Saudi telecom: gearing up for a third operator (page 1 of 3)

Saudi Arabia is the biggest among all Middle Eastern countries, with a population of 25 million inhabitants, who enjoy high income levels supported by a steady annual economic growth that has hit six per cent over the past three years.

Saudi annual population growth amounts to 2.5 per cent and 70 per cent are under 25 years old. With such a huge, wealthy population, there is plenty to attract mobile operators.

Analysts say the country has the highest revenue generated per user (ARPU), but a low mobile penetration. Hisham Tuffaha, Market Analyst and Division Head - Investment Research & Financial Analysis, Bakheet Investment Group, said: "Penetration is only 85 per cent, but that is the percentage given by the current two operators and it's based on the number of mobile lines not the number of customers.

"I think that the actual access percentage is only 70 per cent and it's very low compared to other countries in the region."

According to Dr. Abdull Rahman Al-Ja'fari, governor of Saudi Communication and Information Technology (ICT), the number of mobile phone subscribers in Saudi Arabia crossed 20 million in 2007. But a survey conducted by the Arab Advisory Group last year, showed that 40 per cent of Saudi mobile users have more than one mobile subscription.

And while the survey put this down to the increased competition and promotions, it has also sited a percentage of users who prefer to have a separate line for business and personal use. With this in mind, the accurate penetration might even drop to 60 per cent.

Busy schedule for Zain

To get an idea of how attractive the Saudi market is to mobile operators, just look at the winning SR23bn ($6.16bn) bid from the Zain Consortium for the third GSM licence in the kingdom in July 2007.

As per the licence requirement, Zain must allocate 40 per cent of its capital to the public in an initial public offering (IPO).

"We have already submitted all papers and legal work to the Capital Market Authority (CMA) and are waiting for the CMA to allocate the IPO time. We are aware that the CMA has a busy schedule for upcoming IPO's and we are confident that the it will allocate the right time for each IPO, depending on the size and first come first serves basis" said Dr Marwan Al-Ahmadi, CEO of Zain.

Al Ahmadi underlines the importance of the Saudi Market in the Middle East in that it has given Zain the reach from the Atlantic Ocean to the Arabian Gulf by providing a geographic fit with the company's other 21 markets.

"Saudi Arabia has seen unprecedented growth in mobile penetration in recent years. However, the current mobile penetration is relatively low compared with the penetration rates for the UAE and 118 per cent for Bahrain. On the other hand, the kingdom's ARPUs, around $33, are relatively high compared with other GCC and Middle Eastern markets" Al Ahmadi addsed

Targeting Youth

Saudi Arabia has 21 million mobile users generating annual profits of SR13bn ($3.48bn). Out of that, Saudi Telecom Company (STC), which has long enjoyed a monopoly of the Saudi telecom market, holds a 90 per cent share of the market. The second operator, Mobily, has a 10 per cent share of the market, having grabbed a third of Saudi mobile users in its first year of operation.

During the first nine months of 2007, Mobily's profits rose by 134 per cent compared to the same period in 2006.