Saudi telecoms potential draws global investors

It is a move that ends the last vestiges of monopoly held on services by the majority government owned Saudi Telecom which has also had to compete with private operators for mobile customers in its domestic market since 2005.

A catalyst for change

However, Saudi Telecom itself has been a catalyst in the changes. The company was restructured in 1998 and quickly divested 20 per cent of its shares to local investors in an initial public offering and sold another 10 per cent to the General Organisation for Social Insurance and the Pension Fund.

Six years later, Saudi Arabia's mobile arena opened up after UAE telecom operator Etisalat paid $3.3bn for the kingdom's second GSM mobile licence in 2004 and established Etihad Etisalat which has gained 30 per cent of the Saudi mobile market after it launched a range of innovative and popular third generation pre-paid services.

Another consortium, led by Kuwait's Mobile Telecom Company, also entered the market in March after a successful $6bn bid against six other companies for the kingdom's third mobile licence.

Observers expect that the competition will result in Saudi acquiring one of the most advanced and diversified telecoms markets in the region which will be a major attraction for foreign investors and spur development of the country's new economy.

Room for growth

Telecommunications has been one of the fastest-expanding sectors in the Saudi economy and is a strong candidate for further growth since it still has relatively low penetration rates compared to other regions providing a lot of potential for private investors.

At present the kingdom has some four million fixed line subscribers, a penetration rate of less than 16 per cent of the population.

The government aims to establish fixed line services for at least 25 per cent of the population and mobile services for 80 per cent, as well as encourage the spread of personal computing and Internet use to at least 30 per cent of the kingdom's 27 million population, says Minister of Telecommunications and Information Technology Mohammed Jameel Mulla.

Arthur D Little, which has been advising the kingdom's Communications and Information Technology Commission, believes that multiple fixed service providers are a necessary feature in Saudi Arabia at present in order to accelerate investments in local access infrastructure and widen consumer choice.

The newly appointed Saudi providers, the Bahrain Telecommunications Company (Batelco), the Hong Kong based Pacific Century CyberWorks (PCCW) and the US' Verizon Communications, have formed consortia with local interests and are expected to start operations in about a year, operating over three regions by 2010 and the whole country by 2015.

Now faced with rising competition in all domestic areas, Saudi Telecom is also seeking to broaden its own horizons by investing overseas. The company recently agreed a $1.6bn Islamic financial loan to help facilitate its $3bn purchase of 25 per cent of Maxis, Malaysia's largest mobile operator.