The telecom sector is among the fastest growing industries in the Kurdistan Region, and is one of the most strategically important sectors for the continued development of the Region. While the sector has been driven in the past decade by strong growth in mobile penetration, much of the sector’s continued growth and opportunity will likely lay in Internet and data provision and operation. While mobile penetration in the Region stands at 90%, only an estimated 7-10% of households have Internet access. Increased investment in cable networks and Internet provision are projected to raise Internet access rates to 50% by 2015-2018. Additionally, despite its relative maturity, there is substantial room for growth in mobile operations. Mobile data services are still operating at GSM (2G) technologies, which are slow by global standards. Many of the Region’s neighbors have mobile penetration rates at over 100% and offer 3G/4G data technology.

The young demography of the Region (the median age being 20) suggests that there are long-term growth prospects in the sector. The large, younger generation is increasingly present on the Internet, particularly in social media. Demand for ICT services will therefore continue to grow as this generation demands increased investment in the sector. Moreover, companies outside of the ICT sector will increasingly be reliant on social media use for public outreach and advertising.

While aggregated data on the Region’s telecom industry is sparse, the scale of the industry’s companies indicates that the sector comprises a significant percentage of the Region’s GDP. Asiacell, a Slemani-based mobile operator, alone is valued at roughly $5 billion (21% of the Kurdistan Region’s GDP), and earned nearly $1.9 billion in revenues in 2012 (8% of the Region’s GDP).

Mobile Operators

The Kurdistan Region’s telecom industry is largely dominated by the companies that also control the majority of the Iraqi mobile market: Asiacell, Korek, and Zain. Throughout Iraq, Zain is the largest operator, with 13.5 million subscribers, followed by Asiacell and Korek, with 10 million and 4.8 million subscribers, respectively. Zain, however, is based in Baghdad and operates primarily in southern and central Iraq. As such, its presence in the Region is recent and still quite small. Korek is dominant in its home governorate of Erbil, and Asiacell dominates its home governorate of Slemani. However, while Zain is pursuing expansion into Kurdistan, Asiacell and Korek are expanding southward, with Asiacell currently leading the charge. There is good reason for this expansion, as southern and central Iraq only has a 77% mobile penetration rate, leaving ample room for additional growth. Mobile phones have become the medium of choice for communication in the Region. While landline and Internet penetration in the Region are both estimated to stand at roughly 7-10%, mobile penetration is estimated to have reached 90%. However, many of the Region’s neighbors have achieved mobile penetration rates in excess of 100%. Industry leaders, such as Wael Ghanayem, Chief Financial and Operating Officer at Zain Iraq, have predicted that penetration rates in the Kurdistan Region could reach as high as 130%: “The GDP in the Kurdistan Region has a high potential growth rate, and is expected to continue increasing. This will almost certainly boost growth in the telecom market.”

The primary explanation for the difference in market share between the Kurdistan Region and Iraq as a whole is their divergent histories. Under the previous regime in Iraq, mobile phone networks were prohibited, and countrywide mobile operator licenses were therefore unavailable until 2003. However, the KRG was given the relative autonomy to issue licenses to operators in the Region years earlier. Asiacell and Korek, both of which are based in the Kurdistan Region, began operating in 1999 and 2000, respectively. Thus, the mobile network of the Region was given a considerable head start. Zain Iraq, based in Baghdad, was not licensed to begin operations until 2003.

The independent Communications and Media Commission (CMC) was established in Baghdad to serve as Iraq’s federal regulator of media and communications in 2003. Upon its creation, the CMC made official the KRG licenses that had been previously granted to Asiacell and Korek for their regional operations. In 2007, the CMC went a step further, issuing 15-year licenses for national operation to Asiacell, Korek, and Zain Iraq (which presently hold a 47% market share for all of Iraq).

The national licenses cost each operator a fee of $1.25 billion, and left room for the issuance of a license for a potential fourth mobile operator (which has yet to be announced). The licenses also stipulated that each operator was required to publicly list at least 25% of its shares on the Iraq Stock Exchange (ISX) by August 2011. At present, only Asiacell has complied with this requirement, conducting its initial public offering (IPO) this past February. The Asiacell IPO, which raised approximately $1.27 billion, was the largest ever IPO in Iraq and the largest in the Middle East in the last five years. Zain Iraq expects to conduct its IPO in the first half of 2014, with industry experts anticipating the company generating in excess of $1 billion.

