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%
17% 15% 13% 11% 9% 7% 5% 2.3% 3% 1% -1%
UK Nordic Spain

IT Market Growth 2006/2005 GDP Growth 2006/2005

15% 13% 11% 9%

7.8% 5.8% 4.8%
3.2% 3.2%

7%

5.8% 4.1% 4.4% 3.2%
1.8% 2.0%
France Germany Italy

4.9%
1.2% 2.2%
Total WE

5.3%

5% 3%

2.8% 1%
Middle East EMEA

-1%

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
35 30 25 20 15 10 5 0 2002 2003 2004 2005 2006 2007 2008 M telecom revenue E M arket growth

Fixed Versus Mobile Spending
20% 15%
US$B
25 20 15 10 5

Mobile CAGR = 8.9% FL CAGR = -0.7%

US$B

10% 5% 0%

0 2002 2003 2004 2005 2006 2007 2008 Fixed line

Mobile

Growth in 3G
5 12%

Explosion of Broadband in GCC Households
10.2%

100% 90% 80% 70% 60% 50% 40% 30% 20% 30.5% 4.8% 2005 2006 2007 2008 2009 2010 10% 0%

4

10% 8%

Millions

3 6% 2 4% 1 2% 0%

0.4%
0

2005 2006 2007 2008 2009 2010 3G subscribers (in millions) 3G subscribers as % of total mobile subscribers

B roadband GCC households

Non-B B

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 longterm business relationships.

Exceptional Factors Shaping the Middle East IT Market
CAGR for IT Spending by Vertical, 2005-2009 200525%

ePayment, Customer Interface Apps

Oil & Gas
20%

BPM, Asset Mgt, Consolidation, Vertical-Specific Apps

Public Sector
15%

Collaboration, Security, eGov Services

Mobility, Fraud Mgt, Security, Compliance

CAGR %

Banking Utilities

10%

5%

0%

Manufacturing Telecoms
IT Spending Dynamics

Utilities

Government

Process Mfring

Financial Services

Telco

Consolidation, Storage, BI

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 Infrastructure Upgrades (31.4%)

Initiatives Already Underway (29.8%)

New Initiatives (38.8%)

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