STC participates in Dubai GITEX 2004 for the first time

The decision to go to United Arab Emirates was made after granting the second mobile license to Etisalat of Emirates Consortium.

STC is about to face its second company-changing event in as many years. In February 2003, the company underwent the largest IPO in Saudi Arabian history. With it came visibility on the stock market and increased pressure and responsibility to achieve results for investors, STC president Eng. Khalid Bin Abdullah Al-Molhem told Gulf Business. So far, so good. The monopoly telecom has just recorded net profits of $ 1.37 billion for the first half of 2004, 24% higher than the same period in 2003.

Operating revenues grew to $ 3.9 billion, a rise of 14 per cent despite major cuts in fees and tariffs, while market capital stands at $ 42.4 billion, compared with $ 31.5 billion this time last year. STC has begun to see the monetary.

Benefit of the restructuring it underwent pre-IPO, with the new efficiencies being turned into cash, says Al-Molhem "we are also increasing revenue, so it is a two-way effect" he says.

The million-riyal question is whether the strong results can continue. The Saudi Arabian mobile market- STC largest profit center-is set to open up this year, with a group headed by UAEs Etisalat winning the rights to operate a second mobile company in the kingdom.

STC currently has around eight million mobile users, a penetration rate of around 40 per cent, compared with, say, the UAE, which has a penetration rate of between 75 and 80 per cent. Saudi fixed line penetration languishes between 10 and 20 per cent, according to Pyramid Research. In comparison, the UAE has around 40 per cent penetration, the United Kingdom 60 per cent. Saudi Arabia's penetration is closer to that of Egypt or Jordan.

Al-Molhem says figures may appear low, but argues that the way penetration is calculated in Saudi Arabia should be different from other countries. Saudi households contain 6.4 people on average, so fixed lines cannot accurately be counted per individual, he says. Mobile phone penetration is also skewed by the fact that 40 per cent of the Saudi population is under 15-years-old, and therefore not likely to own a GSM phone." With a lot of children coming up in age, the percentage will rise" he says.

STC has focused on rapid subscriber acquisition for the past 18 months, reducing activation fees and deposit requirement to attract lower-spending users. It has also begun to focus more on services such as a customer's loyalty program in order to retain as many customers as possible. "We are going to lose market share, that is a fact of life," says Al-Molhem. "The question is how much can they gain?"

Pyramid Research expects the new operator to attract subscribers from most segments of STC`s operations. According to a study from the Arab Advisors Group, more than 80 per cent of GSM users in Saudi Arabia would switch or consider switching to the new mobile operator if it had better service coverage and lower rates.

Al-Molhem expects the new player to increase the market available, not just take from it. "If they are aggressive marketer, it will increase the market substantially." He believes there is easily room for a second player and maybe even a third, predicting that the Saudi mobile market will reach between 10 and 11 million users by 2007. IDC agrees, expecting pent-up demand and liberalization to spur tremendous growth in both mobile subscription and spending in the next four years.

New Services
STC is currently testing a number of new technologies to enhance its mobile offerings. The company has been criticized by IDC for being slow to introduce new mobile services, something that may give an advantage to a competitor. Although STC plans to eventually introduce both multi-media messaging services (MMS) and G3 technology, Al-Molhem says there will be no "earth-shatteringly new technology" from STC in the next 12 months because customers are not demanding it. (A recent Arab Advisors Group study found that more than a quarter of mobile users did not know if their handsets could support GPRS or MMS.

STC plans to spend the rest of 2004 growing its mobile business - "we have to" - and providing good returns to its all-important shareholders. It will also pay more attention to its non-mobile business unites, restructuring pricing in sectors such as fixed line and the internet, in order to increase loyalty and competitiveness ahead of liberalization. Some are currently cross subsidized, with revenue from international calls paying for local calls. "That cannot continue," says Al-Molhem. "We have to make them all operational on a business sense."