% of Amman Stock Exchange’s total market capitalization.

Company's name Market capital (JD million)

% to the total market capital

Closing price

August July

ARAB BANK 4,539.0 23.1 8.50 8.70

THE ARAB POTASH 3,414.4 17.3 40.98 42.00

THE HOUSING BANK FOR TRADE AND FINANCE

2,016.0 10.2 8.00 7.94

JORDAN TELECOM 1,400.0 7.1 5.60 5.65

JORDAN PHOSPHATE MINES 972.0 4.9 12.96 13.60

JORDAN KUWAIT BANK 400.0 2.0 4.00 4.26

BANK OF JORDAN 336.6 1.7 2.17 2.18

CAIRO AMMAN BANK 286.0 1.5 2.86 2.99

JORDAN ISLAMIC BANK 260.0 1.3 2.60 2.71

JORDAN AHLI BANK 216.3 1.1 1.71 1.68 Source: Amman Stock Exchange

However, the shareholders of ICT shares in Amman Stock Exchange are considered long term

investors given the low turnover ratio, which is considered the lowest in the market.

Nonetheless, we believe that revenue growth for the largest public shareholding telecom

company “ Jordan Telecom Group (JTG)” has peaked, given the fact that the company operates

in a country with a population of only 6.4m and a total of four operators in a saturated telecom

market. As further growth is highly correlated to new services and speedier economic recovery.

Research Department

Sector name Turnover ratio Market capitalization

Banks 0.481 9,021,462,126

Insurance 3.183 375,502,884

Diversified Financial Services 6.663 424,436,743

Real Estate 7.348 671,320,500

Financial 3.547 10,492,722,253

Health Care Services 0.316 66,415,000

Educational Services 0.074 304,765,000

Hotels and Tourism 5.356 614,232,556

Transportation 4.619 216,058,695

Technology and Communication 0.076 1,413,600,000

Media 0.463 71,175,000

Utilities and Energy 0.636 397,656,000

Commercial Services 14.205 347,609,847

Services 5.106 3,431,512,098

Pharmaceutical and Medical Industries 0.200 168,611,177

Chemical Industries 3.100 74,045,150

Paper and Cardboard Industries 0.862 17,600,000

Printing and Packaging 0.411 13,910,000

Food and Beverages 0.102 175,040,000

Tobacco and Cigarettes 0.831 139,100,000

Mining and Extraction Industries 0.688 4,854,731,670

Engineering and Construction 6.323 118,031,059

Electrical Industries 14.645 91,420,000

Textiles, Leathers and Clothing 1.249 102,585,371

Glass and Ceramic Industries 9.680 3,375,000

Industrial 4.539 5,758,449,427

TOTAL 4.059 19,682,683,778 Source: Amman Stock Exchange

Secondly: Sub- Sectoral Performance

A. Fixed Lines Market:

Fixed lines services providers have been witnessing continued decline in its performance. This

decline accelerated due to the substitution of the mobile phone which provided handy swift

possibility of calling at very competitive rates.

As of 2009, Jordan Telecom Group held all the fixed-line business in Jordan despite a second

license for fixed-line services being awarded to Batelco in 2005.

In 2010, fixed-line penetration in Jordan declined 40bp yoy to 8.0%, from 8.4% in 2008, in line

with the negative trend in penetration since 2001. During this period, fixed-line subscribers

Research Department

declined to around 479 in the first quarter of 2011, from 660,000 in 2001, reflecting the lagging

demand for this type of service.

* Thousand subscribers 2003 2004 2005 2006 2007 2008 2009 2010 1st Q 2011

Fixed Phone Subscribers 623 638 628 614 559 519 501 485 479

Penetration Rate 11.30% 11.90% 11.60% 11.00% 10.00% 8.90% 8.40% 8% 8%

Growth YoY -7.57% 2.41% -1.57% -2.23% -8.96% -7.16% -3.47% -3.19% -1.23%


The following graph clearly shows the decreasing penetration rate for fixed phone subscribers

which has deteriorated from 13.10% in 2001 to 8.00% in 1st quarter 2011.


B. Mobile Lines Market

The mobile lines market has acted as the sector's cash cow for the last decade growing by

around 30% annually. However, this growth is tempered in the last three years as the market

neared saturation since mobile penetration rates exceeded 108% and fierce competition hurt

the revenues.

