With the potential entrance of a third MNO into the market, dynamics in the Omani telecommunications sector may be about to change. What’s more, rumours have surfaced that a tower deal may come to the table in early 2019, further opening the Middle Eastern market to the independent towerco model. TowerXchange examines the dynamics at play in Oman.
The current mobile market
Oman has 6.6mn mobile subscribers (of which 89% are prepaid) in a population of 4.6mn, leading to a mobile penetration rate of 146% (Source: TRA). There are currently two mobile network operators in the market: Omantel and Ooredoo, and two resellers: Renna Mobile and Friendi Mobile.
Omantel is the incumbent mobile network operator, having acquired its operating license back in 2004. The company is 51% owned by the government and has a 43% market share. Both resellers are hosted on the Omantel network and command an additional 15% market share (split roughly evenly between the two of them). Omantel’s population coverage for 3G stands at 99.0% and for 4G at 93.4% (Omantel Q3 2018 results).
In August 2017, Omantel acquired a 9.84% stake in Kuwaiti headquartered Zain for a total consideration of RO 326.6mn (US$848.25mn), before subsequently acquiring an additional 12.1% (for US$1.35bn) in the following November, taking its total shareholding up to 21.9%, making it Zain’s second largest shareholder after Kuwait’s sovereign wealth fund. The move is part of Omantel’s strategy to diversify its revenue sources and overcome the risks of being present in a single market. Zain Group has exposure to nine markets, being the market leader in five of those.
Qatari-headquartered Ooredoo has a presence in 12 markets and has a global subscriber base of almost 150mn with just over 3mn subscribers in Oman, equating to a 42% market share. The operator has been aggressively rolling out its 4G network in recent months, taking coverage from 55% in Q4 2017 to 95% by September 2018.
The introduction of a third MNO
In 2017, the Omani government introduced a tender process to award a third MNO license. Bids were received from Zain, Saudi Telecom Company, Etisalat and Sudatel. When Omantel acquired their stake in Zain in 2017, competition concerns were raised surrounding Zain’s bid, leading to the process being put on hold.
The government subsequently cancelled the tender process in favour of awarding the license to a consortium involving local investment funds (potentially led by a flagship sovereign wealth fund) and a global strategic partner. The stated objective for the change in strategy was to enable the local funds to deploy their assets in Oman as part of an overarching economic diversification vision away from oil. Details are yet to emerge of what kind of commercial model is being proposed for the consortium, and whilst an announcement was expected on Oman’s 2018 National Day (on 18 November), no news around the award of a license emerged.
With high mobile penetration rates, any new MNO will struggle to get a foothold in the market rendering it unlikely that the new entity will obtain any significant market share in the short- to medium-term. The current market is evenly split between Ooredoo and Omantel, with resellers focussing on specific niches and segments such as expatriates and blue collar workers, making it challenging for the new player to carve out their own market segment.
Once the license is awarded it is likely that national roaming will be mandated in the short term with network rollout obligations required in the medium term.
Figure 1: MNO mobile market share in Oman
Further pressures on Oman’s MNOs
In addition to the introduction of a third operator, several factors are putting increasing pressure on Oman’s MNOs. In 2017, the Omani government increased royalty fees due from MNOs from 7% to 12% whilst income tax increased from 12% to 15%. Simultaneously the impact of declining oil price on the economy continues to impact consumer spending, whilst competition from OTT players continues to place further pressure on operator revenues.
What is the tower landscape and history of infrastructure sharing
Omantel has a portfolio of around 2,900 ground based towers and 5,000 rooftop sites, with Ooredoo understood to have approximately 2,500 ground based towers and also around 5,000 rooftop sites. Whilst a handful of towers are owned by other parties such as the national broadcaster and the Ministry of Information, they are not widely open to third party use. TowerXchange has not been made aware of any independent towercos currently active in Oman.
Omantel are understood to be increasing their tower count by about 4-5% per annum, suggesting an average of around 100-120 new towers are built by the operator each year. For Ooredoo, similar numbers are forecast. There are currently no regulations restricting the rollout of new towers
Infrastructure sharing in the country has been limited to date but has started to increase as the MNOs aim to execute the rollout of 4G more cost effectively, with current estimates suggesting approximately 10% of towers are shared. The MNOs have started a healthy dialogue in regards to joint network planning and the amount of infrastructure sharing is expected to increase.
The vast majority of sites remain on-grid, and with a reliable grid in place, just those in rural and remote areas are reliant on diesel generators. The cost of fuel in Oman is relatively cheap and so running such generators has not created a heavy burden on operators.
Opportunities for independent towercos on the horizon?
In February 2018, Oman 70 Holding Company, ActivCo (Camusat’s investment arm) and the Omani Government set up a new organisation called Oman Towers Company. The company plans to build approximately 600 towers in the first five years, and has an interest in acquiring or managing the existing portfolios of Oman’s MNOs.
Rumours have emerged that Omantel is planning the sale of their ground based and rooftop sites (a total of around 7,900 towers), with the operator understood to be in the process of appointing an advisor to run the deal, with a formal process expected to be kicked off in early 2017. With a major shareholding in Zain Group, Omantel has been exposed to tower transactions in the Middle East, with Zain in the process of selling both its Saudi Arabian and Kuwaiti towers to IHS Towers.
Whilst concrete details of a tower deal from Ooredoo have not yet surfaced, insiders suggest that very early stage internal discussions had commenced at the MNO. Ooredoo has experience doing a tower deal, having sold their 2,500 Indonesian towers to Tower Bersama back in 2012 and also has extensive experience of working with towercos in Myanmar. In North Africa the operator has explored active sharing.
A third MNO entering the market is expected to initially heavily leverage both Ooredoo and Omantel’s tower portfolios, presenting a lucrative opportunity for an entity owning such towers to lease space on a commercial basis. The entrance of a third operator will also necessitate a degree of new build in the market, further presenting attractive opportunities to towercos.
Who could have an appetite to acquire Omani towers?
Oman Towers Company is one such company that will undoubtedly throw their hat into the ring should a sale and leaseback opportunity arise in Oman. With IHS having reached deals with Zain Group in both Kuwait and Saudi Arabia, the towerco also represents another highly likely contender, given their indirect relationship with Omantel (via the Zain deals) and their appetite to position themselves as MENA’s leading towerco.
Other stop start processes in MENA also give us a clue as to which other companies could bid for a tower portfolio in Oman should it come to market, with companies including edotco, TASC Towers, Digital Colony, Helios Towers, ISON Towers and potentially American Tower all being linked. Regional funds have also been linked with tower deals in the Middle East in the past and so one could expect the creation of an SPV between a towerco and local investor to be a strong candidate in any sale and leaseback opportunities in Oman
TowerXchange eagerly await developments in the Omani market and are pleased to announce that Omantel’s M&A expert, Ali Khan, will join towercos and investors at the upcoming TowerXchange Meetup MENA, being held on 29-30 January in Dubai. For further information, please visit https://https://meetup.towerxchange.com/event/fcf4640c-985d-4b17-8d61-121791793b57.
