From falling telecom revenues to the roll out of fiber and 4G, 2014 has been a year of mixed blessings for Jordan’s technology sector.
By Laith Abou-Ragheb
Technology companies gathered at Amman’s King Hussein Business Park last month for the highlight of their industry calendar: the MENA ICT forum. Between sessions on crowdfunding and cloud computing, delegates had the chance to reflect on a year which brought genuine reasons for cheer, but nonetheless laid bare just how much work still needs to be done for the industry to fulfill its potential.
The latest statistics available to judge how well the industry is faring were released back in September by the ICT Association of Jordan (INTAJ) and the Ministry of ICT. Two figures stood out; between 2012 and 2013, telecom revenue fell 6.4 percent to $1.582 billion. But over the same period, IT exports grew 8 percent to $324 million.
For Marwan Juma, the former ICT minister who helped organize the forum, these were bittersweet figures. “The fact that the local market was flat is not a good thing. But the great thing is that exports have hit record highs. We need companies to focus more on exports because the whole hub concept sees Jordan being used as the kitchen to grow your exports,” he said.
So why are all-important telecom revenues down? Besides underwhelming economic growth worldwide and the death of the SMS cash cow, another likely explanation is that telecom companies, which constitute one of the main economic drivers of the tech industry in Jordan, are still having their bottom lines squeezed by rising operating costs and steep tax hikes. The government decided last year to double taxes on mobile phones from 8 to 16 percent, and from 12 to 24 percent on mobile subscriptions.
“The spending of Jordanians in telecoms has increased, but the portion that has been taken by taxes has increased more than our own revenue. The equation was unfortunately wrong from the beginning,” Orange Jordan CEO Jean-Francois Thomas said on the sidelines of the conference. “What’s frustrating is that the day the government increased those taxes, we said exactly that … The government said ‘no,’ and we said ‘yes.’ Unfortunately we were right.”
INTAJ Chairman Jawad Abbassi said the government was unlikely to ease the tax burden anytime soon, which will continue to have a negative impact on related industries. “It’s going to remain a dismal story of revenues under pressure, stability under pressure, which will also affect what [telecom companies] spend on their marketing and adjacent verticals,” he said, adding that the shaky state of the advertising sector in Jordan can in large part be blamed on the lack of the shrinking ad budgets of telecom companies.
Mohamad Khawaja, the CEO of the Startappz mobile app accelerator and one of the founders of Amman Tech Tuesdays, agreed that the current rate of taxation was shrinking telecom companies revenues to the detriment of the wider sector. “As telecom operators are part of the major spenders, they are less likely to contract local companies and invest in new products, solutions, and value proposition,” he said.
But in more positive developments, the latest batch of industry statistics showed that IT companies created 277 new jobs between 2012 and 2013, along with their impressive 8 percent growth in exports. For Abbassi, this bodes well for 2015. “It’s very evident that the sector has managed to expand its export markets to partially compensate for the drop in local IT revenue,” he said. “So the local market is under pressure, but it’s expanding its export market –client wise, geographically, and monetary value wise.”
Roughly a quarter of Jordan’s ICT exports go to Saudi Arabia, while a little over 20 percent go to the United States. The growing importance of the America market was highlighted by King Abdullah’s visit to Silicon Valley in May, where he witnessed firsthand how Jordanian startups were gaining a foothold in the global tech hub through an Umniah-backed Plug and Play accelerator program. What’s more, there are between 12 to 15 Jordanian companies with a presence in Silicon Valley. These include Mixed Dimensions, which managed to raise $1 million earlier in the year to take its innovative 3D modeling services to the next level.
But while further developing links with Silicon Valley holds great potential, Khawaja is worried his industry might not be doing enough to maintain and develop equally important GCC markets. He suggested Jordanian chambers of commerce should be doing more to promote tech companies in the Gulf.
There were encouraging signs over 2014 that e-commerce might finally be taking hold in the marketplace. Cairo Amman Bank teamed up with PayPal to offer its customers online payment services. While Oasis 500 startup ShopGo, which creates e-retail sites for offline companies, was one of the few breakout stars of 2014 after it significantly expanded its client base and even began eyeing developing markets elsewhere around the world.
“I would say that 2014 has been a flagship year for the consumer online industry in the region and in Jordan,” said Khaldoon Tabaza, the founder and managing director of iMENA Group, whose investments include Arabic-language classifieds website Opensooq, and restaurant reservation platform ReserveOut.
Despite instability in major markets like Egypt, Syria, and Iraq, Tabaza said consumer demand had still reached a tipping point where many online business models were finally becoming viable. This proved particularly the case with “low hanging fruit” models such as online classifieds, which matured and became mainstream. “I would say that 2014 was probably the year when online classifieds significantly passed print classifieds in terms of volume and popularity,” he said.
