New by-laws for liberalised market

02 August 2002

The Saudi telecoms sector took a fresh step towards liberalisation with the issuance on 27 July of executive by-laws detailing how services will be opened up to private investors, according to the telecoms law passed last year. However, foreign companies are still prevented from participating in the sector because of its inclusion on the negative list of activities barred to foreign investment. Saudi Communications Commission (SCC), the sector's regulator, is preparing to work with the Saudi Arabian General Investment Authority (SAGIA) to remove telecoms from the negative list and to launch a second GSM licence in the kingdom next year.

'We are now preparing a market study that will be completed by the end of the year to decide which services are ready to be opened up and how many licences should be awarded for each,' says a senior source at SCC. 'That will put us in a position to start liberalising the sector by the end of the year and give a timeframe for future deregulation.' Competition is expected to be allowed first in VSAT (very small aperture terminal) services among local companies, followed by the opening-up of the GSM sector.

Liberalisation of GSM services is still awaiting two developments - the removal of telecommunications from the negative list and the launch of an initial public offering (IPO) by the state-owned incumbent, Saudi Telecom. The IPO is due to take place in September or early October following the company's publication of a financial statement in June. However, there is as yet no official schedule for revising the negative list. 'Foreign investment will be reviewed and telecoms will perhaps be removed from the negative list after we review it with SAGIA in early September,' says the source. 'We hope it can be taken from the list by the end of the year but this is fundamentally a political decision. From our point of view, we think it could be moved.'

While private local companies have the experience and expertise to work effectively on providing data and VSAT services, the operation of a new GSM licence is expected to require the participation of a large international company.

The new by-laws, compiled by SCC and approved by the government, set out restrictions on pricing to maintain a fair level of competition between Saudi Telecom and new licence operators. 'Saudi Telecom will be treated just like other operators when the market is opened up for competition,' said Planning Minister and acting Posts, Telegraphs & Telephones Minister Khaled al-Gosaibi on 27 July. Saudi Telecom will provide the backbone fixed-line service through which other services are run, making it the key operator, even in a deregulated market.

The publication of by-laws is the latest step in a long process of reform. Saudi Telecom was created in 1998 but has only recently completed its corporatisation with the publication of financial statements for the past three years. A telecommunications law was passed in June 2001, creating both the structure of the future liberalised market and SCC. Muhammed Mulla was appointed governor of SCC in August 2001.

Bahrain-based Gulf International Bankis advising Saudi Telecom on its IPO, alongside general financial adviser JP Morgan Chase & Companyof the US. Baker & McKenzieand Booz Allen & Hamilton, both also of the US, are advising on the legal and management aspects of the restructuring respectively.

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