Regulatory

1 - Regulatory Landscape

This is the digital age of hyper-connectivity, instant access and inclusion. Across the Zain footprint, the demand for high-speed broadband infrastructure – both wireless and next-generation access (fiber) networks – is growing, driven by the country digital economy visions and customer demand for innovative solutions. The Fourth Industrial Revolution, underpinned by technological advances such as 5G, internet-of-things (IoT), big data analytics, drones, and cloud services, is establishing a strong foothold across the Zain footprint.

In 2019, Zain markets witnessed significant regulatory developments – all designed to strengthen the foundations for digital transformation and to create an environment for effective competition against the backdrop of different mobile and fixed telecommunications market maturities and internet adoption, country digital visions and global trends. National Regulatory Authorities across Saudi Arabia, Kuwait, Bahrain, Jordan, Iraq, Sudan and South Sudan initiated licensing auctions and renewals, enacted new regulations, published critical decisions and launched public consultations for matters under consideration. The regulatory developments principally fall into seven core areas that have critical impacts on Zain’s business.

1.1 Spectrum

Frequency spectrum allocation is at the heart of network deployment and operations. Three key developments have taken place across the Zain footprint. Firstly, Zain acquired or renewed over 600 MHz of the frequency spectrum across markets in the 800 MHz, 900 MHz, 2100 MHz, 2600 MHz and C spectrum bands at an acquisition commitment price of almost USD 300m. In Kuwait, Zain and its affiliate (Mada) acquired spectrum licences with a total of 200 MHz spectrum consisting of 100 MHz in the 3.7 – 3.8 GHz band for Zain for IMT2020 (5G) use and 100 MHz in the 3.6 – 3.4 GHz band for Mada for fixed wireless access operations. In Saudi Arabia, Zain acquired 15-year spectrum licences with a total of 190 MHz spectrum for IMT2020 use including 90 MHz (Band 41) in the 2600 MHz band and 100 MHz in the 3.6 – 3.7 GHz band. In Kuwait and Saudi Arabia, the allocation of these spectrum bands has facilitated the launch of 5G services.

In Bahrain, Zain renewed its licence for 2 x 52 MHz of spectrum (104 MHz) in the 900, 1800 and 2100 MHz bands for ten years and acquired 2 x 10 MHz in the 800 MHz band and 50 MHz (Band 41) in the 2600 MHz band. Zain was also granted 10 MHz temporarily in the C-band to enable the launch of 5G services over a total of 100 MHz (using the new allocation and the company’s existing 90 MHz allocation in the C-band). In Sudan, Zain secured a commitment from the Telecommunications and Post Regulatory Authority (TPRA) to purchase spectrum licences of 20 MHz of spectrum 2 x 5 MHz in the 1800 MHz band and 2 x 5 MHz in the 2100 MHz band. In South Sudan, Zain acquired a total of 20 MHz consisting of 2 x 5 MHz in the 900 MHz band and 2 x 5 MHz in the 2100 MHz band to strengthen 3G network deployment and enhance network quality. These spectrum renewals and acquisitions form a core part of Zain’s strategy to sustain market spectrum leadership.

Secondly, the World Radiocommunications Conference 2019 (WRC-19), held in Sharm El Sheikh, Egypt, brought together ITU members, sector members and associates to agree on core bands for IMT use. WRC-19 identified three new millimetre waves for IMT global use including 26 GHz (24.25 – 27.5 GHz), 40 GHz (37-43.5 GHz) and 66 GHz as well as two additional bands 45.5-47 GHz and 47.2 – 48.2 GHz at the discretion of specific countries. Zain anticipates that national regulatory authorities in its footprint will assign these bands in the medium to long-term (2 – 5 years).

Thirdly, some of the countries, such as Saudi Arabia and Iraq, in Zain’s footprint have begun to issue five-year national spectrum plans, reflecting roadmaps for spectrum management and the release of the licensed and licensed-exempt frequency spectrum in the sub-1 GHz bands, extended C-band and millimetre wave for future radio access technologies in the mobile, fixed, fixed-satellite and maritime domains. The publication of a national spectrum roadmap enables coordinated planning for spectrum acquisitions.

In some of Zain’s markets, ample spectrum has been made available for IMT use. Saudi Arabia is a prime example where three operators have access to 1010 MHz, and Zain has 310 MHz. In other markets, such as Iraq, the amount of spectrum allocated is insufficient - a total of 189 MHz amongst three operators. Zain’s position is to advocate for the release of the frequency spectrum on favorable terms as soon as possible to enhance network quality and optimize network deployment costs.

Zain’s regulatory strategy and execution entail the advocacy of critical messages to national regulatory stakeholders on radio access network and microwave backhaul spectrum – including spectrum pricing, licence duration, technology neutrality and cross-border frequency coordination.

