December 31, 2012
Message from the Founder - Q4 2012

In our final installment of the 2012 Founder's Newsletter, I wanted to take a retrospective review of the key trends that shaped the Middle East's internet landscape and take a sneak peek at what trends will shape our future next year.

In 2012, there were three main areas in the ICT industry that experienced ground-breaking changes including internet connectivity, security and online video.

Internet Connectivity

In 2012, the Middle East started witnessing a seismic shift in the fundamental infrastructure powering the internet. Roll outs of Fiber to the Home (FTTH) and 4G/LTE initiatives this year have already made this one of the most advanced high-speed regions in the world and shows no signs of stopping. In fact, the UAE is now at the top of the FTTH rankings with 64.8% of homes having access through GPON technology, and Qatar, Saudi and Jordan are ranked in the top 36 countries globally.

Ericsson's mobility report shows the Middle East's mobile penetration rate at 103% and indicates monthly mobile data consumption globally more than doubling globally from 400 Petabytes per second in Q3 2011 to approximately 900 Petabytes per second in Q3 2012.

But the Middle East's mobile data explosion is just beginning with Analysys Mason predicting 4G connections to grow at a CAGR of 122 percent between 2012 and 2017. To that end, this year, we witnessed the adoption of 4G/LTE in Saudi, the UAE and Oman and the licensing of the spectrum in Kuwait and Qatar. With terrestrial access connectivity speeds reaching 100 Mbps and over-the-air connectivity of 10 Mbps, the Middle East has placed the building blocks for leap-frogging its prior challenges of slow local access speeds for internet connectivity.

Additionally, this year, the region continued its trend from 2011 of deploying multi-million dollar investments in international submarine cable systems. This year saw the launch of the region's first privately-held submarine cable system in Gulf Bridge International (GBI) and the launch of Tata's Gulf Network (TGN) cable both of which deliver much-needed connectivity from the Middle East to Europe and Asia. In the few short months since the launch of these cable systems, there has been a tremendous activation of new capacity closing in on a few Terrabytes per second in aggregate. In fact, even other cable systems such the Europe India Gateway (EIG) cable system launched in 2011 has already nearly maxed out its first round of deployed capacity as operators are keeping capacity for their own networks than selling it on the wholesale market.

Finally, in addition to proper infrastructure for enabling local and international connectivity, in 2012 the Middle East started to see greater adoption and utilization of its internet localization initiatives. Etisalat's SmartHub, STC's Jeddah International Gateway, and Du's Datamena projects have tremendously advanced the localization of content in the region and encouraged similar ventures in Bahrain and Jordan this year.

Security

Another ICT trend we witnessed in 2012 centered on network security. Political warfare in the Middle East turned digital as the region's engines of commerce were maliciously attacked. Major regional banks, financial exchanges, airlines, and energy companies all fell prey to suspected nation-initiated attacks, third-party espionage, and experienced digital thieves. This year, Kaspersky Labs identified two new major malware, Gauss and Flame, which are perceived to be 20 times stronger than 2010's infamous Stuxnet virus. Estimates vary that 40%-67% of all Flame virus incidents being recorded in the Middle East showing just how volatile this region was this past year in the security space.

Demonstrating the far-reaching effects of the network-based attacks, in the fall of 2012, the hacking group, Anonymous, began its Operation Fuel Strike targeting the world's energy companies of which 6 of the top 20 are all based in the Middle East.

This year, phising, DDoS, website defacement, viruses, and other cyber attacks have all foraged on a bountiful landscape of vulnerable companies and governments in the Middle East. These attacks were compounded by the fact that the Middle East's digital security has demonstrated to be extremely susceptible due to poor governance, lack of user education, and sub-par tools incapable of detecting and mitigating attacks.

