Porter Example

Competitiveness Review: An International Business Journal
An analysis of the telecommunication industry in the Sultanate of Oman using Michael

Porter's competitive strategy model
James Rajasekar, Mueid Al Raee,
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CR
23,3 An analysis of the
telecommunication industry
in the Sultanate of Oman using
234
Michael Porters competitive
strategy model
James Rajasekar
Department of Management, College of Economics and Political Science,
Sultan Qaboos University, Muscat, Sultanate of Oman, and
Mueid Al Raee
Regional Accounts Process Technology and
Equipment North America and Caribbean,
UOP a Honeywell Company,
Des Plaines (Chicago), Illinois, USA and Department of Management,
College of Commerce and Management,
Sultan Qaboos University, Muscat, Sultanate of Oman
Abstract
Purpose Michael Porters Five Forces Model provides an ideal mechanism and framework to study
the Oman telecommunications industrys competitive structure. The purpose of this paper is to use this
model to identify the competitive forces that affect it the most.
Design/methodology/approach This paper is based on empirical research. The data were
collected primarily from secondary sources such as published interviews of chief executive officers of
the telecommunication companies in Oman, government reports, and Telecommunication Regulatory
Authority of Oman (TRA). The authors then used Michael Porters five forces model to investigate
the competitiveness of the telecommunication industry in Oman.
Findings The analysis shows that the strongest competitive forces in the industry are rivalry
among competitors and threat of substitutes. While the threat of entry and power of buyers also
having a significant impact, the power of suppliers is of very limited impact. Hence, the five forces
model impacts uniformly on all the players in Omans telecommunication market and have important
strategy implications for them all. The results of this analysis are then used as a critical tool to formulate
effective strategies for industry players in the face of the changing dynamics of telecommunication
services industry in Oman.
Originality/value This study is one of the few papers that attempted to study the telecommunication
industry in Oman in depth. However, this is the first research study that investigated the competitive
landscape of this industry using an established framework such as Michael Porters five forces model.
As such, the study brought to light new insights and paradigms in competing in the telecommunication
industry in Oman. This study also suggests new strategic directives to the incumbents, new entrants,
buyers and suppliers.
Competitiveness Review: An
International Business Journal Keywords Telecommunications industry, Five forces model, Competition, Industry analysis,
Vol. 23 No. 3, 2013 Competitive strategy, Sultanate of Oman
pp. 234-259
q Emerald Group Publishing Limited Paper type Research paper
1059-5422
DOI 10.1108/10595421311319825
Introduction Telecommunication
The telecommunications business has seen tremendous changes in the past decade, industry in Oman
especially in the Middle East, with all players, from equipment providers to service
providers and consumers, being affected. Between 2008 and 2010, Information and
Communication Technology (ICT) services became cheaper, the price of high-speed internet
halved and that of mobile cellular services dropped by 22 percent (Parkes, 2011),
a transformation which has brought great benefit to consumers. The quiet country of 235
Oman, despite sharing in these trends, remains the weakest performer in the region
according to the 2009 ICT Development Index, where it placed in the 71st position globally
(International Telecommunications Union (ITU, 2010a, b, c)). However, it fared better on the
Networked Readiness Index, jumping 47 places in the Individual Readiness of IT
sub-category and reaching 40th position globally. Its performance on the ICT Government
Readiness Index was even better, placing it among the top ten nations (Dutta and Mia, 2011).
The objective of this paper is to provide an in-depth study of Omans
telecommunications industry, using what is generally acknowledged by both academics
and professionals as the most significant and influential analytical tool for assessing the
nature of competition in an industry, Michael Porters Five Forces Model (Stonehouse and
Snowdon, 2007; Porter, 1999; Ketels, 2006). A literature review reveals that there has been
some study of the transformation of government-owned telecommunication companies
into competitive enterprises in the region, as well as some work on the setting up of new
telecom service providers. However, there has not so far been any attempt at a
comprehensive study of the regional market structure. This study therefore aims to
highlight the short-term and long-term challenges that any enterprise, whether incumbent
or entrant, will face in the industry in Oman and to suggest how they should deal with them.
Global telecommunication industry

Globally, the development of international telecommunications networks and services is
administered by ITU which is a specialized United Nations Agency for telecommunications
and communication technologies. ITU developed ICT networks around the world. It has
coordinated the shared global use of radio spectrum, promoted international cooperation in
assigning satellite orbits, worked to improve telecommunication infrastructure in the
developing world, established the worldwide standards that foster seamless interconnection
of a vast range of communications systems and addressed the global challenges.
Standardization is ITUs most well-known and oldest activity (ITU, 2010a, b, c). As a result
of its UN mandate over all telecommunication related issues, ITU is trying to ensure healthy
international competition in the communications sector throughout the world.
There were 1.2 billion fixed telephone lines in 2009. Out of these, as of 2009,
527 million were in developing countries, whereas 692 million were in developed
countries. Similarly, 4.6 billion cellular, 667 million mobile broadband, 1.8 billion
internet and 479 million fixed broadband active connections were available globally
(ITU, 2010a, b, c). Figure 1 clearly shows that mobile phone subscriptions are growing
at a tremendous rate at 68.2 per 100 inhabitants.
Sultanate of Oman
Oman is a country which has been very little studied in terms of strategic management.
The telecommunication sector in Oman faces challenges similar to those that are being
faced elsewhere; the fast-paced development that is desirable in the technological and
CR
23,3
236
Figure 1.
Global ICT developments,
1998-2009
Source: ITU World Telecommunication/ICT Indicators database
telecommunications sectors serves also, however, to increase these challenges. The

