Market Structure Of Bahrains Telecommunications Market Economics Essay

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This essay answers the question, and if you noticed that the question is split into two parts, first it asks for the type of market structure in Bahrain telecommunication market, and for this the essay will illustrate and explain about how Bahrain telecom market started, with some history of the telecommunication market growth, then the market structure that has bean set by the TRA (TELECOMMUNICATION REGLATORY AUTHORITY) to control and run the telecommunication sector. Then it will answer, discuss and examines the second part, which is how did the competition effected Batelco.

Bahrain is the smallest market in the Middle East by population size but it is also one of the most competitive. It was early to liberalize its market and has a well-established regulatory authority. It is also one of the better-documented markets in the region.

It was in 1864 when first Bahrain's telecommunication link to the world occurred, and at that year there was only one telecom medium in Bahrain, as it was connected to Indo-European undersea telegraphic cable. This remained until the year 1931, then cable and wireless predecessors started to operate radio links that provided telegram and telephony services.

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The first telephone in the country was operated during the 1930's by the electricity department. The installation of Bahrain's first automatic telephone occurred in the year 1949, right after the first telegraphic was opened in 1947.the company was named the international communication company where later it was incorporated in the wireless telegraph company in the beginning of the year 1949.

Batelco's entry to the market in 1981 meant to Bahrain that there was going to be a telecom company which was a huge introduction to Bahrain's market as it would be to any country. Batelco was the only telecom company in Bahrain for a very long period of time (approximately 25 years), which meant that they were a monopoly that had 100% of Bahrain's telecommunication market under it. Batelco's history was filled with events and changes, every year Batelco had to have an important addition change or major achievement. Some of batelco's important dates where as followed. In 1980, the first telephone exchange was opened, in 1981 when Batelco established it; by cable and wireless. In 1989 Bahrain government bought 20% of the cables and wire shares. Bahrain showed a great technology boom where they were they were the first country in the world with complete digitalization of its national and international telephone switches, at a total cost of over BD17 million in 1992. The great deal was introduced in 1994 where Batelco signed a contract that introduced GSM (Global System for Mobiles) at a cost of BD6 million. It was in 1999 when Batelco made a great achievement, where they reached the 100,000th mobile phone customer, and the 100th international roaming operator link established. In 2001 Bahrain market was introduced into a new unique product, it was the Speed net, based on ADSL technology and in 2004 provided the complete telecoms infrastructure for the first-ever Bahrain Grand Prix.

Answering the question that talks about the market structure of Bahrain, I would like to introduce the TRA (telecommunication regulatory authority). This was the organization that responsible for regulating the telecommunication sector.

The Telecommunications Regulatory Authority (TRA):

''The Telecommunications Regulatory Authority (TRA) was established by Legislative Decree No. 48 of 2002 promulgating the Telecommunications Law. The TRA is an independent body and its duties and powers include protecting the interests of subscribers and users, and promoting effective and fair competition among established and new licensed operators.''

The TRA mission is to '' protect the interests of subscribers and users of telecommunications services and maintain effective and fair competition between established and new entrants to the telecommunications market of the Kingdom of Bahrain''.

The TRA made three main points that every company has to have or obey in order to create a structured telecommunication market. First is the licensing's, then the market operation, and finally the liberalization plan.

1)Licensing

The TRA department is responsible for giving people or groups that want to start a telecom company a license with the consideration of applicable laws and recommending them in regard to the application for a license, and ensuring that they fit all the needed requirements and terms.

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a) National Fixed Wireless Services (NFWS) Licenses Auction

On the 6th of July 2006 an auction was held for the award of fixed wireless access licenses by the board of directors of the telecommunications regulatory authority (TRA).

