Monday, August 27, 2007

Tele-Mess (1)

The telecommunications sector, alongside with the transportation sector, is one of the foundations to an economic and social prosper. The gateway to opening new financial horizons with the outside world and the birth of the milestone that will lead nations marching proudly up the ladder. From being third world countries to developing ones, and from developing ones to developed ones.

In Oman, that potential is bottlenecked by many difficulties. I firmly think that the telecommunications sector is one of the biggest challenges to that potential. I think We owe this amount of communicational retardation to two companies that are straightforwardly the main causes to this problem. OmanTel and Oman Mobile, sadly, the "leading" companies in the communications sector, but the only thing these companies are leading are us deeper in the mud pit.

For more than 10 years now, Omantel has been the sole internet service provider in the country, a position that has given it clear advantage, which instead of being used to improve their status, was used strictly to momentary financial success.

Omantel, despite it's flourishing ever-rising bank accounts, is no where near successful. Their lack of an investment policy is an extremely risky way to be in the market. They refused to invest in the public in a way that they would want to make Omantel their first choice instead of the only one. As soon as another Internet Service Provider company offers it's services, people will salvatorily gallop towards it because no matter how bad it could be, there's nothing worse than Omantel.

The dial up internet's tarriff has been anything but erratic. That 180Bz/Hour is so fortified that one would think it's taken a life of it's own and there's no way Omantel or anyone (TRA cough TRA) can do anything about it. Expensive I'd say, but I wouldn't be surprised if they decide to raise the price. I mean everyone knows that things lose price after they get outdated, but get explosively overpriced as soon as they become 'Classic'. Dial-up has definetly earned to be a classic, so a price raise for it's newly well-deserved status is only logical.

That's how old and outdated our services are. Old enough that if they were people, they'd be stone statues in public parks. A token of our appreciation for their past contributions. Sadly in our case, the person lives, and is the primary option of connection to the International Network.

One would argue that Omantel has, thankfully, provided us approximately three years ago with the blessing with a 'broadband' mean of connection. PowerNet (more like Lack-of-PowerNet), Omantel's commercial name for ADSL 'broadband' internet connection with speeds -ideally- clocked at 384Kbps for home users. Non Ideally, it underpreforms in what already is an underperformance, because that's extremely slow in comparison with the current international internet offerings, and pathetic in comparison with the regional ones.

Either way. ADSL is better to live with, right ? .. Wrong. I bet you to go tomorrow to Omantel and apply for ADSL, and tell me after 4 weeks if you already have the connection. Hell make it, 8 weeks. Their list of excuses is limitless. Prepare to hear that in your location, the divisions for ADSl service are full, but they'll put you on the "waiting list". Or they'll tell you that they'll come in 3 weeks, because their technicians are 'busy', and come really in a little short of 3 months. I won't go too deep with ADSL, because I previously talked about it quite extensively here in my blog, and that doesn't end there, I'm intentionally not talking about the prices, or the 'Omantel' usage rounding system, which basically is a major sign to mathematical doomsday, because it's just too depressing.

Moving On.

I don't know how the 'share market' system works, and my knowledge is as shallow as they come, but I noticed this. By the end of the first half of this year, Omantel's profits rose about 17% percent from it's profits this time last year, recording 49,000,000 Omani Rials (123 Million USD) of tax-free profit. Now, it's my understanding that if a company's profits rises, it's market share would rise proportionally, contradictory to the, what some people call, slow and disappointing drops in Omantel's market shares.

The facts are %100 correct, but I'm not certain of my explanation and I'd be more than happy to be corrected. I'm however certain that it's not entirely clean. Not with Omantel. There has to be a lie somewhere.

A lie just like the lie they made up about allocating 7,000,000 Omani Rials (Approx. 18 Million USD) to "improve it's customer services". Yes, lie, because that price would only be credible if you tell me that those 7 mil were used to purchase new CDs to play while you hold on on their internet hotline. It's 1313. Call, and you'll understand what I'm talking about.

The question now is, What will the introduction of a new Internet Service Provider bring to the table ? Are the TRA playing Omantel favors by keeping their rules mellow and their standards low ? Do you ever think that Omantel at some point, whether competed with or not, will want to change it's policies ?

You tell me, and keep alert, soon we do Oman Mobile.


Suburban said...

I use the Nawras simcard modem, which has the advantage of being truly portable, even when I'm camping. While the connection speed is slow, it's no worse than omantel dial up, and has the added benefit of knowing that every month my hard earned bucks go anywhere but Omantel's coffers... mostly.

Mutassim said...

Nawras Intenet rely on Omantel servers, and they don't give Nawras proper bandwidth.

I heard the TRA won't give out an internet license to any new ISP in Oman. They want Omantel to be the sole provider for the Internet Gateway. Even if there is a new ISP, they would have to rely on Omantel to provide the necessary bandwidth! :S

Abdullah Ali said...

Damn... the only way to get this to change is if they had compatition but since you said that everything goes throuhg Omantel, I dont think anything will change.

We are way back and I wish that I have a solution to this problem. I guess this is what they mean when they say that we are not a free country.

Twister said...

for ADSL the number of slots is limited, hence the added wait used to work well when I was there up till jan-feb...

but for ADSL the tariff is a bit on the higher side...OMR 12 per month plus data at OMR 1 per gb is a bit high...either they should reduce the line rent or reduce the data usage charge...

muscati said...

