Saudi telecommunications firms need more than new technology

19 September 2011

Introduction of new technology boosts index for short while

Over the past week, all three of Saudi Arabia’s mobile operators announced they had been the first to launch long-term evolution (LTE) mobile broadband technology.

When the announcement was made on 14 September, the Tadawul’s telecommunications index rose by 9.94 points, an increase of 0.47 per cent.

“The entire telecoms scene in Saudi Arabia will be driven by broadband, either mobile or fixed,” says Shrouk Diab, vice-president at investment bank Rasmala.

The rise continued into the next trading session on 17 September with the index closing at 1,716.39 points, an increase of 0.81 per cent.

Zain Saudi Arabia’s stocks rose by 0.80 per cent closing at SR6.3 ($1.68). Etihad-Etisalat (Mobily) shares rose 0.93 per cent to SR54 and STC shares closed 0.59 per cent higher at SR34.10.

Which operator was actually the first to launch the service has yet to be deciphered, but it would be safe to say that Saudi Arabia is the first country in the region to launch commercial use of the new technology, which has also been labelled fourth-generation (4G).

“LTE will facilitate more services like internet protocol television (IPTV), faster speeds, higher bandwidth, and higher data usage with much better quality,” says Diab.

The launch of LTE has provided a needed boost to the telecoms sector in the country, which continues to edge toward the 200 per cent mobile penetration mark. This will be another revenue stream for the three struggling to keep up with data demands and is a new way to boost revenues.

With its large youth population and limited entertainment venues in Saudi Arabia, there is a big appetite for broadband services and LTE is seen as a saviour for the telecoms operators in their bid to meet the demands for data. Already more than 100 terabytes of data are downloaded daily.

It will not be a game changer. The telecoms operators are struggling to cope with the changes in consumer usage. Voice is still the main source of revenues, but it is declining. Data consumption is on the rise, but the telcos are struggling with monetising online content.

In a bid to stay profitable, incumbent operator Saudi Telecommunications Company (STC) embarked on an international expansion, which has added a drag on its balance since it does not own a controlling stake in most of its oversees operations. Its subsidiary in South Africa is failing to outperform giants MTN and Vodacom.  

Third entrant Zain KSA, a subsidiary of the Kuwait’s Zain Group has been struggling with $5.5bn of debts, which could unravel its takeover talks with Saudi Arabia’s Kingdom Holding Company and Bahrain’s Batelco.

Mobily’s stock has performed the best as the company chips away at STC’s market share in the mobile market. But the index overall is down 10 per cent since the previous year, revenues for the telcom firms have been waning as competition has increased and average revenue per user has decreased. The discounts on data plans will ensure faster pick up of subscriptions but will do nothing for ARPUs.

The index is likely to continue on its stable path with the announcement of third and fourth quarter results. Any major movement will be the results of the Zain KSA due diligence, expected by the end of September.

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