SAUDI TELECOM: Connecting the kingdom

24 February 2006

When Saudi Telecom held an event to celebrate its 11 millionth mobile subscriber on 23 January, few expected the turnout would be so great that the doors to the show would have to be closed to prevent overcrowding. But such, it would seem, is Saudi Telecom's success these days, that everyone wants a piece of the action.

The glitzy event, complete with laser show, poetry readings and prize giving, was a clear statement of intent to the regional telecoms industry. Far from being bowled over by the introduction of competition in the local GSM sector, Saudi Telecom is revelling in it. In the 10 months since rival operator Mobily started providing mobile services, Saudi Telecom has gained 5 million subscribers to its Al-Jawal brand, almost as many as in its first seven years of operations. Over the same period, Mobily, the brand name of the Ettihad Etisalat consortium led by the UAE's Emirates Telecommunications Corporation (Etisalat), managed to attract 2.3 million customers. This success in the face of competition is a mark of how far Saudi Telecom has evolved over the past two years. The introduction of competition and the evolution of the regional telecoms sector have seen it change strategy and performance, both for the better. Gone is the sluggish state-dominated monopoly, to be replaced by a leaner, more efficient entity with growing regional ambitions.

'Competition has given us more determination and insistence,' says newly promoted Saudi Telecom president Saud al-Daweesh. 'As is proven elsewhere, it has also helped by growing the market. We also have to remember that Al-Jawal is the biggest mobile operator in the Middle East. We have a network that is not comparable elsewhere, and that is a very big differentiation when making comparisons with other cases.'

With the recent doubling in subscriber numbers, Saudi Telecom is in a healthy position. It now has more mobile subscribers than the combined total of all the GCC states, and has become one of the 15 largest telcos in the world. Strong customer growth has been translated into record profit figures; the company recently announced a 34 per cent increase in net income to SR 12,447 million for 2005. However, turnover has not kept pace, rising by just 7 per cent to SR 32,540 million, down from 12 per cent in 2004. The slowdown in revenue growth, despite a huge increase in subscriber numbers, is a peculiarity of the industry in less developed markets. Saudi Telecom largely gained the new subscribers through reduced service fees as the competition kicked in, but these new users tend to be the less affluent, who spend less on calls but take up more bandwidth through missed calls. As a result, average revenues per user (ARPUs) drop, while costs rise as the telco has to provide more bandwidth to keep lines open.

This situation was prevalent in Egypt until the government announced it planned to grant a third mobile licence. It was not in the interest of the duopoly there to extend mobile coverage beyond certain segments of the population as their operations would rapidly become less profitable.

Al-Daweesh rejects comparisons to the Egyptian model. 'We are not like Egypt in any way, it's a totally different story,' he says. 'Of course, it's natural that ARPUs drop when subscriber numbers increase, but that doesn't necessarily mean we face a bandwidth problem.'

With more than 14 million of the kingdom's 23 million population now using mobile phones, and market saturation fast becoming a reality, Saudi Telecom has begun to look overseas for opportunities. It is prequalified to take a 35 per cent stake in state-owned, fixed-line operator Tunisie Telecom and is preparing to submit bids soon for Cairo's hotly contested third GSM licence. U-turn The move to expand abroad is a U-turn in policy for Saudi Telecom. Just three years ago, the firm's recently departed president Khaled al-Molhem told MEED the telco was content with its current

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