'The two frequency licenses to be granted with the NFWS licenses authorize use of the following spectrum:

Frequency License ?: 3410 MHz ' 3455 MHz paired with 3500 MHz ' 3545 MHz

Frequency License ??: 3455 MHz ' 3500 MHz paired with 3545 MHz ' 3590 MHz'

b) Types of licenses available now:

Types of licenses issued by the Telecommunications Regulatory Authority

License Availability Initial Fees Renewal Fees

Individual License for Mobile Telecommunications Services

This license allows the provision of mobile telecommunications services. Two licenses have been granted (to Batelco and MTC-Vodafone)No further licenses of this type are currently available.

Individual License for Paging Services

This license allows the commercial use of paging services to subscribers. Available since Q1, 2004

No restriction on number of licenses available BD 5,000 1% of gross annual turnover attributable to licensed activity

Individual License for Very Small Aperture Terminal (VSAT)

This license allows the use of Very Small Aperture Terminal, a digital satellite data network with small antenna diameter, for private purposes only. Available since Q1, 2004

No restriction on number of licenses available BD 5,000 1% of gross annual turnover attributable to licensed activity

Individual License for Public Access Mobile Radio Services

This license allows the use of Public Access Mobile Radio in dispatch applications (e.g. by truck and taxi fleets).

No restriction on number of licenses available BD 5,000 1% of gross annual turnover attributable to licensed activity

Individual License for International Telecommunications Facilities

This license allows the termination/landing/ establishment of international connectivity, and stipulates the obligation and right to connect to other licensed networks in Bahrain. Available since Q1, 2004

No restriction on number of licenses available BD 20,000 1% of gross annual turnover attributable to licensed activity

Individual License for International Telecommunications Services

This license allows the provision of international voice and data services, and requires the deployment of a physical traffic aggregation structure. Available since Q3, 2004

No restriction on number of licenses available BD 10,000 1% of gross annual turnover attributable to licensed activity

Individual License for National Fixed Services

This license allows the provision of national fixed voice and data services. Available since Q3, 2004

No restriction on number of licenses available BD 35,000 1% of gross annual turnover attributable to licensed activity

Individual License for National Fixed Wireless Services

This license allows the provision of national fixed voice & data services via wireless connectivity Two licenses have been granted (to MTC-Vodafone Bahrain and Mena Telecom) No further licenses of this type are currently available

Internet Exchange License

This license allows the holder to establish, operate, manage and maintain an internet exchange

Available since 2 July 2006

No restriction on number of licenses available BD 1,000 1% of gross annual turnover attributable to licensed activity

Class License for Internet Services

This license allows the provision of internet services, but does not include voice. Available since 2003

No restriction on number of licenses available BD 1,000 1% of gross annual turnover attributable to licensed activity

Class License for Value Added Services

This license allows the provision of services over an existing network (e.g. card services). Available since 2003

No restriction on number of licenses available BD 1,000 1% of gross annual turnover attributable to licensed activity

c) Second Mobile License Selection and Award:

On January of 2003 the (TRA) wanted another mobile operator to establish on the basis of a schedule to approve with the law, in which happened on January 2006

d) 3rd Mobile Invitation to Tender Clarifications:

TRA has received a number of questions regarding the ability of bidders to meet the pre-qualification criteria in cases where the bidder is either a partnership or consortium. In order to assist potential; Bidder to draw together the appropriate pre-requisite experience TRA considers it important that these clarifications are made available in advance of the registration and question submission closing dates.

2) Market operation

A:

The market operation for the TRA issued updated national numbering plan On 10 September 2008, and on the 2003 the TRA published the National Numbering Plan(a document outlining the use of telephone numbers in Bahrain in a competitive market). Another important change was that the TRA introduced a numbering change on 1 December 2003 that made all phones in Bahrain both mobile and non mobile to increase a digit, making them 8 digits.

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By making that change that increased the number combinations which lead to new operators and new services, however if not managed carefully their might be a chance that they would have to make another numbering change in the future. The TRA owns and administers all the telephone numbers in Bahrain and will apply restrictions to the usage of them, while at the same time encouraging innovative new services requiring ranges of new numbers. After all the arrangements that were made by the TRA they finally got to publish the national numbering plan on the 26th of June 2004.