New ISPs are coming "soon", but they will all have to buy bandwidth wholesale from Omantel. It's the same like other countries that used to have monopolies. It's not financially feasible for a new ISP to get and dig up the whole country to connect the houses with cables just to deliver internet services. The only other option is Wimax, and even then the infrastructure is very expensive. It's up to the TRA to do a good job and set strict guidelines re bandwidth, speed and redundancy for Omantel to provide to the ISPs.

By the way, Omantel's profits are not tax free. They are not exempt. They pay taxes like all other companies. I have more to comment on this later.

muscati said...

I knew I had the details down somewhere. Here's the deal:

Omantel pays the TRA a royalty of 10% of the gross revenues from fix line income, 12% on the gross income from mobile phone income, and an annual license fee that used to be RO. 2 million per year (I don't know if it's lower now). That's all money that goes to the TRA, which the TRA transfers either half yearly or yearly to the government's treasury. On top of that Omantel and Nawras each pay a share of the TRA's operating expenses. And... Omantel, like all companies in Oman, has to pay the government an income tax of 12% of its net profit annually.

Anonymous said...

What does TRA mean?

muscati said...

TRA = Telecommunication Regulatory Authority

TI3GIB said...

I have Sony Ericsson's PCMCIA SIM modem, and it is kind've slow, but I heard that the new 3G modem (even though there is no 3G network in Oman) is heaps faster than the older one.

As far as I know, the network coverage that Nawras has comes from Omantel, but this is the first time for me to hear the the internet feeds also come from Omantel.

Thanks for your comment.

We really are that much back. Sadly

The closest country to us, Emirates, as of this year have 1,400,000 people connected to the internet. What is it exactly that makes our slots limited oher than .. incompetence ?

Shouldn't it be the TRA's job to provide the infrastructure (cabling + towers) for these networks and it's up to the companies to buy bandwidth from them ?

This 10% royalty fee, it's royalty to what exactly ? and These TRA operating expenses, what are they for exactly ? I thought the TRA did NOT operate at all, and is merely and administrative figure ?

BTW, the 49,000,000 Million Omani Rial profit is after tax. I thought that's the same thing as Tax-Free.

I'll change it now, thanks.

muscati said...

Ti3gib - It's not the government's job to build telecommunication networks. That's what privatization is all about. If a company wants to go build a fiberoptic network and thinks it has a business case to justify the expenses, then that's their prerogative. Every country has a telecom regulatory. In the US it's the FCC and in the UK it's Oftel. They license frequencies. They make sure that the telecom companies provide the services that the country needs. And they make sure competition remains fair. And they also regulate tariffs. In Oman, neither Omantel nor Nawras can change their tariffs without the TRA approving the new price.

In Oman, we have the TRA. Unfortunately for us, the TRA isn't composed of hot shot telecom experts. Instead they are mostly ex-Omantel staff from back in the days when Omantel was a government department known as GTO.

The 10 and 12% royalties are fees that telecom companies have to pay to the TRA as part of their licenses. In other words, 120 baisas out of every rial that you pay to either Nawras or Omantel goes to the TRA.

The TRA isn't just a council of three that meets to approve tariffs. They actually have a full administrative set up. They are fully staffed. Their offices are in the Oman Oil building next to Muscat Private School.

email me on themuscatis[at]gmail[dot]com and I will send you an analysis of Omantel's half year financial results.

TI3GIB said...

The question now is, is the TRA just as responsible as Omantel ? Are they under-preforming as well ?

Lirun said...

congrats on your new blog.. wishing you all the success..

Anonymous said...

Here here. Great post. I hate OmanHell, but they are an old monopoly, and that's what happens...

In answer to your Share price question/observation, maybe that represents good news. Time to get a bit boring tho'...

What determines the Value of a Share?

The market price of a share in a company (ideally) should be the value [now] of all the future cash revenue you will get from owning a share in that company. You could think of it like this: 'how much would I pay to own a magic box that will next year give me XXX rials, the year after YYY rials, etc etc.'

That's why a company that is expected to grow and/or is in a profitable, hard to compete industry [eg Google, Microsoft] is worth more than one that is unprofitable, easy to copy or in a market already saturated [Ford, Gulf Air]. A company's cuurent share price divided by its latest profits is the P/E ratio [or price/earnings]. A growth company will have a high PE [maybe more than 50], a staid but solid company a moderate PE [close to 15], and a company in real trouble a low PE [less than 5].

So, it's all about current and future profits the company will earn, compared to other ways you could generate cash [ie put the money in a saving account with the bank]. This is one reason CEOs are always talking about 'future growth' - it is intrinsic to the value the company has now. And also why when the market price of a company drops below the 'asset value' of a company, often someone comes along, buys it, and then sells off all the companies assets.

If Omantel shares are down, even while their profits are going up, it means that people don't think it's going to last, or the increases were not as big as they thought they were going to be.

So, maybe competition is coming?

But... as the Government still owns 85% of Omantel, it's hard to see them letting competition kill the goose that gives them all that money, seeing as they control the TRA. Plus, as with similar companies privatised in Europe, the Government really doesn't want all those people who bought the shares to loose their money. It makes lots of people very unhappy... [OK, that's worse in countries that vote, but still not good here either.]

The government will need to balance the value of the profit they can pull out of Omantel [from you, me, Nawras,...] with the cost to the wider Oman Economy of having crap internet and the investment in infrastructure they will have to fund to improve things. So, perhaps if you want better internet, don't just complain to Omantel, complain to the Ministry of National Economy how Oman's poor internet is screwing your potential businesses and forcing you to set up that call centre/bank/online business in Dubai! Or get a friend in media to do a speed test of Oman broadband vs UAE. We all know the Gov hates to be seen as the 'backward country cousin'...

Good Luck

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