The Etisalat consortium, which includes the local Riyadh Cables Groupand Rana Investments Companyand has mandated BNP Paribasas its financial adviser, emerged as frontrunner after the opening of financial proposals in Riyadh placed the group top, with the highest offer of SR 12,210 million ($3,257 million), to be invested over a period of five years. The MTN Saudi Arabiaconsortium, led by MTNof South Africa, came in second at SR 11,050 million ($2,947 million). All financial proposals will be reviewed for compliance with CITC's requirements as set out in the request for applications.

Once Etisalat's proposal receives the go-ahead, CITC will also evaluate the consortium's 3G proposal based on commercial, operational, technical and financial aspects. The regulatory body will then make a final recommendation to the Council of Ministers for the award of a GSM licence only or a GSM/3G licence. CITC plans to award the 15-year licence by the fourth quarter, with operations to start in early 2005.

The opening ceremony was preceded by CITC's disqualification of two consortia following the evaluation of commercial, operational and technical proposals under the first phase of the evaluation process. The Oger Telecomconsortium, which included France's Bouyguesdid not make the cut. Nor did the Vodafone & Saudi Partnersconsortium, which had been considered by many to be one of the strongest contenders for the second GSM licence due to its long international track record and involvement in GSM operations in the region.

According to sources close to the evaluation process, Vodafone was disqualified due to disagreements over whether the frequencies offered by CITC would be sufficient for the rollout of the new network. 'The disqualification of Vodafone was a major surprise,' says a Riyadh-based banker following the process. 'To be disqualified at the technological level for them is basically an insult.'

The new GSM operator will be required to cover five core areas - Jeddah, Mecca, Medina, Riyadh and Taif - with its own network in the first year. In addition, it will be eligible for roaming into Saudi Telecom's network in the first four years of operation. It will also be required to list on the local stock exchange and offer 20 per cent of shares to the public immediately, rising to 40 per cent after three years.

Under a new provisioning scheme, the GSM service provider will be required to pass on 5 per cent of its revenues in the first year of operations, which will rise to 10 per cent in the second year and to 15 per cent in the third year and thereafter. At present, the sole GSM operator in the kingdom, Saudi Telecom, passes on 20 per cent of its revenues to the government.

EFG-Hermes, Goldman Sachsand Riyad Bankare the financial advisers to CITC; Allen & Overyand The Allianceare legal advisers; and the UK's Intercai Mondialeis technical adviser.