B:Numbering and spectrum:

"The Authority shall have the power to in co-ordination with the Radiocommunications Authority, monitor and enforce the use of Telecommunications Frequency in the Kingdom in accordance with the law and to ensure the efficient use thereof" Section 3 c11 of the Telecommunications Law

3)Liberalization plan:

For the initiation of the plan to commence, the TRA was charged to encourage the development and availability of the widest passable range of information and communications technologies and services in Bahrain. Their intention to do this was that TRA department wanted to give private sector companies the needed flexibility to ensure the satisfaction of the user's needs.

2002 saw:

' The bringing into effect of the Telecommunications Law

' The creation of a telecommunications regulator called the Telecommunications Regulatory Authority (TRA), headed by a General Director

2003 saw:

' A second license to provide Mobile Services

' opening the Value Added Services and Internet Service Provision sectors for competition

' Establishing the Bahrain Internet Exchange

2004 saw:

' opening the National Fixed Service sector for competition

' opening the International Facilities and International Services sectors for competition opening the VSAT, Paging and PAMR sectors for competition.

The second part of the question is 'what has new policy competition had on batelco's profits?'

First of all, lets see what the TRA has introduced or removed from law in order to increase competition by letting new competitors enter the market to compete with the only telecommunication company Batelco, threatening batelco's monopoly status .

The new National Telecommunications Plan set the high level objectives for telecommunications in the Kingdom over the next three years as competition continued to grow, while the outcomes from the Strategic and Retail Market Review set the milestones for the year. What gave the mobile operators a boost to the completion in the mobile market was the prospect of a third mobile.

Adapting the regulatory environment to support the development of innovative services is not an easy job where as the TRA faced many challenges in processing the use of emerging and converging technologies. These services bring considerable benefits for both consumers and the market. More progress was made in removing some barriers to affect competition, such as the lack of number portability. Working with the industry TRA developed a better way ahead on other issues, such as building telecommunications infrastructure.

The second National Telecommunications Plan

The process was guided by the first National Telecommunications Plan. This set out the Government's high level objectives of implementing liberalization, establishing the licensing regime, the requirement for universal service and the role of TRA.

Strategic and Retail Market Review

In 2007 TRA commenced made a research on the telecom companies in order to inform and develop its plans for the future. As a result of this review, TRA announced in February 2008 a nine changes in the regulations were made, that would further promote competition and deliver significant benefits to consumers. Eight of these measures were put in place, or the implementation process was started, during 2008. These were:

A third mobile operator license Removal of certain tariff approval processes Data collection, Consumer surveys and price benchmarking Local Loop Unbundling Carrier selection and improved Carrier Pre-Selection (CPS) Competition guidelines Number portability (fixed and mobile) Reform of retail tariff regulation

The final one - the removal of mobility restrictions for National Fixed Wireless Services (NFWS) licenses ' is scheduled for 2010.

Last proposal was made in June; the TRA issued its final determination detailing the retail markets in which Batelco was deemed to have significant market power. Third mobile license

These regulations allowed other companies like mtc-vodafoon and STC to enter the market threatening Batelco. It was in 1983, where (MTC) was established by Kuwaiti investors. zain showed a great development within a short period of In April 2004, MTC-Vodafone secured 10 percent of Bahrain's market based on its great job that it dod in the first quarter. The company of zain bought out MTC-VODAFON they are a leading telecommunication company in this market.

The Saudi Telecom Company (STC) launched its latest mobile network. VIVA, the third mobile operator in Bahrain, started on March 4, 2010. VIVA is owned completely by STC, and the launch adds to the Saudi Arabian incumbent's growing international footprint. STC currently has 100mn customers worldwide. The Saudi Telecom Company's huge budget margin is the biggest threat towards the competition.'

New regulations that were implied by the TRA affected every one positively. The new regulations reduced unemployment, lowered prices of calls, and increased products, by letting new companies entering the market. it was Only Batelco that has bean effected negatively.

