Great expectations

Great expectations

There’s a lot at stake. Guy Matthews reports on the many complex issues influencing the demand for content in the Middle Eastern region.

The business of wholesale content delivery in the Middle East is becoming increasingly competitive. Specialist content delivery players are being challenged by some of the region’s biggest telecoms operators, keen to launch their own managed services platforms for the benefit of service provider customers. Operators from outside the Middle East are likewise viewing the region as an opportunity to provide the infrastructure and services that will enable the next wave of rich content to reach its destination.

There’s a lot at stake in the battle to be king of wholesale content. In the Middle East, as in the rest of the world, broadband video consumers are multiplying fast. Analysts estimate that by 2011, around 800 million people worldwide will be regularly viewing video clips over the web. Analyst company Yankee Group claims that video will soon comprise 80% of global traffic on the internet. Keeping that traffic running smoothly is high margin work, more lucrative certainly than providing a backbone for voice traffic. For those successfully serving the mobile end of the content business, the reward is even greater.

The business of delivering content in the Middle East differs from other parts of the world in some key respects: “The overall bandwidth of content in the region is estimated to still be relatively small, especially when compared to Asia-Pacific, north America or western Europe, although it can be expected to grow faster due to the existing small base,” says Said Irfan, research manager for analyst company IDC’s Middle East, Turkey and Africa office.

In order to maximise their gains from this rapid broadband adoption, the region’s major operators are looking at content delivery as their high value opportunity, believes Irfan: “They’ve already made heavy investments into the network and data centre resources, thus they need CDN projects with credible business models to sweat these assets,” he says. “Media companies are receptive to the idea, since a number of them are looking for viable alternative models to distribute their content too. So, a number of operators and media companies in the region have started to build partnerships to run on-demand or live online and mobile video streaming services.”

Media partnerships

By way of examples he cites Etisalat’s partnership with internet TV specialist MBC, the three-way relationship between Etisalat, Du and JumpTV, and Du’s deal with Arabic entertainment company Rotana. “These projects vary a lot in value depending on how complex they are,” he says. “Other than partnerships with operators, some media companies also commission regional digital media companies to set up their online presence and streaming requirements, mostly in partnerships with international CDN service providers.”

Irfan believes that many content owners are wary of the lack of diverse options in Middle East internet infrastructure, anxious in particular about the liability of submarine cables off the region’s shores to sustain damage and impact services in a world where downtime and high latency are dirty words. Content owners are also worried about what they see as the high bandwidth transfer prices charged by regional network owners. “These factors are often driving these companies to host their content elsewhere, mostly in data centres based in Europe,” he claims.

But so starved has the Middle East typically been of the sort of content choices taken for granted in more developed regions that an irresistible opportunity is presented to profit from filling the gap, whatever the difficulties.

“We see a growing need for content across the region,” says Andrew Grenville, executive vice president for international and wholesale business with alternative UAE operator Du. “We’ve pioneered with our deployment of mobile TV and broadband mobile internet, and we see a lot of future in these areas. According to figures from Madar Research, subscriptions reached over 124 million in 2006 from 87 million in 2005, which is an outstanding growth rate of 43%. This means a lot of potential growth for all stakeholders in telecoms.”

He believes that content delivery networks are being considered by many operators as one way to tap the market, but he feel that the Middle East has yet to see a concerted and consolidated effort on content delivery networks.

Serving the diaspora

The Middle East’s approach to both the delivery and the consumption of online content may differ from more developed regions of the world. There are also intra-regional nuances between different Middle East countries, and also between different demographic subsets within borders that it is useful to understand, says Sukhdev Singh, research director with AMRB, an analyst company with offices across the Middle East and North Africa.

“In the UAE, expats form around 80% of the population,” he says. “In Saudi Arabia, more than 75% of the population is local Saudis, and the rest expats, of whom most are Indian construction workers. The type of mobile and internet content that the two countries want is consequently quite different. The local Arab population needs something different to the Western expat. There are various other differences, with the Arab national wanting a service for the sake of status as well as convenience, whereas the expat sees it as more of a utility.”

He says a study from AMRB conducted to better understand what is happening with mobile TV in the region yielded results with implications for providers of both wholesale and retail content services. “Across the board, people were interested in mobile TV provided it was fast enough and provided it was delivered onto a large enough screen,” he says. “The content they wanted differed, with most wanting localised

content as their priority, the next most popular category of content being sport and music, and then information on stock prices. Arab nationals want channels separated out for watching with family, with friends, and alone. Expats on the other hand are worried about pricing, which is often on the high side for them. Mobile internet is expensive for most people, too much for them even to think about it. But many are interested in paying a fixed amount per month to get email sent to their mobile phone.”

