The mobile phone industry is witnessing a revolution with more mobile devices in the world than people. Smartphones are the order of the day with the Middle East looking at an over 60 percent penetration rate by this year-end and if certain reports are to be believed, some of the countries will even cross the 80-90 percent mark in the same time frame. Several reasons can be attributed to this including availability of cheaper smart phones, improved telecommunications infrastructure, better networks and lower data costs along with a host of other factors.
It was not too long ago that western statistics were leaps and bounds away from the Middle East. With a sea of changes taking place, shifts in market share of various brands and the existence of an active and competitive marketing stratosphere, smartphones and their penetration in the GCC and ME have reached unfathomable heights.
Smartphone penetration in certain GCC countries stands out as being higher than the global average. In Qatar for example, the country’s Ministry of Information and Communications Technology (ictQATAR) has reported that smartphone penetration has reached 65 percent and mobile broadband penetration now stands at 61 percent.
In the UAE, smartphone penetration stands at 78 percent and is rising at a rate that is among the fastest in the world according to a report by Nielsen. This trend isn’t only restricted to the UAE and Qatar. Bahrain is expected to soon have a smartphone penetration of 90 percent.
Better than the best?
In an interview with bq, Nicolai Solling, director of Technology Services at Help AG, attests that this region is well ahead of the West, even in terms of networks to support devices. “Qatar, Saudi Arabia, UAE, Bahrain, Kuwait and Oman all have telcos offering 4G connectivity. This is perhaps because of two factors,” explains Solling.
“First, telcos and services providers in the region tend to be, at least in part, government owned and therefore have significant spending power. Furthermore, unlike service providers in more mature markets, these operators are not bound to supporting and upgrading legacy IT network infrastructures.” This means they can be far more agile when it comes to rolling out the newest connectivity solutions.
However, Nabila Popal, research manager at IDC MEA still feels there are gaps to be filled. In terms of smartphone penetration, “4G is well implemented throughout the region, so it’s not the infrastructure that’s holding things back,” she explains to bq. “It’s the percentage of feature phones that are still being purchased here.”
A large number of people in the GCC countries are blue collar workers to whom the price difference between a feature phone and a smartphone is still rather significant. “The income disparity in the population is still large. Qatar, for example, has the largest GDP per capita in the world. This wealth however is divided among a very small percentage of the population. This kind of disparity doesn’t exist in the west,” Popal explains.
A difference in opinion however still can’t out speak the facts. The GCC is doing exceptionally well. The region (Saudi, UAE, Kuwait, Qatar, Bahrain, Oman) is estimated at USD 9.8 billion for the year 2014 for all mobile handsets (smart and feature included). And Qatar comprises 7 percent of that.
The lesser known
Several companies launched a whole range of smartphones with all kinds of exciting features. How popular did they really get and how much of a market share did they actually capture?
The segment the smartphone is targeted at determines its popularity to an extent. “In my opinion, the high end market is dominated by the likes of Apple, Samsung and HTC because these manufactures have all put in significant budgets into their marketing campaigns to create brand recognition and hype around the launch of each of their new devices,” Solling comments.
Hitting the right balance between price and quality/features is key. Some recent smartphones that have been popular in the mid to low range have managed to hit that sweet spot, such as some of the HTC, Huawei and Lenovo models, that offer the same features with sometimes even better quality than the top range Samsung models for a much lesser price, according to Popal.
Non-mainstream brands are prone to failure for a lot of different reasons. Popal tells bq that some of the reasons could include too much competition, not hitting the right price mark and not having enough brand awareness or value of the image and brand conscious population of the GCC. “A good example of this is the Yota phone.
It is a good phone with a very unique feature – the dual screen with a back screen that’s like an e-reader. Despite its uniqueness – which is hard to achieve in this highly competitive market where every phone is like the other – they were unable to capture even a small share of the smart phone market in the UAE,” she reveals. It could be one or a combination of all of the aforementioned reasons.
Last year, a good number of players entered the far more competitive mid and low market segment. Manufactures such as XOLO, Wiko and Obi all expressed their intentions to appeal to younger customers who want smartphones with all the latest features and capabilities but don’t have the budgets to buy flagship devices from the biggest brands.
With a virtually limitless selection to choose from, and the fact that most of these devices flaunt impressive but similar features, “it might simply be a matter of pricing and clever marketing that determines success in this segment,” says Popal. In fact, brands like Lenovo, recently introduced to the Qatari market, have already captured a small share of the smartphone market in Qatar, which is very impressive in this competitive industry.
The deal with data
A good way to increase smartphone penetration would be to focus on affordable data plans. Not only will a greater number of people from different segments be able to purchase smartphones, but also use the phone to its full functionality by using recently trending features like video streaming and so on.
It’s true that the absence of an internet connection, the full worth of a smartphone can’t really be experienced, however, surveys into the usage of applications on smartphones have regularly revealed rather astonishing facts. “The truth is that typical smartphone users rarely download applications at all,” adds Solling. Research by comScore in 2014 revealed most smartphone users don’t even download a single application per month.
Even though data is costly in the GCC, a lot of regional telcos have started to use different approaches to offering more affordable data. Solling elucidates more on this: “I believe primarily social applications such as Facebook, Whatsapp, Twitter etc. are being used by smartphone owners. And regional telcos have been quick to recognise and capitalise on this by offering tailored ‘social packages’ that don’t grant users full internet access, but enable them to use the most popular social applications.”
In some GCC countries, handsets are still – due to government regulation – not allowed to be subsidised by the operators. They have to be purchased and paid for upfront instead of the cost of the phone being incorporated in the monthly data/phone packages that are offered in many of the western countries. The biggest increase is often witnessed when operators in previously regulated markets start offering subsidised devices that can be paid over time via post-paid plans.
As more Middle East countries switch to this model, there will be an even bigger uptake of smartphones. Popal says: “Once this happens, like it recently did in Kuwait and is yet to happen in some GCC countries like Qatar, smartphone penetration will increase drastically.” She adds, “It is important to note that although feature phones are clearly in decline, the vast population of the MEA region with very low disposable income will ensure that demand for feature phones continues for as long as there are no smartphones priced around the USD15 mark.”
IDC’s Handsets Tracker for Q3 2014 shows that devices priced under USD150 now account for 40 percent of the smartphone market, up from 20 percent a year ago in Q3 2013. With the continued growth of these vendors and resulting increase in competition in the market, the average price for smartphones is expected to continue declining despite continuous enhancements to smartphone features. IDC expects the ASP for all smartphones in MEA to drop by almost 10 percent in 2015.
By minimising operational and production costs, several vendors have been able to sustain low and reasonable prices. “The key methodology has been to rethink the normal channel strategy; instead of using traditional brick-and-mortar stores for distribution and retail to reach the end customer, many brands like ZTE and Xiaomi, are using online channels to ship directly to end users,” reveals Popal.
The costs saved by skipping through those traditional channels are passed on as savings to the end user. “And as these vendors grow in the GCC region, they are sure to employ a similar strategy,” she adds. IDC expects the growing significance of this trend to see volumes pushed through the online channel in the GCC to grow 10 percent year-on-year in 2015.
According to the Nielsen report, UAE is expected to have the fastest smartphone penetration rate in the region. This is perhaps because of the wide range of options that the countries’ retailers offer, attractive social packages offered by the country’s telecom operators and the government’s increasing commitment to delivering m-Services. With optimistic figures on the table for the coming year, smartphone companies are going to have to step it up to compete with each other.