Monday, 9 August was a historic day for Etisalat. By outbidding all-comers for Saudi Arabia’s second GSM licence, in a single stroke it converted itself from being a threatened monopoly into a regional player with multi-channel growth prospects.

‘We evaluated the market extremely carefully,’ explains Mohammed Omran, Etisalat’s president and chief executive officer. ‘We are from the region, we know the region very well and we know customer behaviour and expectations.’

The opportunity has not come cheap. The Etisalat consortium put in the highest bid for the licence at SR 12,200 million ($3,457 million), and it expects total capital expenditure over the 25-year envelope to reach SR 20,000 million ($5,333 million), with an estimated $1,000 million invested in the first year. The GSM network contract also covers a separate licence, valued at SR 735.8 million ($196 million), to operate a 3G network.

Ittihad Etisalat, as the group will be called in Saudi Arabia, bid almost 15 per cent higher than its closest rival, MTN Saudi Arabia. Omran argues that to break into the Saudi market, where GSM penetration is around the 30 per cent mark, such a sizeable investment will be required. And the contractions are considerable. Saudi Arabia constitutes a market of 22 million with per capita earnings well above the regional average. According to Arab Advisors, market penetration could reach 76 per cent by 2007. Saudi mobile users are among the highest revenue providers in the world, with an average revenue per user (ARPU) of $63. The incumbent, Saudi Telecom, generated $4.5 billion from its GSM services in 2003 alone.

‘An active operator coming new to the market could potentially get between 30-40 per cent of the existing market,’ says Omran. ‘We have a great opportunity for extending the service to customers who do not have access to a GSM network.’

He says Ittihad Etisalat is targeting 7 million subscribers by 2009. Achieving this will depend on its marketing strategy, service packages, speed of rollout and quality of service. The schedule is tight. The consortium is committed to rolling out GSM services across five cities – Jeddah, Mecca, Medina, Riyadh and Taif – by February 2005, with a view to adding two more cities by the end of April 2005. A supplier to provide the equipment for its services is expected to be appointed imminently, with shipping due to begin by December.

Likewise, it must also adhere to strict guidelines to list on the local stock exchange. ‘We have to issue an initial public offering [IPO] of 20 per cent of shares to the Saudi public immediately,’ explains Omran. ‘After two years of operations we have to issue another 20 per cent, but we’re not sure if this will be just for Saudis.’

The Saudi market may have the largest potential in the region, but it is, according to Omran, just the start of its expansion plans. The operator already has stakes in Qatar’s Q-Tel, Sudan’s Sudatel, Zantel in Zanzibar and Thuraya, the satellite-based telecom service provider.

‘We are actively evaluating several areas in other Arab countries, Africa and Asia, but also the rest of the world,’ says Omran. ‘I expect we will evaluate the prospects to participate in all upcoming GSM licences. Then we will decide to participate in the ones that meet our criteria. There are two possibilities: acquiring a new licence or acquiring an existing one,’ explains Omran.

While Saudi Arabians will be scrutinising the new operator’s early moves, other countries looking to liberalise their telecoms sector will also be anticipating the future eagerly.