1.2 Infrastructure

Infrastructure initiatives, in the current context, include regulations governing mast construction, tower companies, mobile network passive and active sharing, regulated access to or the right to build next-generation fiber networks as well as last-mile and bitstream access to fixed networks. For operators, there is an ongoing need to increase the bandwidth of the backhaul networks that transport traffic from cell sites to a high-speed network backbone, necessitating the use of fiber to achieve the quality of service targets required in today’s networks. According to the GSMA, by 2025, globally, up to 40% of backhaul connections for cell sites will be expected to be fiber-based.

In 2019, several developments emerged within the infrastructure domain. In Kuwait, in Q4 2019/Q1 2020, the Communications and Information Technology Regulatory Authority (CITRA) published a new tower regulation and bylaw governing tower construction with a grace period of 24 months granted to operators to comply. In Bahrain, the mast regulations compliance continues to be enforced in the market. In Jordan, in Q4 2019, the Telecommunications Regulatory Commission published a public consultation on a draft regulation covering infrastructure sharing and national roaming that appears to advocate stringent sharing obligations. Zain continues to advocate that it is vital to ensure that sharing approaches are commercially driven rather than imposed on operators.

Separately, in Bahrain, in Q3 2019, the Telecommunications Regulatory Authority (TRA) completed the functional separation of Batelco into a retail arm (“Batelco”), and a fixed wholesale infrastructure player (“BNET”), which provides regulated access to fiber-to-the-home on a wholesale basis for resale by licensed operators in the retail market; and access to fiber for backhaul circuits with price and non-price terms defined in a BNET Reference Offer. The regulatory framework will allow Zain to have representation in an Equivalence Compliance and Technical Committee that will oversee BNET’s operational compliance with the delivery of services on an equivalent-of-inputs basis in the medium-term. In Saudi Arabia, in November 2019, the Communications and Information Technology Commission (CITC) issued regulations governing fiber bitstream access to facilitate fiber bitstream agreements across the Kingdom. In Jordan, the existing integrated licensing regime permits the operation to deploy fiber for network connectivity and FTTH purposes and Zain is taking advantage of this to explore both over-ground and buried fiber cable deployments. The right to deploy fiber or the right to obtain regulated access to fiber on fair and non-discriminatory terms is critical to Zain’s business – particularly in markets where 5G has been deployed.

In other markets including Kuwait, Iraq and South Sudan, both fiber infrastructure and voice and data international gateway facilities continue to remain monopolies. This approach is not conducive for the development of 4G and 5G high-speed networks, which are beginning to witness substantial growth in IP traffic. Zain continues to advocate that liberalization is critical as this optimizes network operations, improves the quality of service, addresses pricing and enhances customer welfare.

Zain’s regulatory strategy advocates critical messages to national regulatory stakeholders on infrastructure initiatives – including the need for regulations that are supportive of active and passive sharing and tower company establishment, granting rights to deploy fiber and liberalizing international gateways

1.3 Industry Taxation

Industry taxation continues to remain high. The mobile industry within Zain’s footprint is subject to high consumer and operator taxes. The consequence is that in some markets (such as Jordan and Iraq), government income generated from consumer-taxes, operator revenue share, annual licence fees, spectrum acquisition and annual fees ranges from 3x – 7x the net income position of operators. Zain has continued to lobby for relief on fees with positive outcomes in some markets. For example, in Saudi Arabia, Kuwait and Bahrain, the payments for spectrum are now on an instalment basis (in some cases over the licence tenure) rather than as an up-front fee. In the case of Saudi Arabia, for example, C-Band spectrum has been granted in 2019 with payments deferred until January 2020 and payable in equal instalments over 13 years. In Bahrain, the TRA postponed the implementation of the new Schedule of Fees in 2019, which would have seen an increase in the cost of microwave point-to-point links. Zain continues to advocate a lowering of industry taxation as this has a consequent negative impact on the development of the industry.

Zain’s regulatory strategy promotes the lowering of industry-specific costs, usage taxes, spectrum costs and a stabilization of the overall industry taxation to create the investment-friendly atmosphere for operators. This approach is particularly pertinent given the significant investments that need to be made for the deployment of 5G, next-generation access networks, digital services and many other solutions.

1.4 Competition Safeguards

Competition regulations and decisions, as well as approaches to foster even more competition, abound across the footprint. In 2019, several developments took place. In Kuwait, in Q3 2019, CITRA initiated a process to award mobile virtual network operator (MVNO) licences and, following application submissions by one or more consortia late in 2019, CITRA will make a final decision on next steps early in 2020.

Similarly, CITC in Saudi Arabia initiated a consultation to assess the feasibility of awarding MVNO licences in the Kingdom and subsequently decided to issue a Request for Applications (RFA) to award two MVNO licences in 2020. The Communications and Media Commission (CMC) in Iraq assessed the possibility of granting national and regional fixed LTE licences to incumbent and new players and a final decision on the approach is expected early in 2020. Iraq also elected to postpone the issuance of a fourth mobile telecommunications licence, given concerns about the medium to long-term impacts on the telecommunications industry. Markets also witnessed moves by regulators to conduct strategic market reviews to define relevant markets, assess the state of competition and identify whether markets are susceptible to ex-ante obligations, identify players with significant market power (SMP) and recommend remedies. Kuwait, Jordan and Saudi Arabia conducted comprehensive strategic market reviews. Published outcomes from Saudi Arabia and Jordan, which are still subject to consultation, reflect favorable outcomes for Zain, such as a lifting of prior SMP obligations.