implementation of new projects related to the e.Oman Initiative and Vision Oman
2020 not only makes Oman a dynamic ICT-services market but also suggests that this
study might become a model for the study of market forces as they operate within
developing and semi-developed nations.
At the dawn of the 1970 renaissance in Oman, a series of sweeping reforms were
outlined in which the free market system was made the governing economic model for the
nation. Development was envisioned in five key areas, setting up corresponding ministries
to take charge of these areas. One of these key areas was the telecommunications industry
(Schmidt, 1970), with the Information Ministry as its corresponding ministry. This
indicates the critical role that information and telecommunications were set to play in the
economy and society of Oman (Kutschera, 1970).
At least as early as 1957, radio telephone was being used in Oman (Reuters, 1957). In
1970, the base of a telecommunications industry was established with the setting up of
Oman Telecommunications Company (Omantel, 2010a, b). Two years later, on the
28 April 1972, Oman joined the ITU and, from the late 1990s, the industry developed
rapidly. Mobile phone subscriptions were first introduced in 1996, prepaid mobile
connections were made available in 2000 and fixed-line prepaid connections followed in
October 2004 (Telecommunications Regulatory Authority (TRA), 2004). Internet
services were first introduced in 1997, with broadband services launched in December
2004 and made available to residential customers in January 2005 (TRA, 2005). The
government realized that high quality and cheaper telecommunication infrastructure is
of key importance in the spread of the internet and ICT applications. In turn, this
proliferation of the internet promises to help countries to catch up more rapidly with
the expanding pool of knowledge (Bhatnagar, 1999).
The telecommunications industry in Oman Telecommunication
In March 2002, a Royal Decree gave directives for the establishment of a TRA (2004). industry in Oman
This ushered in a new era, marked by the liberalization of the telecommunications
market and the introduction of a foreign operator and many resellers, changes which
ensured that the citizens of Oman would have access to modern information
communication technologies. As a result of the TRAs liberalization initiatives, in 2004
the corporate identity Nawras won the license to become the second mobile phone service 237
provider in the Sultanate (TRA, 2004). Nawras is the Omani Qatari Telecommunications
Company a consortium of TDC of Denmark, Q-Tel of Qatar and a local partner. The
liberalization continued, as in 2008 Nawras was awarded the license for fixed line and
internet services (TRA, 2008). Very soon after, in the second quarter of 2009, mobile
service resellers, technically termed Mobile Virtual Network Operators (MVNOs)
entered the market. The resellers for Omantels mobile services are Connect Arabia
(offering Friendi and Halafoni) and Majan Telecommunications (offering Renna).
Similarly, Mazoon, Injaz and Samatel are resellers for Nawras. Samatel replaced Kalaam,
one of the first five companies to be awarded the Class II reselling license by the TRA.
However, Kalaam later backed out and Samatel came forward instead (Karra, 2009).
The Telecommunications Regulatory Act was issued under Royal Decree 30/2002
and amended under Royal Decree 64/2007. This Act established the TRA and defines,
among other promulgations, the general rules of Provision of Telecommunications
Services and Telecommunications equipment, universal service, competition,
prevention of conflict of interest and realization of National Security requirements,
interconnection and access, reselling, site sharing, and unbundling of the local loop.
The most noteworthy part of the Telecom Regulatory Act is the compulsion that the
license issued for the operators shall not include any terms or conditions which grant
licensee with exclusive rights (Government of Oman, 2009).
Oman currently has an estimated population of 3.1 million. It is a member of
the Gulf Cooperation Council and has a per capita gross domestic product of
$20,331.55 (IMF, 2010). According to the 2010 second quarter Telecom Sector Indicators
published by the TRA (TRA, 2010), there were 283,735 fixed line telephone subscriptions
as of May 2010, with 4.3 million mobile subscribers, giving an approximate ratio of
127 users per 100 inhabitants. This level of mobile subscription penetration is similar to
that of other Gulf Cooperation Council countries, with Saudi Arabia having a penetration
rate of 140 for digital mobile subscriptions. The May 2010 figures for internet use show an
estimated 406,655 fixed internet users and approximately 1.13 million mobile broadband
users, bringing the estimated total of internet users to 1.54 million and the internet
penetration to 45 users per 100 inhabitants (including fixed dial-up, fixed broadband and
mobile broadband users).
Figure 2, which indicates the recent history of the market, shows that the fixed
phone market has very low penetration. It also shows that, until 2010, internet
penetration was also extremely low, with only 2 percent of inhabitants having a fixed
internet connection and only 12 percent having access to the internet. However, this
has changed radically with the advent of mobile broadband and, as noted earlier,
access to internet has gone up to 45 per 100 inhabitants.
As of the end of Omans fiscal year 2009, the Omani telecommunications service
industry was worth $1.5 billion (RO 583 million), with two major players Omantel
and Nawras. Omantels total revenue, driven by a robust growth in the internet and
CR 16 Number of Fixed Line
ICT Development 140
Fixed Line & Internet Subscriber & Internet Users

Subscribers
23,3 Number of Fixed
Oman 2005-2010 127
14 Internet Subscribers 120
Estimated Number of
Fixed Internet Users**
12 12
Number of Mobile 100
Per 100 inhabitants Subscribers (Right Axis)
Per 100 inhabitants

Mobile Subscribers
238 10
80
8.3
8
60
6
40
4
2 2 20
Figure 2.
ICT developments in
Oman from 2005 to 2010 0 0
2005 2006 2007 2008 2009 2010
data segment, is estimated to grow at a CAGR of 2.2 percent to reach $1.14 billon
(RO 440 million) in 2012, from $1.07 billon (RO 412 million) in 2009. The internet
and data segment as a whole is expected to grow by 15 percent to reach a $121 million
(RO 46.6 million) target by the end of 2010 and $138.4 million (RO 53 million) by 2011.
It is also expected to ride the next wave of growth due to the prevailing
under-penetration of the internet. Nawras, the newer player, increased its revenue by
24 percent and reached $444 million (RO 171 million) as of 2009, driven mainly by the
mobile and 3G segment (US Research, 2010).
In the past, the incumbent Omantel had a monopoly of all fixed-line and internet
access services. In 2008, the International Telecommunication Union classified all
Omans telecommunications sectors as a monopoly, except for the mobile cellular
services which were classified as Partial Competition as of 2005 (ITU, 2008). However,
the situation changed in November 2008, when alternative mobile operator Nawras,
55.6 percent owned by Qtel of Qatar, won a 25-year license to build and operate
domestic and international services, together with submarine cables and transmission
stations. The license also included spectrum rights, valid for 15 years and possibly
renewable for a further ten years, to provide wireless broadband. Nawras pays the
same 7 percent royalties as does Omantel and was required to pay a one-time fee of
OMR 500,000 (Nawras, 2010a, b).
Nawras is building a latest generation fiber optic backbone across the country, in
conjunction with WiMAX networks, and a new international gateway. It launched its
first fixed-line services to corporate customers in May 2010 and to the public on 19 June
2010. As a result of these developments, most telecommunication service services in
Oman, including local services, domestic and international fixed long distance,
wireless local loop, internet services, mobile data services, fixed wireless broadband
and international gateways, are classified as having full competition. Whereas the DSL
sector still operates as a monopoly and the mobile and 3G sectors are classified as
partially competitive (ITU, 2011).
Within the mobile sector, Omantel and Nawras currently have roughly equal shares Telecommunication
of the market but may find the future environment challenging, partly because Oman industry in Oman
has been the first country in the region to launch MVNOs. Five licenses have been
awarded since June 2008, with Connect Arabias FRiENDi becoming the first operating
MVNO in the Middle East, closely followed in May 2009 by Majan Telecoms Renna.
Both operators are targeting the expatriate population, offering low recharge amounts
and competitive international rates. Connect Arabia also partnered with two radio 239
stations to launch a second brand, Halafoni, in July 2009, this time targeted at young
nationals and other Arabic speakers with an emphasis on downloadable content.
Two further MVNOs were launched in 2010, both using Nawras network. In August
2006, Oman also became the first country in the region to introduce mobile number
portability (MNP). The more competitive mobile market and the low broadband
penetration rates provide an opening for mobile broadband services through high
speed packet access (HSPA) and next generation networks (NGNs). Both mobile
operators have launched services and have marketed them strongly with numerous
special offers. They appear to be winning subscribers from fixed-line to broadband and
the broadband market is increasingly becoming more mobile.
Porters Five Forces Model for the telecommunications industry in Oman

