Fall in charges delays consolidation

07 June 2002

The Internet Services Unit (ISU) at the King Abdulaziz City for Science & Technology (KACST), the effective regulator of internet services in the kingdom, has reduced its connection charges to internet service providers (ISPs), bringing down costs for the end-user. The fall in prices follows a proposed merger of some small ISPs (Saudi Arabia, MEED Special Report, 22:3:02).

The new prices, announced on 28 May, have reduced the monthly connection fee by 26-78 per cent, by creating a new fixed charge for all bandwidth connections of less than 34 megabits a second. The reduction was prompted by a 50 per cent reduction in the prices charged by the backbone provider Saudi Telecom. Both the charges for connection to the international gateway and to the national backbone have been reduced, while KACST is to be charged only for the bandwidth it uses, rather than for the total capacity it enjoys.

The news is good for smaller ISPs, who have frequently complained about the high ISU prices, which include the cost of filtering unsuitable material from pages accessed in the kingdom. The number of smaller ISPs had been widely expected to fall as the crowded market consolidates in the face of high prices and low profitability. However, the new structure for calculating the prices and the extent of their reduction make the expected consolidations less likely because the old system rewarded the larger ISPs that used more bandwidth.

'I believe these developments will help small ISPs,' says Abdullah al-Musa, managing director of SaudiNet, one of the market leaders and a strategic business unit of Saudi Telecom. 'The new prices indicate a reversal of the KACST policy of encouraging a market consolidation. However, there are already signs of consolidation in the market - and we expect to see some more when KACST and Saudi Telecom put more pressure on ISPs to pay their connection dues.'

Ultimately, the lower charges will help to accelerate the growth of internet use in the kingdom, where the ISU estimates there were 900,000 users by the end of 2001. 'Internet charges will come down for the end-user by 20-30 per cent,' says Al-Musa. 'This is especially true for users of leased-line and DSL [digital subscriber line] services. Unlimited access now costs SR 90 [$24] a month plus the local telephone rate, while dial-up access is now SR 3 [$0.8] an hour. And while the number of end-users will increase as a result of the fall in charges, other obstacles remain to be overcome - the prohibitive cost of PCs and the poor quality of local internet content.'

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