Kuwait Telecommunications Report Q2 2008

In November 2007, it was revealed that Saudi Telecom Company (STC) had won the Kuwaiti government's auction for a 26% stake in the country's yet-to-be-launched third mobile operator with a bid of KWD248.7mn (US$908mn). STC offered KWD0.923 per share for 130mn shares in the new cellco, beating offers from eight rival bidders which included Etisalat of the UAE, Turkcell of Turkey and Bahrain's Batelco. A further 50% of the new cellco is to be sold off in an initial public offering in the early part of 2008, with the Kuwaiti government retaining a 24% interest. The new operator will compete with existing players Zain and Wataniya.

BMI believes that a third operator will help to create an even more intensely competitive market, both in terms of subscriber numbers and value. Although we previously suggested that Kuwait's wireless market was becoming increasingly saturated, with a penetration rate of around 100%, we have since adjusted this figure and now put Kuwait's mobile penetration rate at end of 2007 at 91.5%. This lower figure is mainly the result of revised demographic figures, which give Kuwait a larger population than we previously thought. However, it is also important to consider the proportion of multiple SIM holders in Kuwait which, once taken into account, would give Kuwait a lower penetration rate still. All this suggests that there is more scope for further subscriber growth in the months ahead, as well as considerable reason to expect intensive competition between the sector's three operators. At the end of September 2007 (latest data available), there were 2.683mn mobile subscribers in Kuwait, reflecting 5.8% y-o-y growth. We now believe that market ended the year with 2.735mn mobile customers, reflecting an 8% growth rate and the addition of 205,000 new customers during the year. We forecast that the sector will expand by 7.5% in 2008 and by 7% in 2009, this growth being reflective of the heightened market competition.

In other news, a senior civil servant at Kuwait's Ministry of Communications (MoC) has reportedly suggested that Kuwait's new telecoms regulator will be launched within eight to 12 months. The official, whose comments were reported in November 2007, suggested that the country would get an independent telecoms regulator before the recently licensed third mobile operator began commercial operations.

Kuwait's third mobile operator is expected to launch services sometime during summer 2008.

The news that the MoC may accelerate its efforts to establish an independent telecoms regulator will be welcomed by mobile operator Zain. Kuwait's lack of an independent telecoms regulator is understood to have been one of the reasons behind Zain's recent decision to move its international headquarters to Bahrain. BMI believes that the creation of an independent regulator could herald a new era of liberalisation and should put pressure on operators to improve service quality. The high cost of internet and broadband services are thought to be one of the reasons for the country's low rate of broadband penetration; at the end of 2007, just 3.3% of the Kuwaiti population had a broadband internet connection.