The telecommunications industry has traditionally comprised of a club of big national
and regional operators. Over the past decade, however, the industry has been swept up
in rapid deregulation and innovation. In many countries around the world, government
monopolies have been privatized and face a plethora of new competitors. Traditional
markets have been turned upside down, as the growth in mobile services is outpacing
fixed line services and the internet is starting to replace voice communication as the
main business. The telecommunication market in Oman is no exception to this. In order
to operate in such a dynamic market, it becomes critical to understand the market
structure and effectively strategize to face the challenges. Also, Mari Sako suggests
that the study of industries as a whole adds value to the economists normal activity of
testing and generating theory. It provides an institutional and historical context in
which to study organizations. Such context improves the interpretation of how and
why different practices and institutions fit together in specific industries (Sako, 2007).
One such attempt at meaningful categorization of industries is the Five Forces
Model. The Five Forces Model provides a framework to study the industry structure
in terms of the competitive forces that affect the industry under analysis.
Michael E. Porter worked on the competitive forces in markets since the very
beginning. His first article with the Harvard Business Review How competitive forces
shape strategy was published in 1979. With the introduction of the Five Forces Model,
Porter presented his arguments that competition in any industry is not only between
explicit industry players which we refer to as rivals, market players, industry
competitors or competing businesses but goes well beyond that. He presented a model
which provides a view of all competitive forces which create pressures on prices, costs,
the rate of investment and other strategies necessary to compete in the industry. These
forces, in addition to rivalry, are customers, suppliers, potential entrants and substitute
products (Porter, 2008). Michael Porter clarified the Five Forces Model through
case studies (Porter, 1983) and showed its usefulness in a variety of influential
literature (Porter, 1980, 1985, 1990).
CR Porters Five Forces Model is a powerful tool for analyzing a wide variety of
23,3 industries in any number of locations, given certain modifications to the boundaries
of product, services and the impact of key components that determine the overall power
of each force. An important step in carrying out the analysis of the industrys
competitiveness is to define the boundaries of the industry accurately. The boundaries of
an industry consist of two primary dimensions. First is the scope of products or services.
240 The second dimension is geographic scope. As the definition of the industry boundary
has direct impact on the analysis of the industry structure, it also results in strategy
errors as industry analysis itself forms the basis of business strategy (Porter, 2008).
Using Porters Five Forces Model to analyze the highly dynamic
telecommunications industry enables us to outline the competitive structure of this
industry in Oman. The telecommunication industry in this study is defined as
compromising of businesses that are engaged in providing telecommunication services
including 2G, 3G, HSPA, NGN mobile telephone communications, fixed wired and
wireless telephone, mobile internet, mobile broadband, dial-up internet and fixed wired
and wireless internet including WiMax. Satellite phone communication and satellite
internet are not considered as industry rivals for this study, as these will show
elsewhere, such as in the threat of substitutes. Similarly, Voice over Internet Protocol
(VoIP) is also considered a substitute to traditional telephony for the analysis being
carried out in this study.
In terms of defining regional boundaries, the TRA in Oman makes the job of
defining these easier. As such, only those companies that hold class one and class two
licenses within Oman are considered within the boundary of this study. However, since
class two operators lease services from the class 1 licensees themselves, their
competitive analysis needs a distinct outlook in order to construct the framework of the
Five Forces Model that is useful in analyzing various players in the industry clearly.
The scope of the study encompasses the telecommunication industry in Oman as has
already been discussed earlier.
A component by component analysis of each macro-force and micro-force is used to
analyze and discuss the relevant factors, including company performances, market
reports and interviews. Consequentially, the impact on markets overall dynamics and
competitive structure on devising competitive strategies and telecommunications
industry policies is discussed. This includes an outline of the basic strategic outlook for
market incumbents, new entrants, policy makers and other relevant players.
1. Threat of entry in telecommunication sector

Porter argues that the threat of new entrants into an industry is related to the barriers
to entry that exist within the industry and geographic boundaries. In order to assess
the threat of entry in the telecommunications sector of Oman, each of these barriers
must be analyzed in the context of the relevant boundaries.
(1a) Customer switching costs. Customer switching costs are fixed costs that buyers
face when they change suppliers. In the telecommunication sector, it mainly depends on
what kinds of cost consumers or buyers have to undertake if they switch from one provider
to another. In the telephone (fixed/mobile) sector, this is generally dictated by regulations
that may ensure telephone number portability, the fees charged for transfer and the ease of
transfer, including swiftness of switching and the overall experience of switching to
another provider. In many telecommunications markets, some mobile phone equipment
(such as iPhone or Samsung) may only be available with a certain provider or phones may Telecommunication
be packaged with the service. Such a scenario makes customer-switching costs high. industry in Oman
In Oman, the TRA has provided for number portability so that customers can move
from one provider to another without having to change their telephone numbers (TRA,
2007). The process is offered free of charge by all service providers in the market.
Contractual agreements are not common in the market and mobile fixed and internet
users can all shift without any additional costs. In addition, the Omani market does not 241
have any packages like those in many other countries, where certain networks or
contracts are only available with specific phones. All these factors mean that in Oman
there are virtually no costs associated with switching from one telecommunication
service provider to another.
(1b) Capital requirements. It should come as no surprise that the biggest barrier to
entry into the capital-intensive telecom industry is usually access to finance. To cover
high fixed costs, serious contenders typically require a large amount of cash.
When capital markets are generous, the threat of competitive entrants escalates. When
financing opportunities are less readily available, the pace of entry slows down.
In order to analyze the threat of new entrants based on the capital requirement, it is
essential to evaluate the capital market and thus understand the availability of finance
for this sector. It is an expensive business; contenders need to be large enough and
produce sufficient cash flow to absorb the costs of expanding networks and
services that become obsolete seemingly overnight. Transmission systems need to
be replaced as frequently as every two years. Big companies that own extensive
networks especially local networks that stretch directly into customers homes and
businesses are less reliant on interconnecting with other companies to get calls and
data to their final destinations. By contrast, smaller players must pay for
interconnection more often in order to finish the job. For little operators hoping to
grow big someday, the financial challenges of keeping up with rapid technological
change and depreciation can be monumental. The capital requirements are the major
inhibitor to the threat of entrance in the telecommunication market in Oman. However,
the presence and potential entry of cash rich telecommunication service providers with
experience in a market similar to Omans still poses a threat to the incumbents.
(1c) Unequal access to distribution channels. Distribution channels in the
telecommunications industry range from self-owned distribution points to any type
of shop and also to sales points with vending and automated machines. Generally,
these distribution points are of negligible value to telecommunications organizations
and therefore have no impact on the threat to entry. However, if exclusive distribution
rights existed at critical or highly dynamic distribution points, then unequal access to
these points might constitute a restriction to the threat to new entrants. Incumbents in
Oman do not have exclusive distribution rights and the distribution channels are free
to all. Recharge cards, for example, are sold widely at various retail outlets, with barber
shops and laundry service centers as the non-mainstream telecom product outlets;
these are not organized by the industry. Customers may not frequent these shops daily,
but they do so at regular intervals. Cards are also sold in many convenience stores and
are seen by managers as an excellent product as they only expire after one year but are
often sold off within two weeks. While only about 1,000 outlets sell actual SIM cards,
there are more than 10,000 outlets that sell recharge cards. A number of part-timers are
also involved in the logistical chain of selling cards; through their brisk business,
CR they essentially help the telecommunication companies. Aiming to facilitate
23,3 communication for their customers, the telecom operators have adopted a variety of
strategies for keeping these multiple players in the loop and often use different
strategies for different entry points. For the mass market, entry is made through
dealers. but there is no single general method of entry for the premium places or the
key accounts. While potential investors must also investigate factors like investment in
242 outlets, sales projections, branding spots and visibility when making decisions
(De, 2010), it can be comfortably concluded that there is equal access to all distribution
channels and thus this factor does not constitute a barrier for new entrants.
Another factor affecting equality of distribution is the finite amount of good radio
spectrum, that is spectrum that lends itself to mobile voice and data applications
(Investopedia, 2010). An insufficient amount of this spectrum obviously limits access to
distribution channels. However, in Oman this is not an issue, as there is still plenty of
radio spectrum space available.
(1d) Restrictive government policy. While restrictive government policies can create a
significant barrier to entry in many industries, this is not the case in the
telecommunication industry where the ITU, plays a major role in reducing such
restrictions. With 153 countries already members of the world trade organization (WTO),
and about 30 more still seeking membership, the expectation is that eventually there will
be no government restrictions in the telecommunications industry anywhere in the world.
However, the possibility of misinterpretation and misrepresentation of the WTOs free
trade policy always exists. In addition, national governments may exert pressure on the
freedom of the telecommunications market in the name of security, safety measures and
other legal concerns. The free market condition recommended by the ITU and
implemented through membership of ITU and WTO is thus often bypassed, and the
governments of various countries display these bypasses in various degrees through
restrictions and limitations on the telecommunications policy of their country. The
Government of Oman follows the ITUs and WTOs bindings on liberalization of the
market. The market is regulated by TRA and no new entrant can enter the market unless
invited by the TRA through invitation to bid. This procedure still keeps the threat of
entrance into the market low (Table I).
2. The power of suppliers