In Saudi Arabia, CITC issued a decision (in Q1 2020), reducing mobile and fixed termination rates (FTR and MTR) from 5.5 Saudi Halalas (H) and 2.2H to 2.2H and 1.1H respectively, creating a more favorable interconnection settlement regime for Zain. Some markets are launching mobile number portability (MNP) and fixed number portability (FNP) initiatives. In Jordan, MNP and FNP initiatives now form part of the ICT policy of the Ministry of Digital Economy and Entrepreneurship (MoDEE) but with implementation delayed until 2021. In Iraq, CMC has mandated MNP and progress is now underway.

Zain’s regulatory strategy advocates putting in place controls that will foster effective competition but not impede development.

1.5 Implementation of 5G

Zain has successfully launched 5G in Kuwait and Saudi Arabia. The success of 5G is not only predicated on the deployment of infrastructure and the growth of a device-ecosystem and the provision of tariff plans – it requires active demand stimulation by governments, cross-sector engagement and facilitation of rollout of sites, amongst many other factors.

Zain’s regulatory strategy calls for governments to create enablers for the growth and development of 5G services and to streamline 5G implementation. This approach includes revising infrastructure policies to ease the construction and upgrading of towers and base stations and modernizing regulations that might otherwise restrict or slow down the move to 5G.

1.6 Internet-of-Things (IoT)

The Internet-of-Things (IoT) is a cornerstone of the Fourth Industrial Revolution, offering a range of benefits to society, governments, citizens and businesses across many sectors. According to the GSM Association, there will be as many as 25 billion IoT connections globally by 2025. Other studies project that IoT will have a global economic impact, including consumer surplus of anywhere between USD 3.9 trillion – USD 11.1 trillion per year by 2025 in aggregate across sectors such as oil and gas, agriculture, transportation, home automation, smart cities, health and fitness, retail environments, factory optimization, security and energy management.

Within the Zain footprint, initiatives such as IoT frameworks, licensing approaches, the introduction of embedded-SIM (eSIM) regulations for IoT and IoT addressing are already underway. In Saudi Arabia, following the publication of regulations governing the award of IoT virtual network operator licences, considerations are being given to the IoT Regulatory Framework using licence-exempt frequencies. In Jordan, the TRC has now issued eSIM regulations that apply – not only to normal use but also to IoT services.

Given the imminent large-scale deployment of IoT, Zain’s regulatory strategy calls for regulatory authorities to put regulations in place to facilitate the launch of robust, fit-for-purpose IoT infrastructure

1.7 Digital Services

The enablement of digital services across the Zain footprint, through supportive regulations, is a critical step in the fulfilment of Zain’s corporate objectives. For example, trusted digital identity is the cornerstone of all legal interactions between people, businesses and the State. People’s ability to prove who they are is a pre-requisite for signing contracts, conducting banking transactions, accessing government services and undertaking many other activities online. This approach is necessary for digital financial services initiatives that form critical parts of Zain’s corporate strategy. In this regard, Zain is advocating putting in place legislation and regulatory best practice to support the following areas:

• Creation of robust national digital identity (ID) infrastructure with open APIs
• Adoption of e-KYC and authentication approaches – including using biometrics
• Creation of trust entities including certification authorities
• Creation and enforcement of e-authentications laws

Similarly, electronic transaction laws (ETLs) provide a legal framework that governs nearly all digital services such as e-commerce, electronic records, electronic contracts and signatures. An ETL must advocate that an electronic signature holds the same legal effect as a manual signature on a paper transaction. Zain promotes the following positions:

• Creation of trust and authentication service authorities for electronic/digital signatures
• Broader licensing of digital certification service providers adopting public key infrastructure
• Enforcement in the judicial system

As the volume of personal data across multiple platforms – social media, banking applications, and telecommunications customer care apps grows, it is now incumbent on governments to enact personal data protection laws that set out restrictions on how personally identifiable data obtained by firms and government entities can be handled, stored and shared. Within Zain’s footprint, Bahrain has already enacted a personal data protection law (effective 1 August, 2019). Other markets (such as Saudi Arabia and Jordan) are exploring the creation of personal data protection laws. Zain continues to advocate the enactment of legislation and regulatory best practice to support the following areas:

• Creation of cross-sector data protection laws – not just limited to the telecom sector
• Creation of a white list of countries to which international data transfers are permitted
• Creation of distinct data categories (personal, enterprise, government) and the required differing levels of protection and localization in data protection legislation
• Creation of regulations governing cross-sector flow subject to simple and clear customer consent mechanisms and robust information security management practices

Zain’s regulatory strategy calls for governments to create enabling legislation to support the growth of digital services. Zain is advocating government-led cross-sector alignment and collaboration and regulators to boost the take-up of digital services.

2 - Proactive and Strategic Regulatory Management