In addition to expanding mobile phone use in the Region and country, mobile operators are seeking additional growth by expanding mobile data networks. Currently operating on relatively slow and outdated 2G networks, all three networks are preparing to move forward with faster 3G and 4G networks, upon receiving authorization from the CMC. While 3G subscriptions in the Kurdistan Region and broader Iraq are currently negligible, analysis predicts that by 2015, Iraq will grow to have the third highest 3G subscription rates in the Middle East, behind Saudi Arabia and Iran. Indeed, nearly half of mobile phones in Iraq already have Internet access, and smartphone use in the country is estimated to have jumped 30% in 2012. This has led some to even argue that the surge in smartphones is crowding the market for personal computers.

International telecom majors have also gauged that there are indeed significant opportunities in the Region’s mobile operators. In 2011, France Telecom acquired a 20% stake in Korek, and Ooredoo, formerly QTel, a Qatari telecom, acquired a majority stake in Asiacell in 2012. Since Asiacell’s IPO in 2013, and with Zain’s coming IPO in 2014, investment opportunities in the sector are becomingly increasingly available.

Landlines currently only reach 7-10% of the Region’s households. Already limited after decades of neglect, they have since failed to keep up with the rapid population growth that has taken place in recent history. This likely reflects their diminished importance amid the rise of mobile communication technologies.

Data Networks

The KRG has encouraged private sector involvement in the development of the Region’s data networks. Whereas southern and central Iraq have maintained a monopoly on the country’s fiber optic network, the KRG has partnered with private telecom companies to develop a competitive data industry in the Region. A particularly relevant example of this development is Newroz Telecom, which is a locally established company founded in 2007 under the Region’s 2006 Investment Law. The company pioneered Kurdistan’s data networks, developed Iraq’s first international fiber optic connection into Turkey, and transitioned the Region from copper cables to modern fiber optic lines. The company now supplies a majority of the Region’s Internet access. Furthermore, Newroz is now developing an extremely fast and modern Fiber To The House (FTTH) network, which will increase the Kurdistan Region’s Internet speeds to above those of many western countries.

As a result of endeavors such as these, the Kurdistan Region now has several private sector businesses that provide wireless and hardwired Internet access to consumers and businesses, as well as others that install and operate fiber optic cables. Moreover, industry leaders, such as Kawa Junad, CEO of Newroz, anticipate that private sector competition coupled with continued industry reforms could allow the Internet penetration rate to reach 50% by 2015. The Regional Development Strategy (RDS) for the Kurdistan Region echoes these goals, establishing a baseline target of at least 5% annual growth in internet penetration, with an overall goal of reaching 50% in five years. As noted by the RDS, “This can be achieved through supporting, incentivizing and encouraging private sector companies and offices to expand their services in the Region’s governorates.”

Internet Use

Household Internet statistics underestimate overall Internet access, as many in the Region use smartphones to access the Internet. Young people in particular increasingly use social media as a means to connect to peers, businesses, organizations, and leaders. According to a study by IREX, nearly 50% of people in the Kurdistan Region use social media at least once per week, and 72% of Iraqi Facebook users are between 18-34 years old. Facebook is the most visited website in Iraq, followed by Google, YouTube, and Yahoo, and its prominence allows for direct and current communication between companies and individuals in the Region. Asiacell, for example, has over 1.1 million followers in Iraq. Korek Telecom has over 500,000 followers, and the American University of Iraq, Sulaimani has over 200,000.

Increasing Internet connectedness and usage, particularly among youth, provides a convenient way to reach people. While many companies employ social media for public outreach, independent websites are also using such sites to reach people. The KRG has employed this technology impressively, targeting young graduates with its “Kurdistan Works” project to promote private sector employment. The website efficiently aggregates private sector job openings in the Region, and streamlines recruitment and job-seeking processes.

While e-commerce has skyrocketed in popularity throughout much of the world, online shopping has yet to catch on in the Region. The undeveloped banking sector has limited the local population’s ability to buy items online, and the poor postal services make shipping expensive and difficult. As these two sectors develop, however, e-commerce may begin to develop in the Region in coming years.

Moving Forward

General consensus seems to be that the next major steps in the Region’s telecom sector will be the implementation of widespread 3G and 4G data technology and improved Internet access. Additionally, there is speculation that the fourth mobile operator, when and if licensed by the CMC, will provide higher tech data services. These innovations will allow for faster data to customers’ mobile and Internet connections, and will likely provide for a larger role in the telecom sector for data network companies such as Newroz. While this will provide major growth opportunities for data providers and operators, the increased online population will also carry major implications for how non-ICT businesses reach people.