PROFILE OF KUWAIT'S TELECOMMUNICATIONS SECTOR

UNCLAS SECTION 01 OF 02 KUWAIT 000443

SIPDIS

SIPDIS

EB/CIP/BA FOR GIBBS, NEA/ARP FOR BAGWELL

E.O. 12958: N/A
TAGS: ECPS ECON KU
SUBJECT: PROFILE OF KUWAIT'S TELECOMMUNICATIONS SECTOR


1. Kuwait's growing telecom sector is still dominated by the
Ministry of Communications, which maintains a monopoly over
all local and long-distance landline telephony. Internet
service is privatized, with three competing ISPs (Qualitynet,
Fastelco, and Zajil),but all have their basic rates set by
whatever the Ministry is charging for data lines. Fixed line
penetration at the end of 2005 was approximately 19 percent,
very low compared to mobile penetration which is
approximately 89%. The Ministry struggles unsuccessfully to
install new residential landline services at a pace to match
Kuwait's rapid growth in population and real estate
development. Kuwait currently has no independent
telecommunications regulatory authority - the Ministry of
Communications retains sole responsibility for all regulatory
matters.


2. The only telecommunications sector in Kuwait with real
competition is the mobile sector, which currently has two
competing carriers, MTC-Vodafone and Wataniya (National
Mobile Telecommunications Company). The GOK still retains a
significant stake in both MTC and Wataniya, but the companies
are free to compete on pricing, handset selection, and
services. The two companies also try to differentiate
themselves through value-added services. Recently, Motorola
announced the deployment of a nationwide 3G mobile broadband
network in Kuwait for MTC which includes High Speed Downlink
Packet Access (HSDPA) to increase download speeds and improve
the user experience streamed content. Wataniya plans to
offer similar services in the near future.


3. MTC dominates the Kuwaiti market with 57% of revenue and
59% of subscribers as of September 2006. With a market
capitalization of $14.7 billion, MTC is the largest
publicly-traded company in Kuwait. Internationally, MTC is
present in 20 countries (soon to be 21 following Government
of Saudi Arabia's approval of its $6.1 billion bid for the
Kingdom's third mobile license on 27 March). Wataniya has
operations in Iraq, Tunisia, Saudi Arabia, Algeria, and the
Maldives, and has recently won a bid to build and operate the
second mobile service in the Palestinian Territories. In
February 2007, Wataniya announced that it was forming an
international alliance with Sprint Nextel to cooperate on
ventures to deliver advanced wireless services across the
Middle East and North Africa. In March 2007, state-owned
Qatar Telecom (Qtel) paid $3.7 billion to purchase a 51%
stake in Wataniya, which we believe is one of the largest
sales of a private sector company ever in Kuwait.


4. In December 2006, the Kuwaiti Cabinet approved a proposal
to establish a third mobile operator. Sixty percent of
shares in the new firm will be available to the public, 24
percent to state-owned authorities, and 16 percent to
international investors. According to press reports, a
consortium led by Kuwait Finance House is preparing to bid
for the third mobile telecom license and plans to run the
company as the world's first Islamic Shariah-compliant
telecom operator.


5. The telecom sector constituted 12.72% of market
capitalization ($14.7 billion) on the Kuwait Stock Exchange
at the end of 2006, indicating the importance of the sector
to the Kuwaiti economy. In 2005, mobile segment revenues in
Kuwait grew by 13.3% to $1.27 billion, while the number of
subscribers grew by 11.4%. By of October 1, 2006, the number
of subscribers reached 2.54 million (Kuwait's population is
approximately 3.05 million) and revenue for the first three
quarters of 2006 reached $1.06 billion. With population
growth at about 8.7%, mostly due to the growing number of
low-income expatriate workers, there seems to be room for
further, albeit slower, market growth, especially in pre-paid
categories. The mix of customers in Kuwait is highly
inclined towards pre-paid customers, who make up 80% of the
total customer base. The average monthly blended ARPU
(average revenue per user) in Kuwait during the first six
months of 2006 was $46.


6. U.S. companies Motorola, MCI, and ITT all maintain a
presence in Kuwait, doing business primarily with the public
sector. AT&T operates its Global Hubbing service in Kuwait.
Among foreign companies, Siemens maintains a significant
presence and is under a major contract with the Kuwaiti
government to install a fiber optic network in Kuwait City.
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LeBaron