Share Square: Kuwait

Kuwait had a population of 4.0mn in 2014, an increase from 3.7mn in 2013. The population has a young age profile with a median age of 28.9 years and in 2014 69% of residents were non-Kuwaiti nationals. Kuwait has an area of 17,820 km² but the population is highly concentrated in Kuwait City and its suburbs, especially on the shore of the Arabian Gulf. Subscriber (SIM) penetration was 221% by the end 2014, growing at >7% a year because multiple SIMs are common as part of the highly competitive environment. Three Mobile Network Operators (MNOs) serve Kuwait with broadly equal shares of the total subscribers. As shown in Figure one, Zain was the largest of these in 2014 with 35% of the market. VIVA and Ooredoo, rebranded from Wataniya in 2014, had very similar shares at between 32% and 33%. About 74% of total subscriptions were pre-paid.

Zain regard their operation in Kuwait as their ‘flagship business’, growing at 6% in 2014 to serve 2.7mn customers and being the Group’s most profitable operation^[1]. VIVA stated a 2014 customer base of 2.4mn up from 2.15mn in 2013 with revenues growing by 31% over the same period. Ooredoo quoted 2.514 million subscribers in 2014, up from 1.970 million in 2013 though they noted a fully-saturated market and slow growth from new customers as explanations for a 14% fall in revenues from 2013 and 165 job losses during the year.

Zain was founded as MTC in Kuwait in 1983 and launched its first GSM service in 1994. It rebranded as Zain in 2007. Wataniya was launched in Kuwait in 1999 as the first privately owned telecoms operator. VIVA joined as a third operator, launching its Kuwait services in December 2008. Having acquired a market share of 13% in 2009 VIVA has continued to grow to achieve parity with Wataniya / Ooredoo and almost with Zain by 2014 leading to the broadly equal market shares observed at present. The progression from 2009 to 2014 is illustrated in Figure two.

The regulator in Kuwait is the Ministry of Communications. All three MNOs operate GSM (GPRS / EDGE) services at 900 and 1,800 MHz and UMTS / HPSA at 2,100 MHz. 4G / LTE licenses were issued in 2012 to enable LTE services at 1,800 MHz which duly became available between Autumn 2012 (Zain) and Summer 2013 (Ooredoo). The licenses were issued upon payment of a KWD250,000 (US$888,099) licence fee. LTE-A services are also being developed. Zain was the first operator in Kuwait to announce the launch of LTE-A services and VIVA has also launched Voice over LTE services.

The regulatory situation may change in the near future because Kuwait’s parliament recently approved a bill to create an independent telecom regulator. This is expected to address the current potential conflict of interest in which the Ministry of Communications currently regulates the industry but also operates the fixed-line network. It may also help to stimulate the fixed communications system which has been outpaced by the mobile sector in recent years. At this stage however, the details of the development are not known and so the market impact remains to be seen.

There are approximately 5,100 towers in operation in Kuwait at present. Tower sharing is unusual in the Middle East and so there are few benchmarks in the region. In Kuwait, there is no sharing of mobile base station infrastructure in place at present.

In early 2015 Zain, 24% owned by the Government of Kuwait, started to explore options for tower sharing, an approach unusual for the Middle East and more unusual still for a Government Controlled Company. Zain sought expressions of interest to cover their 1,600 towers, just over 31% of the total in Kuwait. The options could include tower sharing or sale and leaseback of the towers. The Zain request covers options in Kuwait but also includes towers in Saudi Arabia and could result in a joint offer, though different models for each country are also possible.

The rationale for this interest may be that while Zain is profitable in Kuwait it is under strong competitive pressure from VIVA in particular and in Saudi has struggled to become profitable.

The extent of interest in Kuwait tower sharing will be partly determined by the level of interest from other operators. If this additional interested does not materialise, the approach will tend towards the sale and leaseback approach.

Regulatory issues can also have a major impact on the willingness of investors to consider an opportunity. Issues may include regulations covering tower sharing which could emerge from a future independent regulator, but also compliance with related regulations such as whether towers have the necessary permits in place.

Kuwait’s annual GDP per head is over US$54,000, mobile penetration over 200% and coverage 100% so the mobile market is mature and well served. Growth therefore needs to come from increased capacity requirements driven by new devices and applications. These may arise from the smaller, denser networks required for more modern systems and could also be encouraged if visual impacts become a higher priority in future urban planning. Maintaining profitability also requires that costs be minimised which suggests that there could be an increased appetite for infrastructure sharing.

Zain’s consideration of tower sharing options represents a new frontier for tower sharing which has not been in evidence in the Middle East to date. Possible changes in the regulatory environment also introduce some uncertainties. Nevertheless, Kuwait’s market is mature and represents a relatively low risk opportunity which may serve as a counterbalance to sharing options elsewhere as part of a balanced portfolio

[1] www.zain.com/media/images/resumes/ZAIN_Annual_Report_2014_EN.pdf