Middle East & North Africa Telecommunications

KUWAIT: The telecommunications market in Jordan has developed in line with other regional peer countries based on fixed and mobile penetration rates. In terms of addressing the “digital divide”, the policy of the government is to encourage the widest possible access to communications services at affordable prices. Steps to achieve this objective include the encouragement of private sector participation and investment in those services that are currently open for competition.
The Jordanian market has a relatively young population, about 45% of which are below the age of 20 and a low GDP/Capita of $3,280 in 2005. The penetration rates in both fixed line and mobile services are still relatively low compared to those observed in the GCC countries. The number of fixed line subscribers was 0.67mn at the end of 2005, representing a penetration rate of 12.2%. In contrast, the mobile market has grown very rapidly and there were 3.13 million subscribers at the end of 2005, implying a penetration rate of over 57%. The data communication market is currently very small, with 2% penetration rate for internet services. Growth for data communication services is however expected to be explosive in the coming years as the demand for internet related services has been vigorous.
Till December 2004, the Kingdom was served by one fixed line operator, the incumbent Jordan Telecom (JT), which is jointly owned by the Jordanian government and a consortium led by France Telecom (FT). In May 2005, Batelco of Jordan was given the second license to provide fixed line telephony services in Jordan. Mobile services are available through three GSM mobile operators. Fastlink was the first operator which first introduced the mobile service in 1995 and benefited from a 5-year exclusivity period from the government. Mobilecom, a wholly owned subsidiary of JT, launched its operations in September 2000 and was granted a 3-year exclusive duopoly with Fastlink. In addition, Jordan’s regulatory body, the Telecom Regulatory Commission (TRC), granted Xpress Telecom a license to operate an IDEN (Motorola proprietary based) radio-trunking network, which launched its operations in May 2004.
Mobile penetration in Jordan has surpassed fixed line penetration by a ratio of about 5:1 and currently stands at roughly 57% of Jordan’s total population. The penetration rate was relatively low prior to 2001, hindered by a duopolistic market structure and limited price reductions on the part of the incumbents. Subsequently, during 2001-05 period witnessed explosive growth which was largely because of the launch of the prepaid service and the increase in competition inducing lower prices and a wider array of services and packages pushing the subscriber numbers over 3.13 million by 2005.
In terms of market shares for the Jordanian cellular market, Fastlink, the first company to introduce cellular services in the Kingdom back in 1995 had by the highest market share which stood at 64.4% followed the Jordan Telecom’s subsidiary, MobileCom at 24%, Umniah (recently acquired by  Batelco) at 9.6%, and Xpress at 2.1%.
Divestment of government stake and Change in Shareholding Structure in JT
In 2004, the Government of Jordan announced its intention to divest its remaining 41.51% stake in JT. In April 2006, France Telecom increased its stake in the Jordanian subsidiary JITCO to 100% by buying the Arab bank’s stake. In July 2006, the government has sold another 10% of its shares in Jordan Telecom to the Kuwaiti Company Al-Nour Financial Investment Co at a price of US$164.4mn. France Telecom purchased an additional 11% stake to give itself a controlling stake of 50% plus 1 share.
End of monopoly
Following the ending of the monopoly of Jordan Telecom in the fixed sub-sector of the market on 31st December 2004, Batelco of Bahrain was the first operator to get the licence to provide fixed line telephone services in May 2005.
XPress began operations in mid-2004 as Jordan’s third mobile telecommunications network. XPress Jordan is an Integrated Digital Enhancement Network Technology (IDEN)-based operator - the only licensed digital radio trunking service provider in Jordan and Middle East.
Bahrain Telecom Co (Batelco) acquired 96% of Umniah Telecom in June-2006 for a total consideration of $415mn. Umniah Telecom was granted a license to establish and operate a third public digital cellular mobile network in the GSM 1800 standard on August 9, 2004 by the Telecommunications Regulatory Commission (TRC). On the 3rd week of June 2005, it started commercial operations.
Boom in ADSL service
The penetration rate of ADSL in Jordan is witnessing a massive growth due to the new offers and packages launched by Jordan Telecom and other ISPs recently, in a bid to enable  Jordanians benefit from ADSL advantages. Due to the high demand on ADSL and to provide high quality services, Jordan Telecom is doing further expansions and upgrading on its network in response to the increase demand on ADSL lines. Wanadoo is the leading ISP in Jordan with close to 50% market share as at the end of 2005.
Jordan Telecommunications Company Co (JT) is the incumbent operator and the only full service telecommunications provider in Jordan. JT offers fixed line, mobile and data communication services which gives it an unique competitive advantage in providing a convergent platform for a wide array of services.  Currently, JITCO, a holding company owned by France Telecom, owns 51% of Jordan Telecom.
The company had 250mn shares outstanding as of the end of June 2006. The shares are listed on the Amman Stock Exchange. Jordan Telecom posted strong results in FY2005 with a 2.8% growth in revenues and 87.1% growth in net profits over the previous year. Fixed-line voice segment and Mobile Communication segment contributed 72% and 32.8% respectively to the top-line in FY2005. At the end of June 2006, the revenues stood at JD171.4mn and the net profit stood at JD42.1mn, a decline of 1.7% and 11.6% respectively. At the end of 1H2006, total mobile subscribers were at 1.023mn, 87% of which were prepaid. We initiate coverage on Jordan Telecom with a “Buy” recommendation. Based on the combination of Discounted Cash Flow Method and Peer Group Valuation Method, we have valued the company’s shares at an intrinsic value of JD4.97 per share, which is 11.5% higher than the current stock price of JD4.46 per share.