T H E M IDD L E E AS T ICT M AR KET

Introduction
The Middle East is undoubtedly one of the fastest growing ICT markets worldwide. IDC
forecasts that by 2011, total IT spending in the region (covering the Gulf, Levant, and
Egypt) will reach approximately $16 billion, almost double the spending levels recorded in
2006. Economic growth, expansion of oil and gas production, real estate and stock market
booms, and high oil prices, shaped the overall economic situation in the region last year.

EMEA - One and Many IT Markets

20.4%
15%
IT Market Growth 2006/2005
17%
GDP Growth 2006/2005
13%
15%

13% 11%

11% 9%

9%
7.8% 7%
7% 5.8% 5.8%
5%
4.8% 4.4% 4.9% 5.3%
5% 3.2% 4.1%
3.2%
2.3% 3.2% 3%
3% 1.8% 1.2% 2.8%
2.0% 2.2% 1%
1%

-1% UK Nordic Spain France Germany Italy Total WE Middle EMEA -1%
East

Source: IDC WW Black Book, Q4 2006

Growth Scenarios...
The Middle East telecoms markets have been buzzing with news of privatizations, new
licenses, expanded services, and investment developments. Telecom service providers
have upgraded and expanded infrastructure, with fiber lines being laid and 3G wireless
gaining traction in key Middle East countries.
IDC research indicates that certain markets in the region are nearing or exceeding 100%
mobile phone penetration rates. They are also witnessing increases in competitive
pressures with the introduction of additional mobile licenses. Incumbent mobile operators
are shifting their customer strategy from acquisition to retention and churn prevention,
which heralds a new era for maturing ME markets. Additionally, the rapid rise of Internet
use has translated directly into increased demand for both regular telephone and special
broadband infrastructure.
Broadband in particular has undergone tremendous growth across the region (including
Egypt, Saudi Arabia, Morocco, and Algeria) and has reached significant household
penetration among the more advanced smaller Gulf States. Overall, the Middle East
telecoms market is set to continue thriving amid a positive economic outlook and
increased market liberalization.

Middle East Telecom Services Market —

Key Trends
Middle East TelecomServices Revenue Fixed Versus Mobile Spending
35 20% 25
Mobile CAGR = 8.9%
30
15% 20
25 FL CAGR = -0.7%
US$B

US$B
20 15
10%
15
10
10 5%
5 5
0 0%
0
2002 2003 2004 2005 2006 2007 2008 2002 2003 2004 2005 2006 2007 2008
ME telecom revenue Market growth Fixed line Mobile
Growth in 3G Explosion of Broadband in GCC Households
5 12% 100%
10.2%
90%
10%
4
80%
8% 70%
Millions

3
60%
6%
50%
2
4% 40%
1 30%
2%
0.4% 20% 30.5%
0 0% 10%
2005 2006 2007 2008 2009 2010 4.8%
0%
3G subscribers (in millions) 2005 2006 2007 2008 2009 2010
3G subscribers as % of total mobile subscribers
Broadband GCC households Non-BB

IT spending continues its healthy rise in the region's key vertical markets, particularly
oil and gas, banking and financial services, and government.

As oil and gas companies expand operations to meet global demand for oil,
they are ramping up IT budgets to better manage operations and
streamline production processes.

As governments in the Middle East liberalize their banking sectors,
financial institutions are investing heavily in IT systems just to compete
with new entrants.

Governments are increasing IT spending to upgrade infrastructure (at both
central and local levels) and introducing e-government systems.
While performance monitoring, security, and customer care are at the top of most
organizations' priority lists, key business issues can vary between verticals (see figure
below). Vendors that understand the primary issues in given verticals and how
organizations intend to spend their IT budgets will be well positioned to establish long-
term business relationships.

Exceptional Factors Shaping the Middle East IT

Market
CAGR for IT Spending by Vertical, 2005-
2005-2009
ePayment,
25% Customer BPM, Asset Mgt,
Interface Apps Consolidation,
Vertical-Specific Apps
 Oil & Gas
20%
Collaboration,
Security, eGov Mobility, Fraud
 Public Sector Services Mgt, Security,
15% Compliance

CAGR %

 Banking 10%

 Utilities 5%

0%
Utilities Government Process Financial Telco
 Manufacturing Mfring Services
Consolidation,
Storage, BI

 Telecoms

IT Spending Dynamics
IDC's 2006 survey of the top 50 enterprise customers in the Middle East region revealed
some interesting trends. New IT initiatives represented more than a third of IT spending
(38.8%). The remainder was divided between routine infrastructure upgrades (31.4%)
and initiatives that are already underway (39.8%). This stands in sharp contrast to the
current levels of IT spend in many of the mature markets in EMEA.
Distribution of IT Spending in 2006: Top 50 Enterprise Customers in the Middle
East
Q. How will your company's IT spending in 2006 be distributed across
(1) Routine infrastructure upgrades
(2) New initiatives
(3) Initiatives already underway.

Routine
Initiatives Already Infrastructure
Underway (29.8%) Upgrades (31.4%)

New Initiatives
(38.8%)

Notes:
n = 50
Unweighted n
Extreme values were excluded from the analysis. Source: IDC, 2006