However, this year's attacks have also shown a growing maturity in the Middle East toward cyber threats. The region's Computer Emergency Response Team (CERT) has become a more active player in working with domestic enterprises in both crafting and enforcing better governance. Regional companies have adopted a better understanding that a single layer of protection (i.e. appliance-based) is not enough to overcome the more prevalent and sophisticated DDoS attacks we saw in 2012. The Middle East's large and mid-size companies have also become more open to assessing their weaknesses and the insurmountable costs from cyber threats. These enterprises have shifted to adding cloud-based protection and relying on Security Operations Center (SOC) from globally-recognized experts rather than insisting on doing everything in-house. This subtle shift in mindset indicates that the most successful companies in the Middle East have moved through the process of change by passing the stages of denial and resistance and moving onto the recognition stage — that cyber threats are real and insurmountable — and to the final stage of commitment to solving the problem with the proper tools and teams.

Online video goes mainstream

Over the course of 2012, we have seen an explosion of regionally-focused online video delivery across traditional broadcasters (MBC, OSN, Al Jazeera) and new Over-the-Top players (Cinemoz, Istikana, Selevision). In addition to the proliferation of online video from broadcasters, 2012 showcased early signs of the regions embrace of online video as a brand elevation and customer-engagement vehicle with companies like Axiom Telecom and Rotana Hotels using video to spotlight products and services.

More importantly though, the common trend is that online video has become the key business driver for broadcasters and a major new initiative for non-broadcasters. This meant that this year in the Middle East, we started to see new business models developing for funding online video as OSN Play used online video as a means of adding value to its existing Direct to Home television services. We also witnessed the region's broadcasters uncompromising emphasis of high quality and detailed analytics. Finally, in 2012, regional broadcasters were seeking ways to make online video an integrated part of their analogue operational workflow and were demanding the same level of quality and reliability of their online content as they do of their traditional TV offering.

Clearly, this year, the region's broadcasters have moved away from seeing online video as a cute side project or second-hand strategy to the key strategic path for advancing their business. And the results of that focus are clearly evident. One indicator of how much online video has advanced in the Middle East is that, this year, the Apex Group's customers alone streamed nearly 100 million hours of online video using the services from our suppliers. This is an impressive statistic showing that nearly 190 hours per minute are streamed from our customers' viewers.

2013 Looks Even Brighter

2012's advancements in the Middle East for faster local access speeds, greater international connectivity and more regional content exchanges have laid the foundation for exponential internet use in 2013 and beyond. Despite a maligned economic outlook in Europe, and perhaps in the US, the Middle East has the potential to have greater economic growth as a result of these advancements in internet connectivity and on the availability of capital to fund regionally-based but globally-focused enterprises.

Additionally, another major growth factor for 2013 will come from what will inevitably be an explosion in online Arabic content creation. According to the World Bank only 1% of all online content is Arabic although there are more than 320 million Arabic speakers globally and Arabic is just the 7th largest language on the web ahead of French and Russian (populations which it outnumbers by 2x or more).

Finally, in 2013 the Middle East will start seeing serious growth in the ICT industry from the greater adoption of tablets and the apps that power them. According to one of the world's most historic and legendary investment capital group, Kleiner Perkins, Caufield, Byers, in January 2012 29% of adults in the USA owned a tablet (up nearly 3 fold from late 2010) and in 25 Billion Apps had been downloaded from Apple's iTunes in March 2012 less than 4 years after it launched. Download their Internet Report here.

Like most trends we see in the US and Western Europe, the ripple effect begins to hit the Middle East 2-3 years later which means that 2013 is basically the inflection point for the Middle East in terms of both massive tablet and application adoption. The proliferation of this internet-reliant mix of hardware and software will have a profound, and very positive, impact for the region — and our industries — in 2013.

At the Apex Group, we are honored to have been a part of such a transformative period in the Middle East's ICT industry and are very excited to ride another great wave of growth and advancement in 2013.

Respectfully,

Alex Giannikoulis
Founder & CEO
The Apex Group
Office: +1 773 782 6581

 
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