rajasekar & mueid, 2013 - an analysis of the telecommunication industry in the sultanate of oman...

An analysis of thetelecommunication industry

in the Sultanate of Oman usingMichael Porter’s competitive

strategy modelJames Rajasekar

Department of Management, College of Economics and Political Science,Sultan Qaboos University, Muscat, Sultanate of Oman, and

Mueid Al RaeeRegional Accounts – Process Technology andEquipment – North America and Caribbean,

UOP – a Honeywell Company,Des Plaines (Chicago), Illinois, USA and Department of Management,

College of Commerce and Management,Sultan Qaboos University, Muscat, Sultanate of Oman

Abstract

Purpose – Michael Porter’s Five Forces Model provides an ideal mechanism and framework to studythe Oman telecommunications industry’s competitive structure. The purpose of this paper is to use thismodel to identify the competitive forces that affect it the most.

Design/methodology/approach – This paper is based on empirical research. The data werecollected primarily from secondary sources such as published interviews of chief executive officers ofthe telecommunication companies in Oman, government reports, and Telecommunication RegulatoryAuthority of Oman (TRA). The authors then used Michael Porter’s five forces model to investigatethe competitiveness of the telecommunication industry in Oman.

Findings – The analysis shows that the strongest competitive forces in the industry are rivalryamong competitors and threat of substitutes. While the threat of entry and power of buyers alsohaving a significant impact, the power of suppliers is of very limited impact. Hence, the five forcesmodel impacts uniformly on all the players in Oman’s telecommunication market and have importantstrategy implications for them all. The results of this analysis are then used as a critical tool to formulateeffective strategies for industry players in the face of the changing dynamics of telecommunicationservices industry in Oman.

Originality/value – This study is one of the few papers that attempted to study the telecommunicationindustry in Oman in depth. However, this is the first research study that investigated the competitivelandscape of this industry using an established framework such as Michael Porter’s five forces model.As such, the study brought to light new insights and paradigms in competing in the telecommunicationindustry in Oman. This study also suggests new strategic directives to the incumbents, new entrants,buyers and suppliers.

Keywords Telecommunications industry, Five forces model, Competition, Industry analysis,Competitive strategy, Sultanate of Oman

Paper type Research paper

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1059-5422.htm

Competitiveness Review: AnInternational Business JournalVol. 23 No. 3, 2013pp. 234-259q Emerald Group Publishing Limited1059-5422DOI 10.1108/10595421311319825

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IntroductionThe telecommunications business has seen tremendous changes in the past decade,especially in the Middle East, with all players, from equipment providers to serviceproviders and consumers, being affected. Between 2008 and 2010, Information andCommunication Technology (ICT) services became cheaper, the price of high-speed internethalved and that of mobile cellular services dropped by 22 percent (Parkes, 2011),a transformation which has brought great benefit to consumers. The quiet country ofOman, despite sharing in these trends, remains the weakest performer in the regionaccording to the 2009 ICT Development Index, where it placed in the 71st position globally(International Telecommunications Union (ITU, 2010a, b, c)). However, it fared better on theNetworked Readiness Index, jumping 47 places in the Individual Readiness of ITsub-category and reaching 40th position globally. Its performance on the ICT GovernmentReadiness Index was even better, placing it among the top ten nations (Dutta and Mia, 2011).

The objective of this paper is to provide an in-depth study of Oman’stelecommunications industry, using what is generally acknowledged by both academicsand professionals as the most significant and influential analytical tool for assessing thenature of competition in an industry, Michael Porter’s Five Forces Model (Stonehouse andSnowdon, 2007; Porter, 1999; Ketels, 2006). A literature review reveals that there has beensome study of the transformation of government-owned telecommunication companiesinto competitive enterprises in the region, as well as some work on the setting up of newtelecom service providers. However, there has not so far been any attempt at acomprehensive study of the regional market structure. This study therefore aims tohighlight the short-term and long-term challenges that any enterprise, whether incumbentor entrant, will face in the industry in Oman and to suggest how they should deal with them.

Global telecommunication industryGlobally, the development of international telecommunications networks and services isadministered by ITU which is a specialized United Nations Agency for telecommunicationsand communication technologies. ITU developed ICT networks around the world. It hascoordinated the shared global use of radio spectrum, promoted international cooperation inassigning satellite orbits, worked to improve telecommunication infrastructure in thedeveloping world, established the worldwide standards that foster seamless interconnectionof a vast range of communications systems and addressed the global challenges.Standardization is ITU’s most well-known and oldest activity (ITU, 2010a, b, c). As a resultof its UN mandate over all telecommunication related issues, ITU is trying to ensure healthyinternational competition in the communications sector throughout the world.

There were 1.2 billion fixed telephone lines in 2009. Out of these, as of 2009,527 million were in developing countries, whereas 692 million were in developedcountries. Similarly, 4.6 billion cellular, 667 million mobile broadband, 1.8 billioninternet and 479 million fixed broadband active connections were available globally(ITU, 2010a, b, c). Figure 1 clearly shows that mobile phone subscriptions are growingat a tremendous rate at 68.2 per 100 inhabitants.

Sultanate of OmanOman is a country which has been very little studied in terms of strategic management.The telecommunication sector in Oman faces challenges similar to those that are beingfaced elsewhere; the fast-paced development that is desirable in the technological and

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telecommunications sectors serves also, however, to increase these challenges. Theimplementation of new projects related to the “e.Oman Initiative” and “Vision Oman2020” not only makes Oman a dynamic ICT-services market but also suggests that thisstudy might become a model for the study of market forces as they operate withindeveloping and semi-developed nations.

At the dawn of the 1970 renaissance in Oman, a series of sweeping reforms wereoutlined in which the free market system was made the governing economic model for thenation. Development was envisioned in five key areas, setting up corresponding ministriesto take charge of these areas. One of these key areas was the telecommunications industry(Schmidt, 1970), with the Information Ministry as its corresponding ministry. Thisindicates the critical role that information and telecommunications were set to play in theeconomy and society of Oman (Kutschera, 1970).

At least as early as 1957, radio telephone was being used in Oman (Reuters, 1957). In1970, the base of a telecommunications industry was established with the setting up ofOman Telecommunications Company (Omantel, 2010a, b). Two years later, on the28 April 1972, Oman joined the ITU and, from the late 1990s, the industry developedrapidly. Mobile phone subscriptions were first introduced in 1996, prepaid mobileconnections were made available in 2000 and fixed-line prepaid connections followed inOctober 2004 (Telecommunications Regulatory Authority (TRA), 2004). Internetservices were first introduced in 1997, with broadband services launched in December2004 and made available to residential customers in January 2005 (TRA, 2005). Thegovernment realized that high quality and cheaper telecommunication infrastructure isof key importance in the spread of the internet and ICT applications. In turn, thisproliferation of the internet promises to help countries to catch up more rapidly withthe expanding pool of knowledge (Bhatnagar, 1999).