The power of suppliers in the telecommunications industry in Oman is affected by two
key elements: the power of the network equipment providers, generally termed NEPs,
and the power of the workforce, or suppliers of labor. To be strictly accurate, the term
NEP is no longer appropriate, as many of the enterprises involved have moved well
beyond the point of merely providing equipment and could more appropriately be
referred to as Communications Solution Providers (CSPs). However, because of its
widespread popularity, the traditional name is still commonly used and will be retained
in this study.
NEPs are companies that provide communication solutions to service providers like
fixed or mobile operators, as well as to enterprise customers. If you call somebody on your
mobile phone, surf the internet, join a conference call or watch a video on demand through
IPTV (internet protocol TV) these services are all NEP-enabled. The most important
communication solutions that NEPs provide include the following: 2G and 2.5G networks
mobile networks like Global System for Mobile Communication (GSM), Enhanced Data
Telecommunication
Overall Overall Impact of
impact of impact of factor on industry in Oman
Force force Sub force sub force Factor Condition entry
Threat Moderate Customer High threat Regulation Favorable High threat

of switching cost of entry for
entry switching 243
Equipment Not High threat
change required
Service Not High threat
packaging existing
Capital Moderate Contractual Not High threat
requirements threat of limitations existing
entry Capital market Recession Low threat
conditions
Customer High threat International Present High threat
switching cost of entry cash rich

operators
Incumbency Low threat Network Incumbent Low threat
advantages of entry networks
Local Yes Low threat
knowledge
Brand identity High Low threat
Unequal access to High threat Exclusive None High threat Table I.
distribution of entry distribution Summary of threat
channels rights of entry in Oman
Radio spectrum None High threat telecommunications
limitations market showing sub
Restrictive High threat Regulatory law Liberal High threat forces and factors
government policy of entry Practice by Licensing Moderate impacting the
TRA and required threat competitive structure
government of the market
Rates for GSM Evolution (EDGE) or General Packet Radio Service (GPRS), 3G mobile
networks based on Universal Mobile Telecommunication Standard (UMTS), 3G
mobile networks based on HSPA, fixed networks which are typically based on Public
Switched Telephone Network (PSTN), enterprise networks like Unified Communication
Infrastructure and, finally, internet infrastructure like routers and switches.
The NEPs have recently undergone a number of significant consolidations through
mergers and acquisitions. Notable examples are the joint venture of Nokia and Siemens
(Nokia Siemens Networks), the acquisition of Marconi by Ericsson, the merger between
Alcatel and Lucent and many numerous acquisitions by Cisco (George Bailey, 2007). The
power of these suppliers depends on a number of factors, namely: the level of
concentration of the NEPs, whether or not they depend heavily on the telecommunication
service providers for their revenues, the costs to the telecommunication service providers
of switching NEPs and the level of differentiation of products. It is also relevant to note
here that there is minimal threat of forward integration by NEPs.
The power exerted by workforce suppliers is the second element; it is affected by the
availability of a qualified and experienced telecommunications sector work-force and
also by the consolidation in the regional labor market in the telecommunications sector.
CR Both of these issues need further investigation. An analysis of the impact of the labor
23,3 unions and the role they play in determining the power of the workforce suppliers in any
industry is also relevant to the telecommunications industry in Oman and elsewhere.
Another consideration that has to be made in telecommunications markets is that of
service providers such as VNOs. These VNOs may themselves be leasing network
space from telecommunication service providers who have widespread networks in the
244 region. As such, the suppliers for the VNOs are the telecommunication service
providers with widespread networks and this supplier and industry participant
relationship has to be looked into.
For network operators, the Omani telecommunications market is similar to that in
any other country. Consolidation among CSPs by convergence leads to a greater
dependence on a few large clients of suppliers, which should generally mean lower
bargaining strength for telecommunications service providers. However, due to the
resultant pressures on their profitability, service providers are increasingly looking at
lowering their operating costs and capital expenditure (lowering the cost per
subscriber) and this is putting pressure on NEP margins. Switching from PSTN to
NGN increases the use of standardized network components (COTS) at the expense of
more proprietary equipment, a process which has reduced the bargaining power of
suppliers. Software increasingly replaces traditional network components. What this
means overall is that the power of network equipment suppliers is low in the global
telecommunications market, and the same holds true for Oman.
The role of trade unions is still uncertain in Oman. Prior to 2006, trade unions were
banned under Omans labor law, along with collective bargaining and strike action. In
2006, a Royal Decree legalized the formation of trade unions, as well as collective
bargaining and strikes. After nearly two years of delay from the proposed date of
holding the founding congress of the trade unions, the General Federation of Oman
Trade Unions (GFOTU) was established in February 2010. At this point, 50 Omani
trade unions have elected some 100 delegates to the congress and named Saoud Ali
Abdullah Al Jabri as the GFOTU President. The move represents a significant
development for the countrys budding trade union movement (Martins et al., 2010).
Another key issue is the policy of Omanisation, the replacement of expatriate workers
with local staff. In a deteriorating economic environment, the Omanisation policy may
be relaxed further, following the Ministry of Manpowers decision in February 2009 to
reverse a previous government edict banning expatriate workers from certain
professions. However, the government is committed to continuing to fund higher
education and training in order to develop local professional and technical expertise. It is
also urging the private sector to provide more employment opportunities for Omani
citizens and to agree on and meet specific targets. Despite changes in Omani labor law,
supply-side problems remain in particular, the greater cost of employing locals and the
additional rights they enjoy once in a job and are likely to slow down the progress of
Omanisation (Shakeel and Butter, 2009). The success of the policy is also likely to be
undermined by the gradual implementation of the GCC common market, which should
eventually allow Omani nationals to seek employment freely within the six-member
bloc. The attractions that neighboring countries may offer to highly skilled Omanis,
such as better wages, could reduce the number of well-trained local staff. Ultimately,
then, the power of the labor supply market remains high (Table II).
3. The power of buyers Telecommunication
Buyers of telecommunications services include both individual and corporate buyers. industry in Oman
The most influential factors in their decision making are price sensitivity and the
perceived quality of service. Price sensitivity is a function of the overall buying behavior
of buyers in the market, the income of the buyers and the value that is accorded by these
buyers to the products and services offered by the participants in the
telecommunications industry. Moreover, it is natural that companies are much more 245
likely to achieve superior profitability and earn above-average profits if they are able to
find a unique way of delivering superior value to customers. The negligibility of
switching costs for buyers has already been discussed in the sub topic of customer
switching costs under the discussion for threat of entry in the telecommunication sector
(point 1a above) and is a critical factor when investigating the power of the buyer.
Another important factor which influences the power of the buyer is the availability of
information about the variety of products and services available in the market.
Low switching costs increase the power of the buyer, while lack of information does
the opposite. In the Omani market, buyers price sensitivity is moderate, with customer
service and quality also being highly significant. There are only two network operators
providing fixed and mobile telephone and internet services and, although MVNOs
exist, their impact on buyer power is limited as they only provide services through
networks from the two key operators.
The price of telecommunication services also plays an important part in the power
of buyers. These prices are significantly higher than others in the region. Oman has an
IPB of 1.64 (ITU ICT Price Basket as a percent of GNI per capita). This is the second
highest in the GCC region, where Kuwait, the United Arab Emirates, Bahrain and
Saudi Arabia all have lower telecommunication service prices as a percentage of GNI
per capita, with their IPBs standing at 0.37, 0.82, 0.87 and 1.02, respectively,
(ITU, 2010a, b, c). The IPB is reflective of the power of the buyers in the market, with
higher pressure from buyers leading to a more competitive pricing structure and a
lower IPB Index. Overall, then, the power of buyers in Omans telecommunications
market, and their competitive pressure, can best be described as moderate (Table III).
Overall
impact of Sub Overall impact of Impact of factor
Force force force sub force Factor Condition on supplier
Power of Low NEPs Low power of Concentration High Low power