* Thousand subscribers 2002 2003 2004 2005 2006 2007 2008 2009 2010 1st Q 2011

Mobile Subscribers 1,200 1,325 1,624 3,138 4,343 4,772 5,314 6,014 6,620 6,834

Penetration Rate 22.90% 24.20% 30.40% 57.00% 78.00% 83.30% 91.00% 101.00% 108.00% 112.00%

Growth YoY 38.57% 10.42% 22.57% 93.23% 38.40% 9.88% 11.36% 13.17% 10.07% 3.23%


Research Department

There are currently four players in the Jordanian market: Zain Jordan, Orange Jordan (JTG’s

mobile brand), Umniah (Batelco), and XPress Telecom; the last launched Jordan’s first trunked

communications network with its Push-to-Talk (PTT) technology.

Operator Date of award

Valid through

Range of spectrum

Zain 30 Oct 1994 21-Feb-21 2x17.5MHz in 900

Orange Mobile 23-Jan-2000 9-May-14 2x12.5MHz in 900

Xpress 23-Oct-03 5-Apr-15 2x5MHz in 800

Umniah 9-Aug-04 8-Aug-19 2x15MHz in 1800


Jordan’s first mobile license was awarded to Fast link (now Zain) in 1994. MobileCom (now JTG’s

Orange Mobile) acquired the second licence in 2000 and XPress and Umniah were the last two

players to receive a license in Jordan. Orange Mobile’s licence should be the first to expire (in

2014). Xpress Telecom’s licence expires in 2015, while Umniah’s and Zain’s expire in 2019 and

2021, respectively. As such, it would seem reasonable to presume that these two operators will

opt for a 3G licence when available in order to close the technological gap with JTG.


In the 1st quarter of 2011, prepaid subscribers still accounted for the major chunk of subscribers as 91.5% of subscribers depend on prepaid cards, while the remaining 8.5% depend on postpaid services. However, there is a noticeable increase in the share of post paid subscribers in mobile phones, going from 4.5% in the 1st quarter 2009 to 8.5% in the 1st quarter of 2011, fuelled by newer services and more competitive packages

Research Department

Prepaid Subscribers (thousands)

Postpaid Subscribers (thousands)

Total Subscribers (thousands)

Penetration Rate (%)

1st Q 2009 4875 443 5318 90.9%

2nd Q 2009 5104 447 5551 93.9%

3rd Q 2009 5561 459 6020 101%

4th Q 2009 5550 465 6014 101%

1st Q 2010 5688 478 6166 103%

2nd Q 2010 5769 491 6250 103%

3rd Q 2010 5950 504 6455 106%

4th Q 2010 6063 556 6620 108%

1st Q 2011 6254 580 6834 112%


Market Shares are becoming more equally distributed As of 1Q11, mobile penetration in Jordan increased to 112%. While the considerable increase in penetration may not be sustainable in the long run, there may still be room for growth given the high penetration rates that prevail in other countries in the region. Zain Jordan is the dominant player in the mobile market; by the end of the 1st quarter 2011, it had an approximate 35.86% market share, while Orange Jordan held around 33.93% compared to 29% in 2009, Umniah around 30.19% compared to 27% in 2009.

Prepaid Subscribers (thousands)

Postpaid Subscribers (thousands)

Total Subscribers (thousands)

Market Share (%)

Zain 2146 305 2451 35.86%

Orange 2096 224 2319 33.93%

Umniah 2012 51 2064 30.19%

Total 6254 580 6834 100% Source: Telecommunications Regulatory Commission

C. Internet Service Providers

Despite its novelty in the Jordanian market, this sector is buoyant and posting double-digit

growth annually as it grew by an average of 37.54% annually in the last 6 years. Internet

services are becoming more vital to both the household and business community in Jordan as it

interrelates in every single aspect of our work and life. Thus, internet penetration rates reached

40% in the 1st quarter of 2011, which is considered high in comparison with other Arab

countries.

Research Department

However, internet services sector is a very competitive sector with many market competitors

such as Zain, Orange, Mada, Wi-tribe, Sama, etc… that compete in improving their services and

increasing band width and internet speed at affordable costs. This sub sector is considered a

knowledge based sub sector where the use of hi-tech is really needed and can create a market

edge. The launching of the Wi-fi services and advanced mobile internet services is considered a

breakthrough that took this sector to new horizons.