Figure 1.Global ICT developments,1998-2009

Source: ITU World Telecommunication/ICT Indicators database

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The telecommunications industry in OmanIn March 2002, a Royal Decree gave directives for the establishment of a TRA (2004).This ushered in a new era, marked by the liberalization of the telecommunicationsmarket and the introduction of a foreign operator and many resellers, changes whichensured that the citizens of Oman would have access to modern informationcommunication technologies. As a result of the TRA’s liberalization initiatives, in 2004the corporate identity Nawras won the license to become the second mobile phone serviceprovider in the Sultanate (TRA, 2004). Nawras is the Omani Qatari TelecommunicationsCompany – a consortium of TDC of Denmark, Q-Tel of Qatar and a local partner. Theliberalization continued, as in 2008 Nawras was awarded the license for fixed line andinternet services (TRA, 2008). Very soon after, in the second quarter of 2009, mobileservice resellers, technically termed Mobile Virtual Network Operators (MVNOs)entered the market. The resellers for Omantel’s mobile services are Connect Arabia(offering Friendi and Halafoni) and Majan Telecommunications (offering Renna).Similarly, Mazoon, Injaz and Samatel are resellers for Nawras. Samatel replaced Kalaam,one of the first five companies to be awarded the Class II reselling license by the TRA.However, Kalaam later backed out and Samatel came forward instead (Karra, 2009).

The Telecommunications Regulatory Act was issued under Royal Decree 30/2002and amended under Royal Decree 64/2007. This Act established the TRA and defines,among other promulgations, the general rules of Provision of TelecommunicationsServices and Telecommunications equipment, universal service, competition,prevention of conflict of interest and realization of National Security requirements,interconnection and access, reselling, site sharing, and unbundling of the local loop.The most noteworthy part of the Telecom Regulatory Act is the compulsion that thelicense issued for the operators shall not include any terms or conditions which grantlicensee with exclusive rights (Government of Oman, 2009).

Oman currently has an estimated population of 3.1 million. It is a member ofthe Gulf Cooperation Council and has a per capita gross domestic product of$20,331.55 (IMF, 2010). According to the 2010 second quarter Telecom Sector Indicatorspublished by the TRA (TRA, 2010), there were 283,735 fixed line telephone subscriptionsas of May 2010, with 4.3 million mobile subscribers, giving an approximate ratio of127 users per 100 inhabitants. This level of mobile subscription penetration is similar tothat of other Gulf Cooperation Council countries, with Saudi Arabia having a penetrationrate of 140 for digital mobile subscriptions. The May 2010 figures for internet use show anestimated 406,655 fixed internet users and approximately 1.13 million mobile broadbandusers, bringing the estimated total of internet users to 1.54 million and the internetpenetration to 45 users per 100 inhabitants (including fixed dial-up, fixed broadband andmobile broadband users).

Figure 2, which indicates the recent history of the market, shows that the fixedphone market has very low penetration. It also shows that, until 2010, internetpenetration was also extremely low, with only 2 percent of inhabitants having a fixedinternet connection and only 12 percent having access to the internet. However, thishas changed radically with the advent of mobile broadband and, as noted earlier,access to internet has gone up to 45 per 100 inhabitants.

As of the end of Oman’s fiscal year 2009, the Omani telecommunications serviceindustry was worth $1.5 billion (RO 583 million), with two major players – Omanteland Nawras. Omantel’s total revenue, driven by a robust growth in the internet and


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data segment, is estimated to grow at a CAGR of 2.2 percent to reach $1.14 billon(RO 440 million) in 2012, from $1.07 billon (RO 412 million) in 2009. The internetand data segment as a whole is expected to grow by 15 percent to reach a $121 million(RO 46.6 million) target by the end of 2010 and $138.4 million (RO 53 million) by 2011.It is also expected to ride the next wave of growth due to the prevailingunder-penetration of the internet. Nawras, the newer player, increased its revenue by24 percent and reached $444 million (RO 171 million) as of 2009, driven mainly by themobile and 3G segment (US Research, 2010).

In the past, the incumbent Omantel had a monopoly of all fixed-line and internetaccess services. In 2008, the International Telecommunication Union classified allOman’s telecommunications sectors as a monopoly, except for the mobile cellularservices which were classified as Partial Competition as of 2005 (ITU, 2008). However,the situation changed in November 2008, when alternative mobile operator Nawras,55.6 percent owned by Qtel of Qatar, won a 25-year license to build and operatedomestic and international services, together with submarine cables and transmissionstations. The license also included spectrum rights, valid for 15 years and possiblyrenewable for a further ten years, to provide wireless broadband. Nawras pays thesame 7 percent royalties as does Omantel and was required to pay a one-time fee ofOMR 500,000 (Nawras, 2010a, b).

Nawras is building a latest generation fiber optic backbone across the country, inconjunction with WiMAX networks, and a new international gateway. It launched itsfirst fixed-line services to corporate customers in May 2010 and to the public on 19 June2010. As a result of these developments, most telecommunication service services inOman, including local services, domestic and international fixed long distance,wireless local loop, internet services, mobile data services, fixed wireless broadbandand international gateways, are classified as having full competition. Whereas the DSLsector still operates as a monopoly and the mobile and 3G sectors are classified aspartially competitive (ITU, 2011).

Figure 2.ICT developments inOman from 2005 to 2010

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Within the mobile sector, Omantel and Nawras currently have roughly equal sharesof the market but may find the future environment challenging, partly because Omanhas been the first country in the region to launch MVNOs. Five licenses have beenawarded since June 2008, with Connect Arabia’s FRiENDi becoming the first operatingMVNO in the Middle East, closely followed in May 2009 by Majan Telecom’s Renna.Both operators are targeting the expatriate population, offering low recharge amountsand competitive international rates. Connect Arabia also partnered with two radiostations to launch a second brand, “Halafoni”, in July 2009, this time targeted at youngnationals and other Arabic speakers with an emphasis on downloadable content.Two further MVNO’s were launched in 2010, both using Nawras’ network. In August2006, Oman also became the first country in the region to introduce mobile numberportability (MNP). The more competitive mobile market and the low broadbandpenetration rates provide an opening for mobile broadband services through highspeed packet access (HSPA) and next generation networks (NGNs). Both mobileoperators have launched services and have marketed them strongly with numerousspecial offers. They appear to be winning subscribers from fixed-line to broadband andthe broadband market is increasingly becoming more mobile.

Porter’s Five Forces Model for the telecommunications industry in OmanThe telecommunications industry has traditionally comprised of a club of big nationaland regional operators. Over the past decade, however, the industry has been swept upin rapid deregulation and innovation. In many countries around the world, governmentmonopolies have been privatized and face a plethora of new competitors. Traditionalmarkets have been turned upside down, as the growth in mobile services is outpacingfixed line services and the internet is starting to replace voice communication as themain business. The telecommunication market in Oman is no exception to this. In orderto operate in such a dynamic market, it becomes critical to understand the marketstructure and effectively strategize to face the challenges. Also, Mari Sako suggeststhat the study of industries as a whole adds value to the economists’ normal activity oftesting and generating theory. It provides an institutional and historical context inwhich to study organizations. Such context improves the interpretation of how andwhy different practices and institutions fit together in specific industries (Sako, 2007).

One such attempt at meaningful categorization of industries is the Five ForcesModel. The Five Forces Model provides a framework to study the industry structurein terms of the competitive forces that affect the industry under analysis.Michael E. Porter worked on the competitive forces in markets since the verybeginning. His first article with the Harvard Business Review “How competitive forcesshape strategy” was published in 1979. With the introduction of the Five Forces Model,Porter presented his arguments that competition in any industry is not only betweenexplicit industry players which we refer to as rivals, market players, industrycompetitors or competing businesses but goes well beyond that. He presented a modelwhich provides a view of all competitive forces which create pressures on prices, costs,the rate of investment and other strategies necessary to compete in the industry. Theseforces, in addition to rivalry, are customers, suppliers, potential entrants and substituteproducts (Porter, 2008). Michael Porter clarified the Five Forces Model throughcase studies (Porter, 1983) and showed its usefulness in a variety of influentialliterature (Porter, 1980, 1985, 1990).


