Saudi Arabia

The Saudi telecoms sector is humming with new activity this summer. Cellular phone capacity is rising rapidly, internet and data services are set for an early upgrade and a tender for a major addition to the fixed line network is imminent.

Driving the change is the recently corporatised Saudi Telecommunications Company which is injecting modern management and strict commercial criteria into a formerly state-run sector that had lagged behind other GCC states in expanding capacity.

Since its incorporation, STC has secured full control of its revenues, enabling it to ratchet up the pace of activity without constant reference to the Finance & National Economy Ministry. Another result of the reforms is lower call charges and a rapid expansion of the services available to corporate and residential customers.

While STC is boosting investment, plans are advancing for major structural changes in the sector. STC itself is being advised on privatisation options by JP Morgan and a strategic investor is being sought. A new legal framework is being devised and acting Posts, Telegraphs & Telephones (PTT) Minister Khalid al-Gosaibi has promised that the creation of a regulatory authority is imminent. His predecessor had radical ambitions for scrapping the PTT, completely privatising STC and allowing competition in cellular and data services.

Despite the bullish statement of intent, the pace of progress may still not be fast enough in a sector that is changing so rapidly, with mobile phone interests selling at a premium while fixed line companies are downgraded. Executives in Riyadh say that SBC Communications of the US may be the only potential international partner to remain interested in a strategic stake in STC.

The probable cost of such an investment, which is likely to be in excess of $5,000 million, may also be a deterrent.

A prime goal for STC is to boost teledensity as rapidly as possible. Precise figures are hard to come by but teledensity was estimated at 12-14 per cent at the end of last year. Fixed-line capacity is on its way towards 4 million lines, thanks largely to the completion of the TEP-6 expansion, compared with 2.9 million at the end of 1999.

Most of the network has been upgraded through copper wire enhancement and transfer to digital.

The abandonment of the previous practice of awarding giant orders to a single contractor - in favour of master purchase agreements with several suppliers - has rekindled competition in a market that was dominated by the US' Lucent Technologies for much of the last decade. A 600,000-line expansion is due to be tendered in the coming weeks and is likely to be let as a mixture of turnkey and framework contracts.

France's Alcatel, Ericsson of Sweden, Lucent, Canada's Nortel and Siemens of Germany are all expected to bid and the field will also be opened to a handful of local companies that have earned their spurs as subcontractors to the international suppliers.

Fierce competition for contracts to expand global system for mobiles (GSM) capacity has cut costs sharply. The biggest single award this year went to Ericsson, which bid just over $300 million in the spring for the addition of 1.1 million GSM lines, undercutting six other offers by a wide margin.

Lucent picked up a smaller contract at midyear, worth $98 million, to redeploy 500,000 existing GSM lines and add another 200,000.

On completion, the two contracts will lift total GSM capacity to about 2.3 million lines nationwide.

Internet and data services are also being targeted for improvement. Offers went in on 1 August for two projects that will expand and reinforce the internet and data communications infrastructure.

Bidders for the work include Alcatel, Ericsson, Siemens, Paradyne, Nortel, Lucent, the US' Tellabs and Cisco Systems, also of the US.

UAE

The arrest of a hacker charged with disrupting internet access in the UAE has focused attention on the merits of Emirates Telecommunications Corporation (Etisalat) operating as the only internet service provider (ISP) in the country. The debate will become more intense with the launch of the Dubai Internet City (DIC), scheduled to take place in October. The likelihood of Etisalat maintaining its cherished monopoly grip on the fastest-growing telecommunications sector in the country is looking increasingly slim, with some commentators suggesting independent ISPs could be set up in the DIC by next March.

Criticism of Emirates Internet & Multimedia (EIM) - Etisalat's whollyowned ISP subsidiary - has focused on the erratic and slow nature of its internet connectivity: it currently does not provide the quality of service likely to attract international IT firms to the DIC.

'The lack of competition has prevented EIM from expanding rapidly enough and keeping up with demand, ' says one local analyst. 'The pressure for change is already coming from Dubai and there is already a lot of push and pull in the negotiations.'

Demand is strong. Despite its much-criticised services, EIM reported a 90 per cent increase in subscriber numbers in 1999, as their ranks swelled to 127,824 by the end of the year.

EIM will fight hard to keep its monopoly and the most likely development will be the establishment of ISPs within the DIC that will only be allowed to service companies in the free zone. The first step in the process seems to have been taken with contracts awarded to Germany's Siemens Business Services, and Cisco Systems and Sun Microsystems, both of the US, to design, build and operate the telecommunications infrastructure for the DIC. Details of the contracts are yet to be revealed but it is thought that construction of ISP architecture is included in the package.

In other sectors, Etisalat is under less pressure and its performance is more impressive. The core indicators of growth all make healthy reading: the number of fixed-line customers increased by 7 per cent in 1999 to 975,178, giving a penetration rate of 36 lines per 100 inhabitants; the volume of international calls was up 10 per cent at 963 million minutes; the number of payphones expanded by 11 per cent to 28,942; and the number of installed ISDN lines rose 51 per cent to 14,072.

Strong as these figures are, mobile telephony remains the jewel in the crown. Despite talk of market saturation, global system for mobiles (GSM) subscriptions grew by 74 per cent last year to 829,595: with penetration levels of about 31 customers per 100 inhabitants, residents of the UAE are among the 10 highest users of GSM in the world.

A potential source of competition for Etisalat's mobile hegemony is the regional introduction of satellite phones. Thuraya Satellite Telecommunications Company is scheduled to blast its satellite into orbit in late summer and services are expected to begin in December. But what could have been a threat to Etisalat is, in fact, an opportunity: the company is the largest shareholder in Thuraya, with a 35 per cent stake.

Etisalat has not only invested in the technological future, it has consistently developed its existing lines of business. In 1999, investment in fixed assets reached AED 2,302 million ($627 million), and the figure is expected to grow this year. Some contracts have already been awarded, such as that to the US' Motorola, which will see Etisalat's GSM coverage in the northern emirates improved.