suppliers power suppliers of NEPs
NEP switching Low Low power Table II.
costs Summary of power
NEPs product Highly Low power of suppliers in the Oman
differentiation standardized telecommunications
Labor Moderate power Influence of Low Low power market showing sub
force of suppliers labor union forces and factors
power Qualified Low High power impacting the
workforce competitive structure
availability of the market
CR 4. Threat of substitutes
23,3 The fourth force that Porter identifies is the threat of substitutes; a substitute performs
the same or a similar function as an industrys product but by different means (Porter,
2008). The main substitutes in the telecommunications industry as defined in this study
are calling cards, internationally- or foreign-managed VoIP services, satellite internet,
satellite phones and NGNs. In order to analyze the threat of substitutes, it is essential to
246 look at the price-performance trade-off between the substitute and the industrys
product. Porter himself, for example, highlights the suffering of conventional long
distance telephone service providers following the introduction of inexpensive
internet-based phone services such as Vonage and Skype (Porter, 2008). It is also vital
to look at each substitute individually and determine the buyers switching cost.
Substitutes offer the greatest threat when they can provide buyers with better
service at lower costs through changes that improve the value of their products or
services. Under the countrys Telecommunications Law, the unlicensed provision of
international phone calls using VoIP is illegal in Oman and punishable with a jail term
of up to two years or a fine of up to RO 50,000 ($130,000). However, nearly one-third of
Omans population are expatriates, many of whom are poorly paid, so demand for
low-cost international calls is high and entrepreneurs have been prepared to flout the
rules to meet rising demand. This year, the Royal Oman Police launched a campaign to
crack down on the violators. According to a report by a local English-language
newspaper, the Times of Oman, in early November 2009 over 200 people had been
arrested following raids on more than 100 homes and shops. Omantel also blocked the
popular Skype VoIP internet site in an effort to shore up its profits from international
calls (Shakeel and Butter, 2009).
An interview with Dr Mohammed Ali Al Wahaibi, Under Secretary for
Communications in the Ministry of Transport & Communications, offers a clearer
picture on the status of VoIP substitutes and NGNs based on internet protocols:
We are currently undergoing the process of reviewing this and the TRA has gone a long way. In
2010, well regularize VoIP. There have been certain instances of many resellers, say cyber
cafes, providing VoIP to consumers. They have been targeted by the authorities as they have
violated the Telecom Regulatory law. The TRA will be introducing a regulation to accept VoIP
as a legal service. As a consumer, you might have a frustration as a result of the delay. We do
not have any problem in introducing it, but the operators are not ready. They are actually
experimenting VoIP services for international calls. They also have to design their VOIP
products. The traditional telecom networks are giving way to new converged platforms based
on new generation networks that are based in IP protocol. The quality offering differences
through the traditional network and IP call are being bridged now. If the service providers do
Overall Overall
Table III. impact of impact of Factor of impact on
Summary of power Force force Sub force sub force Factor Condition buyers
of buyers in Oman
telecommunications Power Moderate Not Not Price sensitivity Moderate Moderate power
market showing factors of applicable applicable Switching costs Negligible High power
impacting the buyers Product or service Low Low power
competitive structure of information
the market availability
not build products around the VoIP they will eventually lose this market because new entrants Telecommunication
may tap into this segment. But they have to act very fast (Bhatnagar and Al Fori, 2010).
industry in Oman
The TRA has yet to declare the VoIP policy in Oman and thus the threat of this
substitute looms over the incumbents continuously. Satellite phone and satellite internet
remain a threat for the future. However, until better service provision and lower rates can
be guaranteed, the threat from this kind of substitution remains low. The overall impact
of substitutes, however, is driving prices down and remains appreciable, due to VoIP 247
and other alternatives such as online voice chatting and international video conferencing
(Table IV).
5. Rivalry among existing competitors

Porters fifth force is rivalry, which may be defined as the efforts that industry players
or existing competitors make in order to sustain and improve their market share,
revenue, profitability and image. High rivalry limits the profitability of an industry. In
the telecommunications industry, all aspects of rivalry, including price discounting,

introduction of new products, service improvements and advertising campaigns play
an important role. According to Porter, the degree of rivalry depends on the intensity
as well as the basis of competition (Porter, 2008). The analysis of rivalry in the
telecommunications industry in Oman can be modeled as follows.
(5a) Concentration, size and power of competitors. In the telecommunications
industry, as in any other, the number of competitors is important as all the competitors
have to share the same pie. In the industry under review, size refers to the size of
network and coverage. Some telecommunication service providers may have limited
coverage and thus less influence and market share. In addition, VNOs are generally
smaller and thus do not have as major an impact on competitive rivalry as core
network operators do. The financial strength of the industry players gives an
important indication of their power and hence their ability to pressure their rivals.
Government regulatory authorities may also play a role in limiting the concentration of
the industry rivals to a position deemed appropriate for industrial growth and health.
The fact that there are only two network operators in the Omani telecommunications
market means that concentration in the operator and service provide sector is low,
resulting in a relatively low competitive pressure. The Average Revenue per User (ARPU)
for Nawras and Omantel dropped from Rial Omani 10.1 and 13.1 in 2007 to Rial Omani 7.5
and 10.6 in 2009, respectively. It is clear that even though the ARPU has dropped due to
competitive pressures, it remains appreciably stable and high in comparison with other
telecommunication service provider markets. The rivalry situation in the MVNO
Overall
impact of Overall impact of Impact on
Force force Sub force sub force Factor Condition substitutes Table IV.
Summary of threat
Threat of High Not Not applicable Availability of Low Low threat of substitutes in Oman
substitutes applicable substitutes telecommunications
Price- Low High threat market showing factors
performance impacting the
trade-off competitive structure
Switching costs Low High threat of the market
CR segment, however, is likely to be rather different, as there are six MVNO networks leasing
23,3 either from Omantel or Nawras; these MVNOs are promising to compete vigorously.
In general, the network coverage and financial strength of both the major operator
and providers is a significant factor in their competitiveness. However, due to the Omani
market being largely an oligopoly, competitive rivalry at present is indirect and discreet.
The regulations, however, do not limit the number of entrants in the market. The TRA
248 itself prefers investors who are more infrastructure-based because they add more value.
In an interview, Dr Mohammed Ali Al Wahaibi, Under Secretary Communications,
Ministry of Transport & Communications commented about the liberal market situation
in Oman as an answer to the question What is the need to have so many telecom
operators in the country as the penetration levels are in excess of 100?:
We do understand the developments in the market and value the importance of quality players.
But you see the TRA and the Ministry cannot reject companies seeking a certain type of license
if they fulfill the criteria and have a strong business case. We do highlight the complexities and
issues involved to the investor and if the investor insists on pursuing the opportunity, we
usually allow them to go ahead and let the market decide. In general, we prefer more
infrastructure-based investors because they add more value not only to the customers but also
to the economy as well. They make significant investments and generate employment in the
market. As a result, theres a cascading value effect. However, due to our small market size,
difficult terrain and horizontal distribution of the inhabitants, it is not easy for the
infrastructure-based investors (Bhatnagar and Al Fori, 2010).
An examination of the financials of Omantel and Nawras offering a picture of their
financial strength is shown below. According to Table V, though Nawrass 2009
revenue (US$171 million) is much lower than Omantels (2009, US$357 million), Nawras
fares better when comparing the net income to the revenue generated in 2009.
(5b) Rate of industry growth. When looking at the rate of industry growth, both
present and prospective, each service provided, namely fixed and mobile, voice and
internet communication service, must be analyzed individually. There are generally two
types of growth; one is related to actual growth in buyers willing to buy services
Nawras Omantel
2007 2008 2009 2007 2008 2009
Revenue 94 138 171 309 361 357