Tabaza predicted demand for consumer online businesses would accelerate even more in 2015. “From a growth perspective, I think we’re going to see a great year,” he said. But he warned the government must play a bigger role in helping the industry develop domestically, through greater spending on technology infrastructure, for example. “I’m frankly seeing more and more deal flow coming from Jordanian founders and entrepreneurs who are starting their businesses outside of Jordan from the outset,” he explained. “I expect that trend to continue unless some hard work is done to retain the positioning of Jordan as a regional hub for online business and technology businesses in general.”
After a few lean years, the government finally began ramping up its investment in the industry in 2014. This was seen most notably in the resurrection of the multimillion-dollar national broadband network project.
But the government hardly covered itself in glory when it came to fulfilling its pivotal role in dealing with the distribution of telecom licenses. The Telecommunications Regulatory Authority held rancorous negotiations with Orange over the renewal of its 900 MHz license.
Relations between the government and the industry were also strained by the ICT Ministry’s decision to stubbornly push ahead with its widely unpopular search for a fourth mobile provider. In February, the ministry quietly announced that the only serious offers it received for the license came from the now-defunct Kulacom and a little-known US-based telco called Ameriphone. Both bids were rejected.
Abbassi believes the matter should be put to rest, at least in the short-term. “We’re definitely not going to see a fourth operator anytime soon,” he said, adding that he saw a greater interest in the Jordanian telecom market from mobile virtual network operators (MVNOs), like Virgin Mobile’s Friendi, which finally established interconnections with other operators in 2014 after a lengthy delay.
Friendi CEO Rafat Nawawi is confident his company, whose call center operators speak six languages including Urdu, can now target potentially underserved customers like expatriates in what many view as an oversubscribed market. “We believe there is very good potential in Jordan. Even though some say it’s a saturated market, there is still an opportunity for micro segmentation where you can develop certain services to increase loyalty of consumers in such segments,” he explained.
Khawaja said attracting more operators like Friendi was the right choice for a country like Jordan, where additional traditional mobile operators would inevitably struggle with high startup costs, small population, and a mobile market that’s now reached saturation point. “MVNOs are now the global trend to increase competitiveness and offer focused services to certain underserved segments such as expatriates and teenagers,” he said.
Bloomberg reported in late November that Umniah’s Bahraini parent company, Batelco, was considering selling Jordan’s third largest mobile operator, which it bought in 2006. Sources with knowledge of the matter told Bloomberg that any sale would be overseen by Citigroup Inc. and could possibly raise $500 to $600 million. It’s not clear why Batelco would want to sell Umniah, but if it did, it would hardly add weight to the argument there’s demand for more operating licenses in Jordan.
4G and Fiber
Along with the growing emergence of MVNOs, further encouraging signs of market development in 2014 included the introduction of 4G and fiber optic broadband services, which might provide a much-needed revenue boost for telecom providers. In terms of making LTE available to everyday users, Orange will no doubt insist it was the first out of the gate when it launched a series of 75 Mbps Wi-Fi hotspots around Amman. But to the more cynically-minded, Orange’s 4G “discovery phase” smacked more of a PR jab against rival Zain, which won’t be rolling out its fully fledged, nationwide 4G service until early 2015.
Thomas said one of the main aims of the project was to demonstrate his company’s commitment to providing the latest technology. “The message we want to send out to customers is that ‘we will be there’ and keep us on your map,” he explained.
At the very least, the whole episode can be taken as a sign of healthy competition for users amongst mobile operators. But regardless of who goes down as the first telecom company to introduce 4G to Jordan, Khawaja is adamant none will make a decent return on their investment if they fail to develop extra services to encourage users to pay extra for faster Internet speeds. “I hope local operators don’t just keep focusing on the infrastructure rather than focusing on the utilities coupled with it,” he said, adding that if operators fail to introduce service like IPTV, then “nobody will use the service and they’ll just be fine with speeds they’re currently using.”
Looking ahead, the industry figures Venture contacted for this article suggested a host of different measures that both the government and tech companies needed to take for the sector to maintain its competitive edge. These ranged from keeping startup costs to a minimum, to the need to encourage export growth. But the one topic that everyone shared was the vital need to retain talent, which is, after all, the very lifeblood of the industry.
“The biggest challenge for us is: how do we maintain local talent? Because once you start opening up regionally, if taxation and incentives are better abroad, it will start pulling resources from here to outside Jordan,” explained Juma. While Khawaja chimed in with the same warning that he believes the sector would be wise to heed as it heads into 2015. “Jordanian talent in ICT is becoming more expensive and that is driving several Jordanian companies to outsource to Ukraine, India or elsewhere instead of recruiting local talent. This is alarming for a country like Jordan which considers its talent a key asset.”