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Porter’s Five Forces Model is a powerful tool for analyzing a wide variety ofindustries in any number of locations, given certain modifications to the boundariesof product, services and the impact of key components that determine the overall powerof each force. An important step in carrying out the analysis of the industry’scompetitiveness is to define the boundaries of the industry accurately. The boundaries ofan industry consist of two primary dimensions. First is the scope of products or services.The second dimension is geographic scope. As the definition of the industry boundaryhas direct impact on the analysis of the industry structure, it also results in strategyerrors as industry analysis itself forms the basis of business strategy (Porter, 2008).

Using Porter’s Five Forces Model to analyze the highly dynamictelecommunications industry enables us to outline the competitive structure of thisindustry in Oman. The telecommunication industry in this study is defined ascompromising of businesses that are engaged in providing telecommunication servicesincluding 2G, 3G, HSPA, NGN mobile telephone communications, fixed wired andwireless telephone, mobile internet, mobile broadband, dial-up internet and fixed wiredand wireless internet including WiMax. Satellite phone communication and satelliteinternet are not considered as industry rivals for this study, as these will showelsewhere, such as in the threat of substitutes. Similarly, Voice over Internet Protocol(VoIP) is also considered a substitute to traditional telephony for the analysis beingcarried out in this study.

In terms of defining regional boundaries, the TRA in Oman makes the job ofdefining these easier. As such, only those companies that hold class one and class twolicenses within Oman are considered within the boundary of this study. However, sinceclass two operators lease services from the class 1 licensees themselves, theircompetitive analysis needs a distinct outlook in order to construct the framework of theFive Forces Model that is useful in analyzing various players in the industry clearly.The scope of the study encompasses the telecommunication industry in Oman as hasalready been discussed earlier.

A component by component analysis of each macro-force and micro-force is used toanalyze and discuss the relevant factors, including company performances, marketreports and interviews. Consequentially, the impact on market’s overall dynamics andcompetitive structure on devising competitive strategies and telecommunicationsindustry policies is discussed. This includes an outline of the basic strategic outlook formarket incumbents, new entrants, policy makers and other relevant players.

1. Threat of entry in telecommunication sectorPorter argues that the threat of new entrants into an industry is related to the barriersto entry that exist within the industry and geographic boundaries. In order to assessthe threat of entry in the telecommunications sector of Oman, each of these barriersmust be analyzed in the context of the relevant boundaries.

(1a) Customer switching costs. Customer switching costs are fixed costs that buyersface when they change suppliers. In the telecommunication sector, it mainly depends onwhat kinds of cost consumers or buyers have to undertake if they switch from one providerto another. In the telephone (fixed/mobile) sector, this is generally dictated by regulationsthat may ensure telephone number portability, the fees charged for transfer and the ease oftransfer, including swiftness of switching and the overall experience of switching toanother provider. In many telecommunications markets, some mobile phone equipment

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(such as iPhone or Samsung) may only be available with a certain provider or phones maybe packaged with the service. Such a scenario makes customer-switching costs high.

In Oman, the TRA has provided for number portability so that customers can movefrom one provider to another without having to change their telephone numbers (TRA,2007). The process is offered free of charge by all service providers in the market.Contractual agreements are not common in the market and mobile fixed and internetusers can all shift without any additional costs. In addition, the Omani market does nothave any packages like those in many other countries, where certain networks orcontracts are only available with specific phones. All these factors mean that in Omanthere are virtually no costs associated with switching from one telecommunicationservice provider to another.

(1b) Capital requirements. It should come as no surprise that the biggest barrier toentry into the capital-intensive telecom industry is usually access to finance. To coverhigh fixed costs, serious contenders typically require a large amount of cash.When capital markets are generous, the threat of competitive entrants escalates. Whenfinancing opportunities are less readily available, the pace of entry slows down.In order to analyze the threat of new entrants based on the capital requirement, it isessential to evaluate the capital market and thus understand the availability of financefor this sector. It is an expensive business; contenders need to be large enough andproduce sufficient cash flow to absorb the costs of expanding networks andservices that become obsolete seemingly overnight. Transmission systems need tobe replaced as frequently as every two years. Big companies that own extensivenetworks – especially local networks that stretch directly into customers’ homes andbusinesses – are less reliant on interconnecting with other companies to get calls anddata to their final destinations. By contrast, smaller players must pay forinterconnection more often in order to finish the job. For little operators hoping togrow big someday, the financial challenges of keeping up with rapid technologicalchange and depreciation can be monumental. The capital requirements are the majorinhibitor to the threat of entrance in the telecommunication market in Oman. However,the presence and potential entry of cash rich telecommunication service providers withexperience in a market similar to Oman’s still poses a threat to the incumbents.

(1c) Unequal access to distribution channels. Distribution channels in thetelecommunications industry range from self-owned distribution points to any typeof shop and also to sales points with vending and automated machines. Generally,these distribution points are of negligible value to telecommunications organizationsand therefore have no impact on the threat to entry. However, if exclusive distributionrights existed at critical or highly dynamic distribution points, then unequal access tothese points might constitute a restriction to the threat to new entrants. Incumbents inOman do not have exclusive distribution rights and the distribution channels are freeto all. Recharge cards, for example, are sold widely at various retail outlets, with barbershops and laundry service centers as the non-mainstream telecom product outlets;these are not organized by the industry. Customers may not frequent these shops daily,but they do so at regular intervals. Cards are also sold in many convenience stores andare seen by managers as an excellent product as they only expire after one year but areoften sold off within two weeks. While only about 1,000 outlets sell actual SIM cards,there are more than 10,000 outlets that sell recharge cards. A number of part-timers arealso involved in the logistical chain of selling cards; through their brisk business,


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they essentially help the telecommunication companies. Aiming to facilitatecommunication for their customers, the telecom operators have adopted a variety ofstrategies for keeping these multiple players in the loop and often use differentstrategies for different entry points. For the mass market, entry is made throughdealers. but there is no single general method of entry for the premium places or thekey accounts. While potential investors must also investigate factors like investment inoutlets, sales projections, branding spots and visibility when making decisions(De, 2010), it can be comfortably concluded that there is equal access to all distributionchannels and thus this factor does not constitute a barrier for new entrants.

Another factor affecting equality of distribution is the finite amount of “good” radiospectrum, that is spectrum that lends itself to mobile voice and data applications(Investopedia, 2010). An insufficient amount of this spectrum obviously limits access todistribution channels. However, in Oman this is not an issue, as there is still plenty ofradio spectrum space available.

(1d) Restrictive government policy. While restrictive government policies can create asignificant barrier to entry in many industries, this is not the case in thetelecommunication industry where the ITU, plays a major role in reducing suchrestrictions. With 153 countries already members of the world trade organization (WTO),and about 30 more still seeking membership, the expectation is that eventually there willbe no government restrictions in the telecommunications industry anywhere in the world.However, the possibility of misinterpretation and misrepresentation of the WTO’s freetrade policy always exists. In addition, national governments may exert pressure on thefreedom of the telecommunications market in the name of security, safety measures andother legal concerns. The free market condition recommended by the ITU andimplemented through membership of ITU and WTO is thus often bypassed, and thegovernments of various countries display these bypasses in various degrees throughrestrictions and limitations on the telecommunications policy of their country. TheGovernment of Oman follows the ITU’s and WTO’s bindings on liberalization of themarket. The market is regulated by TRA and no new entrant can enter the market unlessinvited by the TRA through invitation to bid. This procedure still keeps the threat ofentrance into the market low (Table I).