EBITDA 25 53 87 192 213 213
Net income 8 20 41 113 119 125
ARPU (RO) 10.1 8.4 7.5 13.1 12.6 10.6
Subscribers (000) 1,016,885 1,510,865 1,860,763 1,461,029 1,704,957 1,888,306
Growth
Revenue (%) Na 48 24 28 17 21
EBITDA (%) Na 111 63 19 11 0
Net income (%) Na 148 112 39 6 5
ARPU (RO) (%) Na 2 17 211 26 24 2 16
Subscribers (000) (%) Na 49 23 17 17 11
Margin
EBITDA (%) 27 39 51 53 52 52
Table V. Net income (%) 8 14 24 31 29 30
Financials of Omantel
and Nawras Source: US Research (2010)
provided by the industry and the other is the growth in potential buyers who were not Telecommunication
able to acquire the product or service due to lack of information or lack of reach of the industry in Oman
industry product or service provider. In the telecommunications industry, the rate of the
industrys growth is monitored mainly through the penetration rates of individual
services provided in the market.
Mobile phone penetration is currently hovering at rates of 127 percent, but there is
still room for growth. The penetration rates on internet and fixed line are very low, which 249
means that growth in consumers of these telecommunication services has yet to be
exhausted and is therefore guaranteed. As such, there is growth in the pie and the
competition is not about sharing the same pie but is about reaching out to newer
customers and growing the pie itself.
(5c) Exit barriers and commitment of rivals. Exit barriers may arise in the
telecommunications business because of its very nature: the extensive networks,
specialized assets and agreements for providing services with regard to contractual and
general commitments. Also, management may simply be highly devoted to a particular

business. It is very important to note that a license to operate telecommunication networks
and services may be provided as a package, including fixed and mobile telephone,
internet and other services. Operators may therefore have to stay in one area of
telecommunications service provision despite earning low or negative returns. Exit
barriers may result in extensive competitive pressures as excess capacity remains in use
and the overall market profitability suffers because of the under-performing of the
industry players.
Moreover, the telecommunications industry almost everywhere in the world has
government-owned players in the market. This government ownership keeps the
commitment to staying in the business very high, as the reasons for staying in business
are not solely profitability but also the desire to provide jobs and ensure healthy
infrastructural development. These government-linked players usually compete
aggressively with other telecommunication service providers in the market. In Oman,
both the firms currently in the market are fully or partly government-owned. The Omani
Government owns a majority share in Omantel and Nawras is a conglomerate linked to
the Qatari Government-owned Qtel. For this reason, the commitment, ego and desire to
stay in the market is very high. Exit barriers are also significant because players make
huge investments in networks and network equipment and firms are committed to
operating through to the end of their license periods.
The situation is very different in the MNVO market. The exit barriers are much
lower and there are far more players in the market. It is therefore no surprise that, out
of the six firms originally granted MVNOs licenses, two of the initial awardees have
already exited the market without starting operations. It is expected that, given the low
exit barriers, more players may exit from the MVNO market. Despite this difference, it
is generally considered that the competition in the overall market will remain driven by
the owners and operators and that the overall exit barrier that impacts competition in
the market will therefore remain high.
(5d) Familiarity among rivals. Telecommunications companies often compete
through diverse approaches, but if the competitors do not understand these approaches
well, the rivalry may be intensified. One important sign of this may be the copy-cat
approach to pricing and product or service offerings, as this is indicative of a lack of
CR differentiation and target marketing and shows instead more aggression in the effort to
23,3 undermine or destroy the rivals efforts in marketing and product differentiation.
In Oman, due to the TRA and the fact that Omantel and Nawras generally operate
in similar regions, the familiarity among rivals is considerable. There is considerable
matching in the product and price packaging and also similar market tactics. However,
both approach the customers in their own unique way. This cannot, however, be said of
250 MVNOs as they have demonstrated a more aggressive behavior and copied other
MVNOs targeting strategies. Overall, familiarity among rivals is only moderate and
does not have an obvious impact on rivalry in the market.
(5e) Price competition. In the telecommunications industry, the products offered are
generally similar. Fixed costs are high and marginal costs are low, so capacity must be
expanded by a large increment to be efficient. The services provided by the network
operators and service providers and VNOs are perishable; this is because every minute
that people are not talking or utilizing the available bandwidth for internet or
broadband, the service is unrecoverable in terms of returns for the operating
organization. All these factors make price competition particularly high in the industry.
However, regulations often cap competitive price cutting. The degree to which rivals are
willing to engage in price wars also depends on whether the market is a monopoly or an
oligopoly and whether it is partially or fully competitive.
Although both Samatel and Mazoon Mobile are upbeat about their impending
launch, market watchers feel that it will not be easy for these players, as there are
already four players operating in the mobile telephony market. Friendi Mobile has been
shrewd enough to concentrate on its target segment expatriates from the Indian
subcontinent but Renna has been hard on Friendis heels trying to get a share of the
same customer base. The ensuing competition has triggered a price war, forcing all the
mobile operators to slash their international call rates for fear of losing the large and
lucrative expatriate population living in the country. Friendi Mobile went one step
further and tied up with Idea, a mobile company operating in the southern Indian state
of Kerala; it then offered a call price that is lower than the existing call rates originating
from and terminating with Idea. This is a strategic move for Friendi because, out of the
600,000 Indians living in Oman, at least half hail from Kerala.
Price competition has started to become very important in the Omani
telecommunications market and is certain to become stronger in the future. As Nawras
only entered the internet and fixed line service provision market on 19 June 2010, it is yet to
be seen what the impact will be on the incumbent Omantels pricing strategy. However,
there is no doubt that, just as the advent of Nawras in the mobile sector has driven down
prices, the case will be the same in the fixed internet and fixed phone product or service
segment.
(5f) Competition on dimensions other than price. Competition in the
telecommunications industry also involves product and service features, support
services and brand image and can be investigated by analyzing the differentiation and
targeting strategies of the service providers, product and service features and also other
facets of the various product and service offerings. Antitrust and legal measures are also
relevant when also assessing the extent of the competitive rivalry in the
telecommunications business.
Mohamed Al Hashili, Chief Executive Officer of Mazoon Mobile, talking about their
strategy for taking on the competition, notes:
We are designing our products in such a way that mobile users will cherish our SIM cards as Telecommunication
a valuable commodity, like an ATM card, instead of throwing it away after using up the
currency in it, as it is happening with the present mobile companies (Karra, 2009). industry in Oman
Dr Wael Taher, CEO of Samatel, also stated that they have a multi-directional business
strategy. The company is planning to start a pre-paid mobile service but will also set up a
contact center which will aim to attract outsourcing businesses such as management
services, consultancies, etc. Samatels building in Ghala will house a 140-seat contact 251
center as well as its mobile operations. Another contact center will be established in
Mawaleh with a capacity of 600-700 seats. Samatel has tied up with Teleperformers, the
biggest outsourcing company in the world, which has over 75,000 seats in around
15 countries. Samatel has also entered into an agreement with Effortel from Belgium,
a mobile virtual network enabler (MVNE) which facilitates the entry of companies into
the mobile reselling business.
Nawras has also been competing through a variety of advertisements. When MNP
was introduced in August 2006, thousands of new customers moved to Nawras while
keeping their existing number. MNP gained particularly high visibility thanks to the
participation of Omans popular international goalkeeper, Ali Al Habsi, who became
Nawras MNP Ambassador. Al Habsi appeared in an extensive advertising campaign
which helped to generate widespread awareness of the service (Bhatnagar and Sarkhel,
2010). In over three years of MNP in Oman, almost nine out of ten customers with
interests in sports opted for Nawras. It is obvious, then, that the network operators and
VNOs are together creating a mix where the MVNOs target niche markets in close
coordination with their host operators. Also, the MVNOs target the rivals of their host
operators, just as in the case of Arabia Connect, the parent company of Friendi which
launched Halafoni, a separate brand targeting the youth of Oman; a step which directly
took on the Shababiah brand of Nawras.
In addition, the Omani telecommunications market has been subject to periodic
lawsuits that target the operators promotional or general activities as going beyond the
regulations as dictated by the TRA. One such incident was the shutting down of Nawras
OPAL offer, which offered large discounts to corporate consumers and was then extended
to general consumers. Incidents like these provide clear evidence that rivalry in Omans
telecommunications industry goes far beyond price competition and is present in all
zones, creating a highly dynamic market with intense competitive pressures (Table VI).
Managerial implications, recommendations and future research directions