Looking forward, Singh foresees demand for the mobile cloud, where data is viewed on a PC or a mobile device and stored on a secure mobile space: “This has not been launched yet, but has been heavily researched,” he says.

Restrictions on content

Singh says it is a fact of Middle East life that content, no matter where it appears, will continue to be monitored and controlled by governments: “Internet content for the Saudi market is heavily restricted,” he points out. “Content there is highly filtered, with an emphasis on preserving Islamic values. That’s true to a degree here in the UAE, but not nearly as much as in KSA.”

“There are plenty of restrictions on content in most countries, with filtering widespread,” agrees Mohsen Malaki, manager with Dubai-based analyst company Delta Partners. “But the problem with content is not one of demand, it’s one of supply. This is still a key inhibitor, with little local content available. Iran is the exception here.”

Malaki believes that the dawn of the IPTV era may be a driver that at least partly fixes this problem. “Most incumbents in the Gulf region are looking to provide IPTV over their broadband networks for consumers,” he says. “Du has IPTV services, and Etisalat is testing with a view to launching soon. Qtel has already launched and I believe STC and Batelco have plans. All these countries have segments of the population with a high income. The concern is whether they have bandwidth on their backbone and at access level to provision these services. There’s lots of other challenges in IPTV besides bandwidth, but that’s the main one. Most content at least is hosted locally, with little need for international capacity.”

So is the Middle East on a trajectory to match Europe and the US for content supply and demand, and indeed consumption?

“We have talked to consumers in a number of markets in the region, and I am struck by the fact that there are more consistencies than differences between the Middle East and Europe in terms of online behaviour,” says Declan Lonergan, vice president of research with analyst company Yankee Group. “There are some very well established services in countries like Saudi Arabia, the UAE and Kuwait, but some of the more advanced applications have yet to get established, like e-shopping and mapping for example. There’s an opportunity there.”

Within the Middle East, Lonergan thinks the crucial difference is not in future going to depend on where you live, but on what your social grouping is: “There’s segmentation regardless of what country you’re looking at,” he says. “Diversity in social status, and in affluence, is remarkable in places like Egypt and Saudi Arabia compared with Europe. There are huge variances in both wealth and ethnicity.” That has a bearing on content demand, and on how it should best be delivered, he believes.

Best of everything

Carl Roberts, VP of international partner services for Verizon Business, looks to the future of Middle East online content and sees a healthy and growing appetite to justify the current spending of operators and service providers on delivering services.

“The exciting thing about delivery of content in the Middle East is the potential to leapfrog to the best of everything” he says. “It is not bogged down in the same old legacy technology. People there want broadband-delivered applications, on demand, some onto their mobiles. The expectations of consumers and enterprises and government are so high. There is therefore a hunger to make sure the right platforms are in place to deliver applications and content.”

AT&T and the mobile internet in the Middle East

The major operators looking to open up the wholesale content delivery market in the Middle East are predominantly, but not exclusively, locally headquartered. US player AT&T is an example of an outsider active in the region and bringing with it experience of media distribution, plus a range of services including streaming of live and on-demand video and content storage.John Gibson, president of business development for AT&T’s Middle East and Africa division, looks around the region, and sees a lot to get excited about. “The region is undergoing tremendous development in the areas of IT and infrastructure as large multinational corporations flock to the region,” he says. “Internet penetration has grown rapidly and mobile penetration is high. Mobility in the widest sense – including mobile phone services, remote access to corporate networks from Wifi hotspots are critical components for our industry and one of the important drivers for both innovation and growth. The importance of new mobile technologies as a critical access technology for business applications is clear.”

Gibson believes the Middle East’s move to mobility is driving growing demand for IP-based services and applications: “Applications, in turn, are driving bandwidth demand,” he says. “The mobile sector continues to grow and expand beyond geographic boundaries and wireless providers are looking for more international minutes – both fixed and wireless.”

He sees considerable regional interest in triple play services, combining mobility, IP based services and entertainment: “Many of the local operators in the Gulf region have the flexibility with relatively modest legacy infrastructure to move rapidly to next generation based services,” he says. “IPTV is generating a lot of interest in a number of markets with roll-out of services in varied degrees of development. From a company perspective, our business model is sell to and cooperate with the regional Middle East carriers. In retail, we jointly sell co-branded services with them and in wholesale we sell white-label services to them to enable the carriers to expand their branded service.”

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