2. The power of suppliersThe power of suppliers in the telecommunications industry in Oman is affected by twokey elements: the power of the network equipment providers, generally termed NEPs,and the power of the workforce, or suppliers of labor. To be strictly accurate, the term“NEP” is no longer appropriate, as many of the enterprises involved have moved wellbeyond the point of merely providing equipment and could more appropriately bereferred to as “Communications Solution Providers” (CSPs). However, because of itswidespread popularity, the traditional name is still commonly used and will be retainedin this study.

NEPs are companies that provide communication solutions to service providers likefixed or mobile operators, as well as to enterprise customers. If you call somebody on yourmobile phone, surf the internet, join a conference call or watch a video on demand throughIPTV (internet protocol TV) – these services are all NEP-enabled. The most importantcommunication solutions that NEPs provide include the following: 2G and 2.5G networksmobile networks like Global System for Mobile Communication (GSM), Enhanced Data

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Rates for GSM Evolution (EDGE) or General Packet Radio Service (GPRS), 3G mobilenetworks based on Universal Mobile Telecommunication Standard (UMTS), 3G þmobile networks based on HSPA, fixed networks which are typically based on PublicSwitched Telephone Network (PSTN), enterprise networks like Unified CommunicationInfrastructure and, finally, internet infrastructure like routers and switches.

The NEPs have recently undergone a number of significant consolidations throughmergers and acquisitions. Notable examples are the joint venture of Nokia and Siemens(Nokia Siemens Networks), the acquisition of Marconi by Ericsson, the merger betweenAlcatel and Lucent and many numerous acquisitions by Cisco (George Bailey, 2007). Thepower of these suppliers depends on a number of factors, namely: the level ofconcentration of the NEPs, whether or not they depend heavily on the telecommunicationservice providers for their revenues, the costs to the telecommunication service providersof switching NEPs and the level of differentiation of products. It is also relevant to notehere that there is minimal threat of forward integration by NEPs.

The power exerted by workforce suppliers is the second element; it is affected by theavailability of a qualified and experienced telecommunications sector work-force andalso by the consolidation in the regional labor market in the telecommunications sector.

Force

Overallimpact offorce Sub force

Overallimpact ofsub force Factor Condition

Impact offactor onentry

Threatofentry

Moderate Customerswitching cost

High threatof entry

Regulation Favorableforswitching

High threat

Equipmentchange

Notrequired

High threat

Servicepackaging

Notexisting

High threat

Capitalrequirements

Moderatethreat ofentry

Contractuallimitations

Notexisting

High threat

Capital marketconditions

Recession Low threat

Customerswitching cost

High threatof entry

Internationalcash richoperators

Present High threat

Incumbencyadvantages

Low threatof entry

Network Incumbentnetworks

Low threat

Localknowledge

Yes Low threat

Brand identity High Low threatUnequal access todistributionchannels

High threatof entry

Exclusivedistributionrights

None High threat

Radio spectrumlimitations

None High threat

Restrictivegovernment policy

High threatof entry

Regulatory law Liberal High threatPractice byTRA andgovernment

Licensingrequired

Moderatethreat

Table I.Summary of threat

of entry in Omantelecommunications

market showing subforces and factors

impacting thecompetitive structure

of the market


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Both of these issues need further investigation. An analysis of the impact of the laborunions and the role they play in determining the power of the workforce suppliers in anyindustry is also relevant to the telecommunications industry in Oman and elsewhere.

Another consideration that has to be made in telecommunications markets is that ofservice providers such as VNOs. These VNOs may themselves be leasing networkspace from telecommunication service providers who have widespread networks in theregion. As such, the suppliers for the VNOs are the telecommunication serviceproviders with widespread networks and this supplier and industry participantrelationship has to be looked into.

For network operators, the Omani telecommunications market is similar to that inany other country. Consolidation among CSPs by convergence leads to a greaterdependence on a few large clients of suppliers, which should generally mean lowerbargaining strength for telecommunications service providers. However, due to theresultant pressures on their profitability, service providers are increasingly looking atlowering their operating costs and capital expenditure (lowering the cost persubscriber) and this is putting pressure on NEP margins. Switching from PSTN toNGN increases the use of standardized network components (COTS) at the expense ofmore proprietary equipment, a process which has reduced the bargaining power ofsuppliers. Software increasingly replaces traditional network components. What thismeans overall is that the power of network equipment suppliers is low in the globaltelecommunications market, and the same holds true for Oman.

The role of trade unions is still uncertain in Oman. Prior to 2006, trade unions werebanned under Oman’s labor law, along with collective bargaining and strike action. In2006, a Royal Decree legalized the formation of trade unions, as well as collectivebargaining and strikes. After nearly two years of delay from the proposed date ofholding the founding congress of the trade unions, the General Federation of OmanTrade Unions (GFOTU) was established in February 2010. At this point, 50 Omanitrade unions have elected some 100 delegates to the congress and named Saoud AliAbdullah Al Jabri as the GFOTU President. The move represents a significantdevelopment for the country’s budding trade union movement (Martins et al., 2010).

Another key issue is the policy of Omanisation, the replacement of expatriate workerswith local staff. In a deteriorating economic environment, the “Omanisation” policy maybe relaxed further, following the Ministry of Manpower’s decision in February 2009 toreverse a previous government edict banning expatriate workers from certainprofessions. However, the government is committed to continuing to fund highereducation and training in order to develop local professional and technical expertise. It isalso urging the private sector to provide more employment opportunities for Omanicitizens and to agree on and meet specific targets. Despite changes in Omani labor law,supply-side problems remain – in particular, the greater cost of employing locals and theadditional rights they enjoy once in a job – and are likely to slow down the progress ofOmanisation (Shakeel and Butter, 2009). The success of the policy is also likely to beundermined by the gradual implementation of the GCC common market, which shouldeventually allow Omani nationals to seek employment freely within the six-memberbloc. The attractions that neighboring countries may offer to highly skilled Omanis,such as better wages, could reduce the number of well-trained local staff. Ultimately,then, the power of the labor supply market remains high (Table II).

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3. The power of buyersBuyers of telecommunications services include both individual and corporate buyers.The most influential factors in their decision making are price sensitivity and theperceived quality of service. Price sensitivity is a function of the overall buying behaviorof buyers in the market, the income of the buyers and the value that is accorded by thesebuyers to the products and services offered by the participants in thetelecommunications industry. Moreover, it is natural that companies are much morelikely to achieve superior profitability and earn above-average profits if they are able tofind a unique way of delivering superior value to customers. The negligibility ofswitching costs for buyers has already been discussed in the sub topic of customerswitching costs under the discussion for threat of entry in the telecommunication sector(point 1a above) and is a critical factor when investigating the power of the buyer.Another important factor which influences the power of the buyer is the availability ofinformation about the variety of products and services available in the market.

Low switching costs increase the power of the buyer, while lack of information doesthe opposite. In the Omani market, buyers’ price sensitivity is moderate, with customerservice and quality also being highly significant. There are only two network operatorsproviding fixed and mobile telephone and internet services and, although MVNOsexist, their impact on buyer power is limited as they only provide services throughnetworks from the two key operators.