This Five Forces Model analysis of the telecommunications market in Oman has a
number of implications that can be used by ICT companies to strategize future actions
and improve their market standing. The model can also be interpreted and used by all
the players in the market: incumbents and potential new entrants, as well as Omani
policy makers such as the TRA.
As shown earlier, the threat of entry into the telecommunications market remains at a
moderate level. This means that if the incumbents want to stay ahead in the market they
will have to be on high alert. One tactic they might adopt to discourage new entrants is to
increase the customer switching cost by introducing new barriers such as service
packaging and equipment locking. As customers are accustomed to being free to use the
devices of their choice, they may be resistant to and resentful of equipment locking
but attractive service packaging is a strategy that multiservice providers should
CR
Overall Overall Impact
23,3 impact of impact of on
Force force Sub force sub force Factor Condition rivalry
Rivalry among High Concentration, High Network 2 Low

existing size, power rivalry operators
252 competitors Number of 6 High
MVNOs
Financial High High
strength
Industry High High
concentration
Regulation for None High
limiting no of
competitors
Rate of Moderate Past growth High Low
industry rivalry rates

growth Penetration Moderate High
mobile sector
Penetration rates Low Low
in fixed and
internet
Exit barriers High Specialized Yes High
and rivalry assets
commitment Commitment High High
Firm ownership Governments High
Familiarity Moderate Signal readings Moderate Moderate
among rivals rivalry
Price High Similarity of High High
competition rivalry product or
services
Fixed costs High High
Marginal costs Low High
Regulation on High Low
Table VI. price cuts and
Summary of rivalry promotion
amongst competitors Competition High Service features Varying High
in Oman on other rivalry Differentiation Niche Low
telecommunications dimensions strategies targeting
market showing factors Advertisement High High
impacting the and marketing
competitive structure Litigation and High High
of the market legal action
look at seriously. Such packages, that include mobile, land and internet communication,
could not only attract customers but also create higher barriers to customer switching.
A second area of incumbents concern about the threat of new entrants is the fact that
access to distribution channels remains open and the government favors further
liberalization of the market, while at the same time offering only limited licenses to the
incumbents who have to ensure that these license terms are met. Thus, although
incumbents have advantages, such as established networks, local knowledge and brand
identity, meeting the complete set of government rules means that they will have to lower
their profitability by ensuring service provision to market sectors that may offer low Telecommunication
revenue or be unattractive in terms of profit margin. Hence, the incumbents in Oman industry in Oman
must develop a sustainable economic model that will provide services that not only are
affordable for the consumer but also maintain the profits of the operators. It has also
been suggested that improving the quality and reducing the cost of telecommunication
services results in the improvement of a countrys overall economic performance
(Varoudakisa and Rossotto, 2003). For example, recent studies suggest that increasing 253
broadband penetration by 10 percent can increase a countrys GDP by 1.3 percent
(Toure, 2010). Telecommunications development is thus the key to improving internal
efficiency, competitiveness and strength (Table VII).
On the more positive side of the picture; the moderate level of the threat of entry
means that the only new entrants in the market will have to be regional operators with
plenty of money and advanced low-cost technology solutions. Such regional and
international cash-rich operators do exist and are constantly evaluating the
advantages of entering the Omani market. While such potential new entrants may
be attracted by the low customer switching costs and the availability of distribution
channels, they will be discouraged by the knowledge that they would have to compete
with the current market players whose incumbency advantages are very high.
Perhaps the most interesting aspect of the level of the threat to entry lies in the role
of the governments independent regulatory authority, the TRA. Threat to entry is an
important tool which the government uses to protect the rights of the customers and
ensure that the incumbents meet the needs of the market. It achieves this through its
policies, especially its control of regulation and deregulation. In our view, it is
important for the TRA to maintain a balance and keep the threat of entry at a moderate
level. This will ensure that the market maintains a healthy degree of competition and
also that companies profitability is maintained within acceptable and reasonable
levels. It is also important that the authorities clearly demonstrate their desire to make
the latest advances in telecommunications available to the majority of the population.
One way that the TRA could increase penetration in fixed broadband communications
might be to introduce an internet-provider license only, rather than the typical
universal service provider model that they have followed thus far. The rationale behind
it would be easy to explain; such a license is necessary because the incumbents have
achieved only a low level of penetration in this area (Table VIII).
The second of Porters Five Forces is the power of suppliers, a force which our analysis
has shown to be low. This factor, when seen in isolation from the effect of threat to entry,
impacts uniformly on all the players in Omans telecommunication service providers
market and has important strategy implications for them all. First, the low-level power of
suppliers enables the service providers to benefit from the best technology at lower costs,
maximize their own profits and switch if required or necessary, since NEP switching
Porters Five Forces Overall impact of porters force
Threat of entry Moderate Table VII.

Power of suppliers Low Summary of Five Forces
Power of buyers Moderate Model of Oman
Threat of substitutes High telecommunications
Rivalry among existing competitors High industry
CR costs are low and the products offered are highly standardized. The picture is different
23,3 when looking at the strategy for dealing with the power of labor force supply and the
market dynamics involved are very interesting. The key factor here is the low
availability of qualified workforce, which means that the incumbents must make great
efforts to ensure the highest levels of worker satisfaction. In addition, although the
influence of labor was initially low, it is increasing rapidly. This is because, as the
254 telecommunications market is a service market, it is extremely dependent on high levels
of customer satisfaction and an excellent degree of customer service. All employees,
therefore, from engineers to sales and marketing representatives, have to deliver the best
service possible in order to ensure that the consumers continue to demand and respect the
incumbent company. For this to be achieved, the organization in turn has to have fully
satisfied employees: customer satisfaction is thus dependent on employee satisfaction.
The power of suppliers is closely linked to the third of Porters Five Forces, the
power of buyers. In order to maintain their customer base and also win new customers,
the incumbents have to ensure the highest level of service, partly to counter the fact
that any new entrant in the market will benefit from low switching cost and a
reasonable level of price sensitivity among the consumers. The incumbents, as well as
any new entrant to the market, may also take advantage of the current lack of solid,
customer-focused and easily-available product information. In order to do this, they
must ensure that any new information material produced will highlight the benefits of
the services and products that they offer. This will be especially beneficial to the firm
that can explain the real benefits to the consumer in the simplest of terms. The
regulating authority, the TRA, should also be involved here, ensuring that all
information about the companies services is impartial and independent and thus
guaranteeing that the competition is fair.
Porters fourth force is substitutes, which in this industry means new technology in
telecommunication services and substitutes to current modes of telecommunication.
Substitutes of this nature pose a substantial threat to incumbents; a threat which is closely
related to the threat of entry. The regulators have so far leaned toward the incumbents and
have allowed them substantial leverage in order to tackle the threat of substitutes. For
example, the TRA had promised to deregulate the VoIP sector at the end of 2010, but by the
end of 2011, a full year later, this had still not been implemented. However, pressure
for deregulation is mounting from both the ITU and the public; both see it as necessary for
economic and technological progress and also for the development of the communications
industry in Oman. When this deregulation takes place, the incumbents will have to devise
effective strategies to deal with the threat it represents. One possible strategy, and one that
Fixed line connection Mobile connection Fixed internet Internet users

