The final approval of the Etisalat consortium selection came on 9 August, when the cabinet ratified CITC’s recommendation to select Etisalat as the kingdom’s second GSM operator. The consortium was the highest bidder for the licence at SR 12,200 million ($3,457 million) when prices were opened from six consortia on 13 July.

Etisalat expects its total capital expenditure over the 25-year licence period to reach SR 20,000 million ($5,333 million), with an estimated $1,000 million to be invested in the first year. The contract, which includes the licence fee, also covers a separate licence to operate a 3G network valued at SR 735.8 million ($196 million).

With current GSM penetration estimated at less than 35 per cent in the kingdom, Etisalat is aiming to have 7 million subscribers by 2009. Once it has provided coverage for the five cities, it is planning to add a further two cities to the network by the first quarter of 2005.

Etisalat has yet to appoint a supplier to provide equipment for its service, although it is awaiting technical bids by the end of August from major international companies with a decision expected by mid-September.

Prospective bidders are understood to include Finland’s Nokia, Germany’s Siemensand Sweden’s Ericsson.

‘We expect to ship the equipment in two months’ time,’ says Etisalat’s project director in Saudi Arabia, Khalid al-Kaf. ‘We’re planning to install around 800 sites so we have already started acquisitions of the sites.’

The Etisalat consortium, called Ittihad Etisalat, also includes the General Organization for Social Insurance (GOSI), Al-Jomaih Holding, Abdul-Aziz al-Saghyir Commercial Investment, Rana Investment, Abdullah & Said Binzaqrand Riyadh Cables Group, all local, with BNP Paribasacting as financial adviser.

The new operator 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 two years.

Under a new provisioning scheme, the GSM service provider will be required to pass on 5 per cent of its revenues to the government 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, Saudi Telecom, the sole GSM operator in the kingdom, passes on 20 per cent of its revenues.

Etisalat’s acting president and chief executive officer, Mohammed Omran, told MEED on 10 August that the deal is considered vital to Etisalat’s expansion strategy.

He added that the operator was currently reviewing proposals to expand its network elsewhere in the region, with an announcement on future ventures expected by the end of 2004.