The price of telecommunication services also plays an important part in the powerof buyers. These prices are significantly higher than others in the region. Oman has anIPB of 1.64 (ITU ICT Price Basket as a percent of GNI per capita). This is the secondhighest in the GCC region, where Kuwait, the United Arab Emirates, Bahrain andSaudi Arabia all have lower telecommunication service prices as a percentage of GNIper capita, with their IPBs standing at 0.37, 0.82, 0.87 and 1.02, respectively,(ITU, 2010a, b, c). The IPB is reflective of the power of the buyers in the market, withhigher pressure from buyers leading to a more competitive pricing structure and alower IPB Index. Overall, then, the power of buyers in Oman’s telecommunicationsmarket, and their competitive pressure, can best be described as moderate (Table III).

Force

Overallimpact offorce

Subforce

Overall impact ofsub force Factor Condition

Impact of factoron supplier

Power ofsuppliers

Low NEPspower

Low power ofsuppliers

Concentrationof NEPs

High Low power

NEP switchingcosts

Low Low power

NEPs productdifferentiation

Highlystandardized

Low power

Laborforcepower

Moderate powerof suppliers

Influence oflabor union

Low Low power

Qualifiedworkforceavailability

Low High power

Table II.Summary of power

of suppliers in the Omantelecommunications

market showing subforces and factors

impacting thecompetitive structure

of the market


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4. Threat of substitutesThe fourth force that Porter identifies is the threat of substitutes; a substitute performsthe same or a similar function as an industry’s product but by different means (Porter,2008). The main substitutes in the telecommunications industry as defined in this studyare calling cards, internationally- or foreign-managed VoIP services, satellite internet,satellite phones and NGNs. In order to analyze the threat of substitutes, it is essential tolook at the price-performance trade-off between the substitute and the industry’sproduct. Porter himself, for example, highlights the suffering of conventional longdistance telephone service providers following the introduction of inexpensiveinternet-based phone services such as Vonage and Skype (Porter, 2008). It is also vitalto look at each substitute individually and determine the buyers’ switching cost.

Substitutes offer the greatest threat when they can provide buyers with betterservice at lower costs through changes that improve the value of their products orservices. Under the country’s Telecommunications Law, the unlicensed provision ofinternational phone calls using VoIP is illegal in Oman and punishable with a jail termof up to two years or a fine of up to RO 50,000 ($130,000). However, nearly one-third ofOman’s population are expatriates, many of whom are poorly paid, so demand forlow-cost international calls is high and entrepreneurs have been prepared to flout therules to meet rising demand. This year, the Royal Oman Police launched a campaign tocrack down on the violators. According to a report by a local English-languagenewspaper, the Times of Oman, in early November 2009 over 200 people had beenarrested following raids on more than 100 homes and shops. Omantel also blocked thepopular Skype VoIP internet site in an effort to shore up its profits from internationalcalls (Shakeel and Butter, 2009).

An interview with Dr Mohammed Ali Al Wahaibi, Under Secretary forCommunications in the Ministry of Transport & Communications, offers a clearerpicture on the status of VoIP substitutes and NGNs based on internet protocols:

We are currently undergoing the process of reviewing this and the TRA has gone a long way. In2010, we’ll regularize VoIP. There have been certain instances of many resellers, say cybercafes, providing VoIP to consumers. They have been targeted by the authorities as they haveviolated the Telecom Regulatory law. The TRA will be introducing a regulation to accept VoIPas a legal service. As a consumer, you might have a frustration as a result of the delay. We donot have any problem in introducing it, but the operators are not ready. They are actuallyexperimenting VoIP services for international calls. They also have to design their VOIPproducts. The traditional telecom networks are giving way to new converged platforms basedon new generation networks that are based in IP protocol. The quality offering differencesthrough the traditional network and IP call are being bridged now. If the service providers do

Force



Factor of impact onbuyers

Powerofbuyers

Moderate Notapplicable

Notapplicable

Price sensitivity Moderate Moderate power

Switching costs Negligible High powerProduct or serviceinformationavailability

Low Low power

Table III.Summary of powerof buyers in Omantelecommunicationsmarket showing factorsimpacting thecompetitive structure ofthe market

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not build products around the VoIP they will eventually lose this market because new entrantsmay tap into this segment. But they have to act very fast (Bhatnagar and Al Fori, 2010).

The TRA has yet to declare the VoIP policy in Oman and thus the threat of thissubstitute looms over the incumbents continuously. Satellite phone and satellite internetremain a threat for the future. However, until better service provision and lower rates canbe guaranteed, the threat from this kind of substitution remains low. The overall impactof substitutes, however, is driving prices down and remains appreciable, due to VoIPand other alternatives such as online voice chatting and international video conferencing(Table IV).

5. Rivalry among existing competitorsPorter’s fifth force is rivalry, which may be defined as the efforts that industry playersor existing competitors make in order to sustain and improve their market share,revenue, profitability and image. High rivalry limits the profitability of an industry. Inthe telecommunications industry, all aspects of rivalry, including price discounting,introduction of new products, service improvements and advertising campaigns playan important role. According to Porter, the degree of rivalry depends on the intensityas well as the basis of competition (Porter, 2008). The analysis of rivalry in thetelecommunications industry in Oman can be modeled as follows.

(5a) Concentration, size and power of competitors. In the telecommunicationsindustry, as in any other, the number of competitors is important as all the competitorshave to share the same pie. In the industry under review, size refers to the size ofnetwork and coverage. Some telecommunication service providers may have limitedcoverage and thus less influence and market share. In addition, VNOs are generallysmaller and thus do not have as major an impact on competitive rivalry as corenetwork operators do. The financial strength of the industry players gives animportant indication of their power and hence their ability to pressure their rivals.Government regulatory authorities may also play a role in limiting the concentration ofthe industry rivals to a position deemed appropriate for industrial growth and health.

The fact that there are only two network operators in the Omani telecommunicationsmarket means that concentration in the operator and service provide sector is low,resulting in a relatively low competitive pressure. The Average Revenue per User (ARPU)for Nawras and Omantel dropped from Rial Omani 10.1 and 13.1 in 2007 to Rial Omani 7.5and 10.6 in 2009, respectively. It is clear that even though the ARPU has dropped due tocompetitive pressures, it remains appreciably stable and high in comparison with othertelecommunication service provider markets. The rivalry situation in the MVNO

Force


Overall impact ofsub force Factor Condition

Impact onsubstitutes

Threat ofsubstitutes

High Notapplicable

Not applicable Availability ofsubstitutes

Low Low threat

Price-performancetrade-off

Low High threat

Switching costs Low High threat

Table IV.Summary of threat

of substitutes in Omantelecommunications

market showing factorsimpacting the

competitive structureof the market


247

segment, however, is likely to be rather different, as there are six MVNO networks leasingeither from Omantel or Nawras; these MVNOs are promising to compete vigorously.

In general, the network coverage and financial strength of both the major operatorand providers is a significant factor in their competitiveness. However, due to the Omanimarket being largely an oligopoly, competitive rivalry at present is indirect and discreet.The regulations, however, do not limit the number of entrants in the market. The TRAitself prefers investors who are more infrastructure-based because they add more value.In an interview, Dr Mohammed Ali Al Wahaibi, Under Secretary – Communications,Ministry of Transport & Communications commented about the liberal market situationin Oman as an answer to the question “What is the need to have so many telecomoperators in the country as the penetration levels are in excess of 100?”:

We do understand the developments in the market and value the importance of quality players.But you see the TRA and the Ministry cannot reject companies seeking a certain type of licenseif they fulfill the criteria and have a strong business case. We do highlight the complexities andissues involved to the investor and if the investor insists on pursuing the opportunity, weusually allow them to go ahead and let the market decide. In general, we prefer moreinfrastructure-based investors because they add more value not only to the customers but alsoto the economy as well. They make significant investments and generate employment in themarket. As a result, there’s a cascading value effect. However, due to our small market size,difficult terrain and horizontal distribution of the inhabitants, it is not easy for theinfrastructure-based investors (Bhatnagar and Al Fori, 2010).

