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Middle East Telcos want to fight Facebook

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A single operator, even one with tens of millions of subscribers can't create this platform on its own, says Osman Sultan, chief executive of du.

September 27, 2012 9:32 by



“Operators have failed miserably every time they have tried to move up the value chain, except for in certain business-to-business services,” said Pedro Oliveira, a partner at global management consultants Oliver Wyman. “Some have tried to move into content and applications, but the war is lost already.”

The big Western Internet firms are already popular around the Middle East. Facebook, which offers an Arabic interface, had 45.2 million users in the Arab world as of June 30, up more than 50 percent from a year earlier, according to the Arab Social Media Report, produced by the Dubai School of Government.

Despite pockets of innovation in the region, such as video game industries in Saudi Arabia and Jordan, and ventures developing applications for smart phones in Egypt, the Middle East has so far not come close to developing online products to rival the top Western Internet companies.

FEASIBLE

However, proponents of the telecommunications firms’ online plan argue it is more feasible in the Arab world than elsewhere.

Only about 1 percent of the world’s websites are in Arabic, according to a survey by analysts W3techs. Internet penetration lags regions such as Europe, North America and east Asia, with only about 86 million of the estimated 360 million native Arabic speakers online at end-2011, Miniwatts Marketing Group said.

Such figures may mean Western Internet firms are not yet so entrenched in the Middle East that they cannot be challenged. The new online platform would satisfy hunger among the region’s young population for more Arabic-language content, said Sultan.

Another factor is the impressive geographical reach of Gulf telecommunications firms; if a few of them can agree on introducing the online platform, they may be able to roll it out quickly across more than a dozen countries.

Combined, Qatar Telecom, Saudi Telecom, Kuwait’s Zain and the UAE’s Etisalat cover 16 of the 22Arab League countries. The other six countries are the smallest four in economic terms - Mauritania,Somalia, Djibouti and Comoros - plus war-ravaged Libya and Syria.

The Arab telecommunications operators’ extensive distribution networks and point-of-sale advertising could help them win customers from OTT players.

Most Middle Eastern mobile phone subscribers are on pre-paid contracts typically topped up with scratch cards. These are sold everywhere from petrol stations to local stores, so vouchers for the online platform might easily be rolled out alongside them.

“The reach we have to consumers and the knowledge we have of consumer behavior is vast,” Sultan said.

Thomas Kuruvilla, managing director of consultants Arthur D. Little Middle East, said an alliance of regional telecommunications firms could form a community of social networks that was attractive to local populations.

If the firms can cooperate on content and social networks, “it will surely attract more niche advertisers and hence higher revenue potential,” he said.

However, even if the region’s biggest telecommunications firms succeed with the online platform, it will be hard for smaller operators to make much money from it, said Oliveira.

This could consign smaller firms to serving as nothing more than low-margin pipes for the data services of the big ones.

In the Gulf, Saudi Arabia, Bahrain and Kuwait have multiple telecommunications firms providing Internet access, and some of them may be the most vulnerable to becoming “dumb pipes”. Such companies might cut access fees to their networks in an effort to win market share, Oliveira said.

“If one operator takes this approach, then others in the same market may be forced to follow as they lose revenue and market share and struggle to keep on investing in their network,” he said. “It’s a race to the bottom.”



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