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Bahrain’s crowded telecommunications sector is about to get even busier, with mobile phone operators Bahrain Telecommunications Company (Batelco) and Zain set to face increased competition in the coming year.

In January, the Kingdom’s Telecommunications Regulatory Authority (TRA), the body charged with overseeing and controlling Bahrain’s telcoms sector, announced that the Saudi Telecommunications Company (STC) had been awarded the country’s third mobile phone licence, having bid $231m. On top of its licence fee, STC is investing some $100m to develop the required infrastructure to carry out its activities, including base stations, repeaters and relay masts.

While the new entrant into the market will boost competition, there was not much of it for the licence itself, with STC being the only bidder. Three other firms did register for the tender process and the TRA twice extended the deadline for bids.

This apparent lack of interest is probably a reflection on the already congested market, with mobile penetration rates running at 131% as of the beginning of this year. It is unlikely that STC will be able to increase this penetration level, rather it is expected to try to eat into the market shares of Batelco and Zain, with company officials saying they were looking to acquire a 20% slice of the market within 10 years. Currently, the two existing service providers have a roughly equal share of Bahrain’s client base, both with around 700,000 subscribers.

There is another competition being played out in the sector, that between the TRA and Batelco, with the former claiming the service provider is acting to restrict rivals’ access to the market, allegations the latter has rejected.

On November 24, the TRA announced it had fined Batelco $13.27m for failing to provide other firms sufficient access to an international cable. Two months previously, the TRA had ordered the company to comply with its obligations to provide the services necessary to allow other licensed operators direct access to Reliance Globalcom and the Falcon undersea cable system.

According to Alan Horne, the TRA general director, by denying access to the cable to competitors, Batelco had acted to the detriment of Bahraini citizens, businesses and the economy by restricting international and broadband internet services.

“Direct access to the international capacity of the Falcon submarine cable system has been identified as a key issue for the further development of competition within the telecommunications sector and the Kingdom’s economy,” Horne said in a statement accompanying the ruling against Batelco. “The TRA firmly believes this order and the opening up of international capacity on a competitive basis will be a watershed in the development of the telecommunications sector. Internet usage will grow, prices decrease and speeds increase.”

Batelco is appealing the decision with chief executive officer Peter Kaliaropoulos saying the company would do all that it could to persuade the TRA to reverse its ruling by submitting additional information to support its case.

“Whilst we are investigating the required initiatives to comply with the order, we will also be submitting further information relating to this matter,” said Kaliaropoulos after the ruling was handed down. “We are hopeful that the TRA will reconsider this ruling in the coming weeks.”

It its defence, Batelco has accused other firms of preferring to rely on its own sizeable existing investments in infrastructure rather than building up their own networks, leaving the former telecoms monopoly saying it has to help prop up its direct rivals.

Kaliaropoulos also warned of the effecr the fine, if enforced, would have on the company’s financial results for 2009. In the first nine months of the year, Batelco posted consolidated revenue of $676m, up 4.4% on its results for the same period in 2008, with net profit up 1.5% to $208m.

Given that the company’s net profits of last year were a record $276m, fines and economic downturn notwithstanding, Batelco is still looking to call in a good end-of-year result.

It is unlikely that STC’s entry into the Bahraini market will prompt sharp cuts in the costs of many mobile phone and related telecommunications costs, as happened when Zain burst on the scene at the end of 2003. In the past year, the cost of broadband subscription packages has fallen by up to 50%, while service speeds have been increased. Mobile phone rates have also been pared back and both Zain and Batelco have launched new service options. With limited scope for movement, the Saudi newcomer will have to engage with clients through a smart phone policy, rather than adopting a cheap ring tone.