An examination of the financials of Omantel and Nawras offering a picture of theirfinancial strength is shown below. According to Table V, though Nawras’s 2009revenue (US$171 million) is much lower than Omantel’s (2009, US$357 million), Nawrasfares better when comparing the net income to the revenue generated in 2009.

(5b) Rate of industry growth. When looking at the rate of industry growth, bothpresent and prospective, each service provided, namely fixed and mobile, voice andinternet communication service, must be analyzed individually. There are generally twotypes of growth; one is related to actual growth in buyers willing to buy services

Nawras Omantel2007 2008 2009 2007 2008 2009

Revenue 94 138 171 309 361 357EBITDA 25 53 87 192 213 213Net income 8 20 41 113 119 125ARPU (RO) 10.1 8.4 7.5 13.1 12.6 10.6Subscribers (’000) 1,016,885 1,510,865 1,860,763 1,461,029 1,704,957 1,888,306GrowthRevenue (%) Na 48 24 28 17 21EBITDA (%) Na 111 63 19 11 0Net income (%) Na 148 112 39 6 5ARPU (RO) (%) Na 217 211 26 24 216Subscribers (’000) (%) Na 49 23 17 17 11MarginEBITDA (%) 27 39 51 53 52 52Net income (%) 8 14 24 31 29 30

Source: US Research (2010)

Table V.Financials of Omanteland Nawras

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provided by the industry and the other is the growth in potential buyers who were notable to acquire the product or service due to lack of information or lack of reach of theindustry product or service provider. In the telecommunications industry, the rate of theindustry’s growth is monitored mainly through the penetration rates of individualservices provided in the market.

Mobile phone penetration is currently hovering at rates of 127 percent, but there isstill room for growth. The penetration rates on internet and fixed line are very low, whichmeans that growth in consumers of these telecommunication services has yet to beexhausted and is therefore guaranteed. As such, there is growth in the pie and thecompetition is not about sharing the same pie but is about reaching out to newercustomers and growing the pie itself.

(5c) Exit barriers and commitment of rivals. Exit barriers may arise in thetelecommunications business because of its very nature: the extensive networks,specialized assets and agreements for providing services with regard to contractual andgeneral commitments. Also, management may simply be highly devoted to a particularbusiness. It is very important to note that a license to operate telecommunication networksand services may be provided as a package, including fixed and mobile telephone,internet and other services. Operators may therefore have to stay in one area oftelecommunications service provision despite earning low or negative returns. Exitbarriers may result in extensive competitive pressures as excess capacity remains in useand the overall market profitability suffers because of the under-performing of theindustry players.

Moreover, the telecommunications industry almost everywhere in the world hasgovernment-owned players in the market. This government ownership keeps thecommitment to staying in the business very high, as the reasons for staying in businessare not solely profitability but also the desire to provide jobs and ensure healthyinfrastructural development. These government-linked players usually competeaggressively with other telecommunication service providers in the market. In Oman,both the firms currently in the market are fully or partly government-owned. The OmaniGovernment owns a majority share in Omantel and Nawras is a conglomerate linked tothe Qatari Government-owned Qtel. For this reason, the commitment, ego and desire tostay in the market is very high. Exit barriers are also significant because players makehuge investments in networks and network equipment and firms are committed tooperating through to the end of their license periods.

The situation is very different in the MNVO market. The exit barriers are muchlower and there are far more players in the market. It is therefore no surprise that, outof the six firms originally granted MVNOs licenses, two of the initial awardees havealready exited the market without starting operations. It is expected that, given the lowexit barriers, more players may exit from the MVNO market. Despite this difference, itis generally considered that the competition in the overall market will remain driven bythe owners and operators and that the overall exit barrier that impacts competition inthe market will therefore remain high.

(5d) Familiarity among rivals. Telecommunications companies often competethrough diverse approaches, but if the competitors do not understand these approacheswell, the rivalry may be intensified. One important sign of this may be the copy-catapproach to pricing and product or service offerings, as this is indicative of a lack of


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differentiation and target marketing and shows instead more aggression in the effort toundermine or destroy the rivals’ efforts in marketing and product differentiation.

In Oman, due to the TRA and the fact that Omantel and Nawras generally operatein similar regions, the familiarity among rivals is considerable. There is considerablematching in the product and price packaging and also similar market tactics. However,both approach the customers in their own unique way. This cannot, however, be said ofMVNOs as they have demonstrated a more aggressive behavior and copied otherMVNOs targeting strategies. Overall, familiarity among rivals is only moderate anddoes not have an obvious impact on rivalry in the market.

(5e) Price competition. In the telecommunications industry, the products offered aregenerally similar. Fixed costs are high and marginal costs are low, so capacity must beexpanded by a large increment to be efficient. The services provided by the networkoperators and service providers and VNOs are perishable; this is because every minutethat people are not talking or utilizing the available bandwidth for internet orbroadband, the service is unrecoverable in terms of returns for the operatingorganization. All these factors make price competition particularly high in the industry.However, regulations often cap competitive price cutting. The degree to which rivals arewilling to engage in price wars also depends on whether the market is a monopoly or anoligopoly and whether it is partially or fully competitive.

Although both Samatel and Mazoon Mobile are upbeat about their impendinglaunch, market watchers feel that it will not be easy for these players, as there arealready four players operating in the mobile telephony market. Friendi Mobile has beenshrewd enough to concentrate on its target segment – expatriates from the Indiansubcontinent – but Renna has been hard on Friendi’s heels trying to get a share of thesame customer base. The ensuing competition has triggered a price war, forcing all themobile operators to slash their international call rates for fear of losing the large andlucrative expatriate population living in the country. Friendi Mobile went one stepfurther and tied up with Idea, a mobile company operating in the southern Indian stateof Kerala; it then offered a call price that is lower than the existing call rates originatingfrom and terminating with Idea. This is a strategic move for Friendi because, out of the600,000 Indians living in Oman, at least half hail from Kerala.

Price competition has started to become very important in the Omanitelecommunications market and is certain to become stronger in the future. As Nawrasonly entered the internet and fixed line service provision market on 19 June 2010, it is yet tobe seen what the impact will be on the incumbent Omantel’s pricing strategy. However,there is no doubt that, just as the advent of Nawras in the mobile sector has driven downprices, the case will be the same in the fixed internet and fixed phone product or servicesegment.

(5f) Competition on dimensions other than price. Competition in thetelecommunications industry also involves product and service features, supportservices and brand image and can be investigated by analyzing the differentiation andtargeting strategies of the service providers, product and service features and also otherfacets of the various product and service offerings. Antitrust and legal measures are alsorelevant when also assessing the extent of the competitive rivalry in thetelecommunications business.

Mohamed Al Hashili, Chief Executive Officer of Mazoon Mobile, talking about theirstrategy for taking on the competition, notes:

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We are designing our products in such a way that mobile users will cherish our SIM cards asa valuable commodity, like an ATM card, instead of throwing it away after using up thecurrency in it, as it is happening with the present mobile companies (Karra, 2009).

