Even more unusual was the fact that the company to end Etisalat’s and Zain’s stranglehold over mobile phone auctions was Saudi Telecom, the only major Middle East operator that had failed to expand beyond its domestic market until that moment.

Saudi Telecom won the auction with a KD248.7m ($908m) bid for a 26 per cent stake in Kuwait’s third mobile phone licence holder. Its bid comfortably beat a rival offer of KD195m from a consortium led by Kuwait Finance House. Etisalat came third with a KD180m bid.

Competitive market

For Saudi Telecom’s first start-up in a foreign country, it will have to compete with the two incumbent licence holders, Zain and Wataniya, which is itself 51 per cent owned by Qtel.

Both companies have abundant experience of competing with different operators in multiple markets. Zain has 20 markets and Qtel has seven.

This will increase to eight when it finally receives the go-ahead to launch mobile phone services in the West Bank and Gaza.

But Saudi Telecom has reason to hope that its Kuwaiti subsidiary, Kuwait Telecom, will prosper.

Kuwait is the least penetrated mobile phone market in the GCC, with about 80 per cent of the population owning mobile phones, according to Egyptian bank EFG-Hermes.

Even Jordan, with its far lower gross domestic product (GDP) per head, has a higher penetration rate than Kuwait. Less developed markets, such as Algeria and Tunisia, are not far behind Kuwait and have grown more quickly over the past few years.

Why have Zain and Qtel been relatively unsuccessful in Kuwait when they have done so well elsewhere? Both companies have used their Kuwaiti operations as platforms to finance their expansion into other markets. They have been able to compete in other countries because they have not needed to compete at home.

Wataniya was an independent Kuwaiti company until Qtel bought a 51 per cent controlling stake in the business in March 2007.

By then, Wataniya had already used its established operation in Kuwait to expand into North Africa in much the same way as Qtel had used its base in Qatar to launch its Nawras mobile phone subsidiary in Oman.

Unfortunately for Saudi Telecom, Zain and Qtel’s mixed performance in Kuwait can also be attributed to a second factor that will have a negative impact on its business just as it has the incumbents.

Kuwait’s Communications Ministry is unique among the GCC countries because it has retained control over both the country’s fixed-line network and its international gateway – the telecoms switch that enables calls to be routed to people in other countries.

Income streams

The charges levied on these services provide a generous stream of income to the ministry. If the mobile phone operators become annoyed by these charges, they can complain to the regulator, which is also the Communications Ministry.

State interference has held back the development of services in Kuwait. Zain has been unable to include Kuwait in its innovative One Network, which covers Iraq, Jordan, Bahrain, and soon Saudi Arabia.

The mobile operator says its operations in all these countries have signed up new customers because the One Network allows them to make international calls when they travel abroad while continuing to pay local-rate tariffs.

The Communications Ministry has so far prevented Zain from launching the One Network in Kuwait.

Saudi Telecom may have submitted an expression of interest to bid for the second licence in Qatar, although it did not prequalify for the competition. Neither the company nor the Qatari regulator will say whether it wanted to take part in the auction.

Saudi Telecom could still be successful in Kuwait, but its management team will need to think like a start-up operator rather than a state-owned former monopoly.