Year penetration penetration penetration penetration
2005 8.84 44.4 1.65 9.6

2006 8.97 58.6 2.06 1.2
2007 8.36 78.0 2.19 12.7
Table VIII. 2008 8.28 97.2 2.24 13.0
Telecom sector 2009 7.72 116.0 2.30 13.3
indicators for Oman 2010 8.30 127.1 2.05 12.0
telecommunications
market Source: TRA (2010); telecom sector indicators
has been used globally, is bundling. An important aspect of ICT bundles that has so far Telecommunication
been missing from the Omani market is Internet Cable Entertainment. Given that all the industry in Oman
modes of communication are slowly converging over the internet (whether on
conventional or mobile broadband technology), the introduction of entertainment
packages may be the key that provides consumers with a good reason to opt for one
telecommunication service provider over the other. There is also the option of entering into
profit or revenue agreements with global telecommunication service providers in return 255
for letting them use the bandwidths that have been allocated to service providers with
licenses to operate in Oman. Such arrangements would need the comprehensive
involvement of all parties involved. These parties would include but not necessarily be
limited to the TRA, the local Omani ICT companies and international service providers
(such as VoIP services, satellite phone or satellite internet service providers).
The last of the forces analyzed, namely rivalry, holds both good and bad news for the
incumbents. As explained earlier, there are only two network operators (excluding
VNOs), and the high level of rivalry that exists between them helps to keep the threat of
new entrants low. Moreover, the fact that they are both government players also results
in a high level of commitment and thus high exit barriers. Porter argues that, if possible,
it is best to avoid industries where there is cut-throat competition (Hopkins, 2008).
However, in the Omani telecom industry, players are not only locking in their own
customers by introducing innovative new products which their competitors then adopt,
but are also attracting their competitors customers through MNP (mobile number
portability). Competition over pricing is also high, but we recommend that the operators
stop this kind of competition because it will only lower profit margins for both players.
The ideal strategy, rather, is to compete in other areas and, indeed, this kind of
competition is already being implemented by all the players in the market. The most
important factor in our analysis of competition is the rate of industry growth. While past
growth rates have been high, and growth is expected to continue in all sectors, the most
noteworthy factor is the low rate of internet penetration. The next important step in the
market will almost certainly be the ICT organizations exploiting the huge gap created by
low internet penetration in the telecommunications market of Oman. The future winners
in Omans telecommunication service providers market will be those whose strategies
pull the service offerings together and those who aim to penetrate the internet market.
Limitations
In conclusion, this study is by no means exhaustive and does leave some areas unexplored.
For example, the analysis does not explicitly classify the impact of the forces on one
another and it would be profitable to further investigate this topic. In addition, the study is
limited in its linking of the analysis of the impact of the forces on the firms strategies and
only uses indicators to assess the market structure. It would therefore be useful to analyze
the Five Forces Model and its application by getting actual data from a longitudinal
perspective on how the firms are currently shaping their strategies. Such an analysis could
also help to identify potential gaps in the strategies that must be filled if players are to
counter the negative impact and harness the opportunities created by market forces.
Moreover, as discussed earlier, the impact of restrictive government policy on the threat to
entry and threat of substitutes is critical to the future status of the telecommunications
sector in Oman. For Oman to achieve significant growth on the ICT Development Index, it
is crucial that the government establishes full deregulation of the market. Where such
CR deregulation will speed up the development of ICT services in the country, incumbents
23,3 need to be well prepared to deal with any resultant changes in the market, especially
because given the dynamics of the telecommunication industry these are likely to
happen suddenly and without much warning.
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Appendix
Glossary
3G Third Generation
4G Fourth Generation
ADSL Asymmetric Digital Subscriber Line
ARPU Average Revenue per User
CEO Chief Executive Officer
EDGE Enhanced Data Rates or GSM Evolution
GDP Gross Domestic Product
GSM Global System for Mobile Communications
HSPA High Speed Packet Access
ICT Information and Communications Technology
IP Internet Protocol
ISDN Integrated Service Digital Network
ITU International Telecommunications Union
MNP Mobile Number Portability
MVNE Mobile Virtual Network Enabler Telecommunication
MVNO Mobile Virtual Network Operator
NEP Network Equipment Provider industry in Oman
NGN Next Generation Networks
NNP National Numbering Plan
TRA Telecommunications Regulatory Authority
USO Universal Service Obligation
VNO Virtual Network Operator 259
VoIP Voice over Internet Protocol
WTO World Trade Organization
About the authors

Dr James Rajasekar is an Assistant Professor in the Faculty of Management Department at
the College of Economics and Political Science, Sultan Qaboos University, Muscat, Oman.
He specializes in the fields of Strategic Management and International Business. He has over
22 years of teaching, research, training, and consulting experience in the fields of Strategic
Management, Strategic Leadership, Cultural Influences in Management, and International

Business in addition to wide ranging academic administration. He has received many
commendations for excellence in teaching. His research articles have appeared in National and
International journals and were shared in a number of conferences and seminars. He received the
Best Paper Award from Emerald Insight during the year 2010 for an article on Strategic
alliances in the airline industry. He has been a consultant with several governmental agencies,
public and private sector organizations and also trained middle and senior level executives in
those organizations. He has contributed to institution building and corporate governance by
being in the board of the governing bodies of academic institutions. He was also one of the
Country Coordinators for India for the GLOBE Project Phase III between 2000 and 2003. His
forthcoming book, Culture and Gender in Leadership: Perspectives from the Middle East and
Asia will be published by Palgrave Macmillan during early 2013. James Rajasekar is the
corresponding author and can be contacted at: raja@squ.edu.om
Mueid Al Raee is Visiting Adjunct Faculty at the Department of Management, College of
Commerce and Management, Sultan Qaboos University, Sultanate of Oman. He also works at
UOP a Honeywell Company, in the USA.
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Competitiveness Review: An International Business Journal

An analysis of the telecommunication industry in the Sultanate of Oman using Michael

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*Related content and download information correct at time of download.

Global telecommunication industry

telecommunications sectors serves also, however, to increase these challenges. The

Fixed Line & Internet Subscriber & Internet Users

Per 100 inhabitants

Porters Five Forces Model for the telecommunications industry in Oman

1. Threat of entry in telecommunication sector

2. The power of suppliers

Threat Moderate Customer High threat Regulation Favorable High threat

switching cost of entry cash rich

Power of Low NEPs Low power of Concentration High Low power

5. Rivalry among existing competitors

the telecommunications industry, all aspects of rivalry, including price discounting,

Revenue 94 138 171 309 361 357

general commitments. Also, management may simply be highly devoted to a particular

Managerial implications, recommendations and future research directions

Rivalry among High Concentration, High Network 2 Low

industry rivalry rates

Porters Five Forces Overall impact of porters force

Threat of entry Moderate Table VII.

Fixed line connection Mobile connection Fixed internet Internet users

2005 8.84 44.4 1.65 9.6

About the authors

Management, Strategic Leadership, Cultural Influences in Management, and International

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