Dr Wael Taher, CEO of Samatel, also stated that they have a multi-directional businessstrategy. The company is planning to start a pre-paid mobile service but will also set up acontact center which will aim to attract outsourcing businesses such as managementservices, consultancies, etc. Samatel’s building in Ghala will house a 140-seat contactcenter as well as its mobile operations. Another contact center will be established inMawaleh with a capacity of 600-700 seats. Samatel has tied up with Teleperformers, thebiggest outsourcing company in the world, which has over 75,000 seats in around15 countries. Samatel has also entered into an agreement with Effortel from Belgium,a mobile virtual network enabler (MVNE) which facilitates the entry of companies intothe mobile reselling business.

Nawras has also been competing through a variety of advertisements. When MNPwas introduced in August 2006, thousands of new customers moved to Nawras whilekeeping their existing number. MNP gained particularly high visibility thanks to theparticipation of Oman’s popular international goalkeeper, Ali Al Habsi, who becameNawras’ MNP Ambassador. Al Habsi appeared in an extensive advertising campaignwhich helped to generate widespread awareness of the service (Bhatnagar and Sarkhel,2010). In over three years of MNP in Oman, almost nine out of ten customers withinterests in sports opted for Nawras. It is obvious, then, that the network operators andVNOs are together creating a mix where the MVNOs target niche markets in closecoordination with their host operators. Also, the MVNOs target the rivals of their hostoperators, just as in the case of Arabia Connect, the parent company of Friendi whichlaunched Halafoni, a separate brand targeting the youth of Oman; a step which directlytook on the Shababiah brand of Nawras.

In addition, the Omani telecommunications market has been subject to periodiclawsuits that target the operators’ promotional or general activities as going beyond theregulations as dictated by the TRA. One such incident was the shutting down of Nawras’OPAL offer, which offered large discounts to corporate consumers and was then extendedto general consumers. Incidents like these provide clear evidence that rivalry in Oman’stelecommunications industry goes far beyond price competition and is present in allzones, creating a highly dynamic market with intense competitive pressures (Table VI).

Managerial implications, recommendations and future research directionsThis Five Forces Model analysis of the telecommunications market in Oman has anumber of implications that can be used by ICT companies to strategize future actionsand improve their market standing. The model can also be interpreted and used by allthe players in the market: incumbents and potential new entrants, as well as Omanipolicy makers such as the TRA.

As shown earlier, the threat of entry into the telecommunications market remains at amoderate level. This means that if the incumbents want to stay ahead in the market theywill have to be on high alert. One tactic they might adopt to discourage new entrants is toincrease the customer switching cost by introducing new barriers such as servicepackaging and equipment locking. As customers are accustomed to being free to use thedevices of their choice, they may be resistant to and resentful of equipment lockingbut attractive service packaging is a strategy that multiservice providers should


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look at seriously. Such packages, that include mobile, land and internet communication,could not only attract customers but also create higher barriers to customer switching.A second area of incumbents’ concern about the threat of new entrants is the fact thataccess to distribution channels remains open and the government favors furtherliberalization of the market, while at the same time offering only limited licenses to theincumbents who have to ensure that these license terms are met. Thus, althoughincumbents have advantages, such as established networks, local knowledge and brandidentity, meeting the complete set of government rules means that they will have to lower

Force



Impactonrivalry

Rivalry amongexistingcompetitors

High Concentration,size, power

Highrivalry

Networkoperators

2 Low

Number ofMVNOs

6 High

Financialstrength

High High

Industryconcentration

High High

Regulation forlimiting no ofcompetitors

None High

Rate ofindustrygrowth

Moderaterivalry

Past growthrates

High Low

Penetrationmobile sector

Moderate High

Penetration ratesin fixed andinternet

Low Low

Exit barriersandcommitment

Highrivalry

Specializedassets

Yes High

Commitment High HighFirm ownership Governments High

Familiarityamong rivals

Moderaterivalry

Signal readings Moderate Moderate

Pricecompetition

Highrivalry

Similarity ofproduct orservices

High High

Fixed costs High HighMarginal costs Low HighRegulation onprice cuts andpromotion

High Low

Competitionon otherdimensions

Highrivalry

Service features Varying HighDifferentiationstrategies

Nichetargeting

Low

Advertisementand marketing

High High

Litigation andlegal action

High High

Table VI.Summary of rivalryamongst competitorsin Omantelecommunicationsmarket showing factorsimpacting thecompetitive structureof the market

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their profitability by ensuring service provision to market sectors that may offer lowrevenue or be unattractive in terms of profit margin. Hence, the incumbents in Omanmust develop a sustainable economic model that will provide services that not only areaffordable for the consumer but also maintain the profits of the operators. It has alsobeen suggested that improving the quality and reducing the cost of telecommunicationservices results in the improvement of a country’s overall economic performance(Varoudakisa and Rossotto, 2003). For example, recent studies suggest that increasingbroadband penetration by 10 percent can increase a country’s GDP by 1.3 percent(Toure, 2010). Telecommunications development is thus the key to improving internalefficiency, competitiveness and strength (Table VII).

On the more positive side of the picture; the moderate level of the threat of entrymeans that the only new entrants in the market will have to be regional operators withplenty of money and advanced low-cost technology solutions. Such regional andinternational cash-rich operators do exist and are constantly evaluating theadvantages of entering the Omani market. While such potential new entrants maybe attracted by the low customer switching costs and the availability of distributionchannels, they will be discouraged by the knowledge that they would have to competewith the current market players whose incumbency advantages are very high.

Perhaps the most interesting aspect of the level of the threat to entry lies in the roleof the government’s independent regulatory authority, the TRA. Threat to entry is animportant tool which the government uses to protect the rights of the customers andensure that the incumbents meet the needs of the market. It achieves this through itspolicies, especially its control of regulation and deregulation. In our view, it isimportant for the TRA to maintain a balance and keep the threat of entry at a moderatelevel. This will ensure that the market maintains a healthy degree of competition andalso that companies’ profitability is maintained within acceptable and reasonablelevels. It is also important that the authorities clearly demonstrate their desire to makethe latest advances in telecommunications available to the majority of the population.One way that the TRA could increase penetration in fixed broadband communicationsmight be to introduce an internet-provider license only, rather than the typicaluniversal service provider model that they have followed thus far. The rationale behindit would be easy to explain; such a license is necessary because the incumbents haveachieved only a low level of penetration in this area (Table VIII).

The second of Porter’s Five Forces is the power of suppliers, a force which our analysishas shown to be low. This factor, when seen in isolation from the effect of threat to entry,impacts uniformly on all the players in Oman’s telecommunication service providersmarket and has important strategy implications for them all. First, the low-level power ofsuppliers enables the service providers to benefit from the best technology at lower costs,maximize their own profits and switch if required or necessary, since NEP switching

Porter’s Five Forces Overall impact of porter’s force

Threat of entry ModeratePower of suppliers LowPower of buyers ModerateThreat of substitutes HighRivalry among existing competitors High

Table VII.Summary of Five Forces

Model of Omantelecommunications

industry


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costs are low and the products offered are highly standardized. The picture is differentwhen looking at the strategy for dealing with the power of labor force supply and themarket dynamics involved are very interesting. The key factor here is the lowavailability of qualified workforce, which means that the incumbents must make greatefforts to ensure the highest levels of worker satisfaction. In addition, although theinfluence of labor was initially low, it is increasing rapidly. This is because, as thetelecommunications market is a service market, it is extremely dependent on high levelsof customer satisfaction and an excellent degree of customer service. All employees,therefore, from engineers to sales and marketing representatives, have to deliver the bestservice possible in order to ensure that the consumers continue to demand and respect theincumbent company. For this to be achieved, the organization in turn has to have fullysatisfied employees: customer satisfaction is thus dependent on employee satisfaction.

