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. ********************************************* * For more reporting from Embassy Kuwait, visit: http://www.state.sgov.gov/p/nea/kuwait/?cable s KUWAIT 00000443 002 OF 002 Visit Kuwait's Classified Website: http://www.state.sgov.gov/p/nea/kuwait/ ********************************************* * LeBaron