* Thousands subscribers 2002 2003 2004 2005 2006 2007 2008 2009 2010 1st Q 2011

Internet Users 276 399 537 720 770 1,163 1,500 1,742 2,342 2,461

Penetration Rate 5.50% 7.70% 10.00% 13.20% 13.70% 20.00% 26.00% 29.00% 38.00% 40.00%

Growth YoY 15.97% 44.57% 34.59% 34.08% 6.94% 51.04% 28.98% 16.13% 34.44% 5.88%



The breaking down of this subsector reflects the rapidly changing landscape of the internet

market. During the past five quarters there has been a considerable shift away from dial-up

connections, with a majority of subscribers preferring broadband connections instead (ADSL and

WiMax). The share of dial-up customers declined to 2.90% in 1st quarter 2011, from 25% in

3Q09, while the proportion of broadband connections represented around 97.10% in 1Q11

compared to around 74% in 3Q09.

Research Department

Quarter No. Dial-Up ADSL Leased Line Wi-Max Other Total

Q1/2009 73,093 141,993 866 10,710 815 227,477

Q2/2009 67,706 153,453 913 18,352 908 241,332

Q3/2009 61,120 156,215 941 28,772 1,169 248,217

Q4/2009 41,041 166,428 1,138 34,520 1,386 244,513

Q1/2010 35,935 176,432 925 43,556 1,393 258,241

Q2/2010 38,914 183,153 812 69,000 1,447 293,326

Q3/2010 20,782 184,995 1,020 79,513 7,428 293,738

Q4/2010 52,549 192,846 935 97,490 2,003 345,823

Q1/2011 13,214 194,413 966 110,686 135,551 454,830


While the number of broadband subscribers has been growing, there is plenty of room for

penetration to continue expanding. Amman, which represents 40% of the Kingdom’s population,

accounts for 75% of the broadband connections; however, that translates into only a 5%

penetration rate in the city. There should be plenty of room to grow within Amman, as the city

has a large untapped population and already has the infrastructure in place to offer connections

at a relatively low cost.

Additionally, other heavily populated areas, such as Zarqa and Irbed, have even lower

penetration rates. The conditions might not be the same in these cities as they are in Amman,

but there seems to be considerable potential for growth in Zarqa and Irbed as well.

Largely populated cities, such as Amman, Zarqa, and Irbed, will likely be areas of focus for ADSL

connections, since the marginal cost of offering another connection should be relatively low.

Nevertheless, providing ADSL connections in rural areas could be relatively expensive and,

therefore, the WiMax technology would be a viable alternative.

Sectoral Assessment

This sector is considered one of the growing and promising sectors in the Jordanian economy

especially internet services sub sector. Moreover, the introduction of new services such as 4G

and VoIP services has added the needed momentum for this sector to continue its future

growth.

Many future projects still secure the growth of this sector such as the e-commerce project which

is currently adopted by the Ministry of Telecommunications and ICT in addition to the ambition

of building ICT villages in Jordan especially in Irbid development Zone which is expected to turn

Jordan to a hub for providing call center services in the region.

Research Department

Future Outlook

Our baseline scenario shows that the telecom sector is likely to maintain its double digit growth

of 12.80% throughout 2011 and 2012, if the sector provided the new needed services and

proper marketing strategies in addition to maintaining the galloping growth of the internet

subsector.

Other forecasts prepared by International Telecommunications Union and Business Monitor

expect growth of 10%-14% throughout 2011 and 2012.

Below are the key forecasts prepared by ITU and BMI based on average GDP growth of 3-4%

throughout the next five years and inflation of 5-6% in addition to population growth of 1.8%

Subsector 2010 2011f 2012f 2013f 2014f

Number of fixed lines (,000) 485 479.6 475.6 471.9 468.6

%change -5.6% -1.1% -0.8% -0.8% -0.7%

Number of cellular subscribers (,000) 6834 7484.5 8010.6 8414.8 8788.1

%change 10.07% 9.51% 7.00% 5.00% 4.40%

Number of internet subscribers

(,000) 2343 2813.3 3231.5 3595.1 3916.0

%change 33.4% 21.1% 14.9% 11.2% 8.9%

Source: BMI

There are many risks pertaining to the above scenarios starting with slowing economy and

decreasing purchasing power to market saturation and limited access to credit and loans for

small internet providers.

Research Department

Disclaimer

The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its materials described in the report at any time without notice.

The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty, express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other investment and\or to be relied on for any act whatsoever.

Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.

All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.

Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.

The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers, directors, employees, agents and representatives from any and all claims arising directly or indirectly out of and in connection of the recipient activities conducted in connection with this report.

If you would like more information about our services please contact us.

Email Address: [email protected]

Telephone #: 06-5006765/6774

Telecom Sector Update September 2011 - Cairo Amman Bank sector 2011.pdf · telecom market is the...

Documents

Transcript of Telecom Sector Update September 2011 - Cairo Amman Bank sector 2011.pdf · telecom market is the...