The power of suppliers is closely linked to the third of Porter’s Five Forces, thepower of buyers. In order to maintain their customer base and also win new customers,the incumbents have to ensure the highest level of service, partly to counter the factthat any new entrant in the market will benefit from low switching cost and areasonable level of price sensitivity among the consumers. The incumbents, as well asany new entrant to the market, may also take advantage of the current lack of solid,customer-focused and easily-available product information. In order to do this, theymust ensure that any new information material produced will highlight the benefits ofthe services and products that they offer. This will be especially beneficial to the firmthat can explain the real benefits to the consumer in the simplest of terms. Theregulating authority, the TRA, should also be involved here, ensuring that allinformation about the companies’ services is impartial and independent and thusguaranteeing that the competition is fair.

Porter’s fourth force is substitutes, which in this industry means new technology intelecommunication services and substitutes to current modes of telecommunication.Substitutes of this nature pose a substantial threat to incumbents; a threat which is closelyrelated to the threat of entry. The regulators have so far leaned toward the incumbents andhave allowed them substantial leverage in order to tackle the threat of substitutes. Forexample, the TRA had promised to deregulate the VoIP sector at the end of 2010, but by theend of 2011, a full year later, this had still not been implemented. However, pressurefor deregulation is mounting from both the ITU and the public; both see it as necessary foreconomic and technological progress and also for the development of the communicationsindustry in Oman. When this deregulation takes place, the incumbents will have to deviseeffective strategies to deal with the threat it represents. One possible strategy, and one that

YearFixed line connection

penetrationMobile connection

penetrationFixed internet

penetrationInternet users

penetration

2005 8.84 44.4 1.65 9.62006 8.97 58.6 2.06 1.22007 8.36 78.0 2.19 12.72008 8.28 97.2 2.24 13.02009 7.72 116.0 2.30 13.32010 8.30 127.1 2.05 12.0

Source: TRA (2010); telecom sector indicators

Table VIII.Telecom sectorindicators for Omantelecommunicationsmarket

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has been used globally, is bundling. An important aspect of ICT bundles that has so farbeen missing from the Omani market is Internet Cable Entertainment. Given that all themodes of communication are slowly converging over the internet (whether onconventional or mobile broadband technology), the introduction of entertainmentpackages may be the key that provides consumers with a good reason to opt for onetelecommunication service provider over the other. There is also the option of entering intoprofit or revenue agreements with global telecommunication service providers in returnfor letting them use the bandwidths that have been allocated to service providers withlicenses to operate in Oman. Such arrangements would need the comprehensiveinvolvement of all parties involved. These parties would include but not necessarily belimited to the TRA, the local Omani ICT companies and international service providers(such as VoIP services, satellite phone or satellite internet service providers).

The last of the forces analyzed, namely rivalry, holds both good and bad news for theincumbents. As explained earlier, there are only two network operators (excludingVNOs), and the high level of rivalry that exists between them helps to keep the threat ofnew entrants low. Moreover, the fact that they are both government players also resultsin a high level of commitment and thus high exit barriers. Porter argues that, if possible,it is best to avoid industries where there is cut-throat competition (Hopkins, 2008).However, in the Omani telecom industry, players are not only locking in their owncustomers by introducing innovative new products which their competitors then adopt,but are also attracting their competitors’ customers through MNP (mobile numberportability). Competition over pricing is also high, but we recommend that the operatorsstop this kind of competition because it will only lower profit margins for both players.The ideal strategy, rather, is to compete in other areas and, indeed, this kind ofcompetition is already being implemented by all the players in the market. The mostimportant factor in our analysis of competition is the rate of industry growth. While pastgrowth rates have been high, and growth is expected to continue in all sectors, the mostnoteworthy factor is the low rate of internet penetration. The next important step in themarket will almost certainly be the ICT organizations exploiting the huge gap created bylow internet penetration in the telecommunications market of Oman. The future winnersin Oman’s telecommunication service providers market will be those whose strategiespull the service offerings together and those who aim to penetrate the internet market.

LimitationsIn conclusion, this study is by no means exhaustive and does leave some areas unexplored.For example, the analysis does not explicitly classify the impact of the forces on oneanother and it would be profitable to further investigate this topic. In addition, the study islimited in its linking of the analysis of the impact of the forces on the firms’ strategies andonly uses indicators to assess the market structure. It would therefore be useful to analyzethe Five Forces Model and its application by getting actual data from a longitudinalperspective on how the firms are currently shaping their strategies. Such an analysis couldalso help to identify potential gaps in the strategies that must be filled if players are tocounter the negative impact and harness the opportunities created by market forces.Moreover, as discussed earlier, the impact of restrictive government policy on the threat toentry and threat of substitutes is critical to the future status of the telecommunicationssector in Oman. For Oman to achieve significant growth on the ICT Development Index, itis crucial that the government establishes full deregulation of the market. Where such


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deregulation will speed up the development of ICT services in the country, incumbentsneed to be well prepared to deal with any resultant changes in the market, especiallybecause – given the dynamics of the telecommunication industry – these are likely tohappen suddenly and without much warning.

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AppendixGlossary3G Third Generation4G Fourth GenerationADSL Asymmetric Digital Subscriber LineARPU Average Revenue per UserCEO Chief Executive OfficerEDGE Enhanced Data Rates or GSM EvolutionGDP Gross Domestic ProductGSM Global System for Mobile CommunicationsHSPA High Speed Packet AccessICT Information and Communications TechnologyIP Internet ProtocolISDN Integrated Service Digital NetworkITU International Telecommunications UnionMNP Mobile Number Portability

CR23,3

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MVNE Mobile Virtual Network EnablerMVNO Mobile Virtual Network OperatorNEP Network Equipment ProviderNGN Next Generation NetworksNNP National Numbering PlanTRA Telecommunications Regulatory AuthorityUSO Universal Service ObligationVNO Virtual Network OperatorVoIP Voice over Internet ProtocolWTO World Trade Organization

About the authorsDr James Rajasekar is an Assistant Professor in the Faculty of Management Department atthe College of Economics and Political Science, Sultan Qaboos University, Muscat, Oman.He specializes in the fields of Strategic Management and International Business. He has over22 years of teaching, research, training, and consulting experience in the fields of StrategicManagement, Strategic Leadership, Cultural Influences in Management, and InternationalBusiness in addition to wide ranging academic administration. He has received manycommendations for excellence in teaching. His research articles have appeared in National andInternational journals and were shared in a number of conferences and seminars. He received the“Best Paper Award” from Emerald Insight during the year 2010 for an article on “Strategicalliances in the airline industry”. He has been a consultant with several governmental agencies,public and private sector organizations and also trained middle and senior level executives inthose organizations. He has contributed to institution building and corporate governance bybeing in the board of the governing bodies of academic institutions. He was also one of theCountry Coordinators for India for the GLOBE Project – Phase III between 2000 and 2003. Hisforthcoming book, “Culture and Gender in Leadership: Perspectives from the Middle East andAsia” will be published by Palgrave Macmillan during early 2013. James Rajasekar is thecorresponding author and can be contacted at: [email protected]

Mueid Al Raee is Visiting Adjunct Faculty at the Department of Management, College ofCommerce and Management, Sultan Qaboos University, Sultanate of Oman. He also works atUOP – a Honeywell Company, in the USA.


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