Iraq’s biggest telecoms firms tap into resurgent market

Reuters/Saad Shalash

• Troubles at rival boost top two
• Zain and Asiacell dominate
• Subscriptions surge predicted

Lower taxes, improved political stability and troubles at a smaller rival have helped Iraq’s top two telecoms operators reverse a decline in earnings.

Now the duo, Zain Iraq, a subsidiary of Kuwait’s Zain, and Asiacell, which is majority owned by the former Qatari telecom monopoly Ooredoo, should prosper further in 2024.

Zain and Asiacell have grown to dominate an industry in Iraq that remains underdeveloped compared with the parent companies’ home markets and so offers potential for substantial further growth.

• Korek Telecom fights $1.65 billion award to partners
• Gulf telcos sign deal to create $2bn tower company
• Kuwait’s Agility awarded $1.65bn in dispute with Iraqi telecom firm

“With fixed broadband penetration in Iraq being low, the focus is on the mobile sector. Iraq has a lot of catching up to do in terms of mobile technologies, with the majority of subscribers still using GSM (2G) or 3G networks,” the consultancy BuddeComm wrote in a report published last month.

Zain Iraq’s net income in the nine months to September 30, 2023 was $64 million, a nearly six-fold increase year-on-year, and is now above pre-pandemic levels.

Asiacell’s nine-month earnings before interest, taxes, depreciation, and amortisation (ebitda) rose 25.3 percent year-on-year to QAR1.48 billion ($407.5 million)

The duo’s parent companies have benefitted from the Iraqi dinar strengthening against the US dollar by about 11.4 percent over the past year, as well as the cancellation of a 20 percent sales tax on telecoms services in December 2022.

Nishit Lakhotia, head of research at Bahrain’s Sico Bank, said: “Scrapping the sales tax enabled Zain Iraq and Asiacell to raise their prices while still allowing their customers to pay less, which improved the two operators’ margins.

“Asiacell and Zain Iraq’s revenues should grow further in 2024, although probably at a slower pace than last year. Iraq remains a good market for both Zain and Ooredoo.”

Zain Iraq, Asiacell and the Kurdistan-based Korek Telecom Co were awarded $1.25 billion, 15-year national mobile licences in 2007.

Korek shrinks

Korek was the country’s top operator by subscribers in 2015, when its market share peaked at 34.8 percent, according to BuddeComm. Its share had fallen to 18.9 percent in 2022, when Asiacell and Zain had respective market shares of 39.2 and 41.9 percent.

Korek’s subscriber base shrank almost 30 percent to 8.2 million in 2022 from 11.6 million in 2015; Iraq’s total number of mobile subscribers grew by about 10 million over the same period, underlining Korek’s weakening position. 

Korek launched 4G services despite lacking a licence to do so, and last May the Iraq telecoms regulator ordered the company to pay $800 million in unpaid fees, according to media reports.

Zain’s chief financial officer, Ossama Matta, complained in November: “When you look at Iraq, you don’t see three operators, you see two operators that have paid everything in full and one operator who hasn’t paid and [is] still competing with us. This is unfair.”

However, in November the Iraqi regulator stopped Korek customers from sending and receiving communications from other domestic and foreign operators, the Kurdish news agency Rudaw reported.

Lakhotia said: “Blocking interconnection with other operators may push Korek customers to either get a second sim with Asiacell or Zain or to switch to one of the other two operators entirely. That’s helped Asiacell and Zain gain market share at Korek’s expense.”

France’s Orange and Kuwait’s Agility Public Warehousing Co sued Korek and its chairman, Sirwan Saber Barzani, over alleged corrupt practices, with an arbitration panel last March awarding the claimants $1.65 billion. Dubai’s DIFC Courts will hear an appeal by Barzani and Korek next month.

“Whether Korek becomes a complete failure is uncertain – it’s a big company, but needs to adhere to the telecoms regulations,” Lakhotia said. 

Zain, Ooredoo and Korek did not respond to requests for comment.

Subscription surge

Iraqi telecom operators’ earnings had plunged as the country descended into renewed chaos and conflict with the emergence of Islamic State in the 2010s, but have steadily recovered after the re-establishment of government control.

BuddeComm forecasts that mobile broadband subscriptions will surge 26 percent to 31 million in 2027 from an estimated 24.6 million in 2023. Even with this increase, more than one in four Iraqis would still be without mobile broadband, implying further growth potential.

The consultancy ranks Iraq as the Middle East’s third least mature telecom market, behind only Syria and Yemen.

Iraq’s industry regulator has proved inconsistent, changing licence fees, terms and durations. In October, it issued a fourth mobile licence, after more than a decade of deliberations, to Al-Salam State Company, a subsidiary of the communications ministry, Iraq Business News reported.

The new operator will have exclusive rights to provide 5G services for three years, Zain’s Matta said, and it will be run by a third-party company.  

Lakhotia said the launch of a fourth company under such terms “can considerably increase the competitive intensity for the existing operators”.