UN EMPLYMENT RATES

As we can see that Bahrain in level (1) was at its highest unemployment rate. This was when Batelco was monopolistic in the market, but Zain was introduced to the market. in level(2) Zain offered over 1500 jobs across the middle east and Africa, around quarter of these jobs were offered in Bahrain. In level (3) this is when viva intered the market with the two companies offering more jobs and opportunity to the locals.as we can see that these companies cam and brought jobs and opportunities with them.

At the same time it harmed Batelco's, where Batelco's use to have a perfectly inelastic demand curve, but after Zain entering the market , and viva after them, this effected the elasticity changing it from perfectly inelastic into more elastic curve, and now with STC breaking into the market Batelco telecommunication market situation is even more fluctuated .

Perfectly inelastic

When batelco was alone in the market, and the regulations were deffending batelco, they had a very unelastinc demand, where batelco use to play with the prices, by setting high prices and the consumers hade to deal with them where they didn't have any alternative.batelco had an elasticety = zero.

When zain entered the market competing with batelco, batelco loss their advantege of a strong unelastic demand curve. Where consumers hade more choices and they were able to alter their choice in any action the batelco takes against thier benefits.

When viva joind the two leader companies in bahrain (batelco and zain) , it made competetion high, by giving a very temting offers causing the curve of batelco to beeven more elastic and equals around (+/- 1).

This also caused the demand of Batelco decrease and the demand on Zain and viva increases due to the 'offers that they offered in order to steel the market.

The increase in market competition between Batelco Zain and viva has caused the demand on Batelco decreases, where people shifted to Zain. After the entrance of viva the demand of Batelco fell even more. We see a fall in demand, where the demand has shifted to the left (D) to (D1)-(Q) TO (Q1) also causing the price to fall from (p) to (p1), thus occurring a new equilibrium (E1).

In this diagram we can see how did the demand on Batelco have even fell more after the intrance of viva. The demand shifted from (D1) to (D2), causing the prices to fall from (P1) to (P2) and occurring a new equilibrium (E2).

The competition in the market cased the telecommunication companies (Batelco,zain,viva) to offer new and more offers in order to attract costomers to them.

As we can see in the diagram that the supply of products and offers to consumers have increased, causing the supply ti shift to the right from (S) to (S1), causing prices also to fall from (P) to (P1) and changed (Q) to (Q1) finding a new equilibrium (E1).

Competition has accelerated in the broadband market during 2008 and 2009 with the launch of WiMAX services by two alternative operators. By mid-2009 WiMAX had a 30% share of the broadband access market, with the market share of Batelco's ADSL services falling to 54%. Mobile broadband had a 13% market share after rocketing to 14% in 2008 and then leveling off

With competition strong in its home market, Batelco as with other operators in the region has ventured abroad to less developed markets in search of profits - although not on the scale of Zain or Etisalat of the UAE. Batelco has subsidiaries in Kuwait, Jordan, Yemen and Saudi Arabia and a 49% share in S Tel, a recently established Indian mobile operator

Conclusion:

Bahrain has the most competitive telecoms market in the Middle East. The TRA added a very great value to Bahrain's telecommunication market structure, and without them Bahrain wouldn't have reached to what it is now in telecommunication sectore. They had very strict and well structured regulations. The way that the TRA set their regulations gave an advantage for both the consumers and the suppliers,and their latest change in competition laws gave an advantage for the growth of the country in both telecommunication and as in the decrease of unemployment, it also injected money into the economy making it wealthier. Also that Batelco suffered, since it was a monopoly for a long time, until the regulations were modified, causing competition between Batelco Zain and now Viva. Batelco faced a problem where Zain and viva entered the market aggressively offering such great services with a wide range of offers for the consumers, but Batelco existed way before, their infrastructure in Bahrain is very strong.its not easy to compete with Batelco in the quality that they give, plus they have business out of the country that they rely on in making a stable Income. Batelco has a main internet cable in jorden and in some other countries, it also has links and telecommunication offers on many countries other than barain.