STC's key account customers represented over 75 per cent of all data communications connections in Saudi Arabia in 2003, according to IDC

According to a new IDC study, the total number of connections jumped by nearly 47% year-on-year, while spending shot up by 25%. Nearly two thirds of all data connections were private circuit leased lines, contributing over 70% of all data communications spending.

While officially a monopoly market, IDC has found that the current competitive landscape in the data communications market of Saudi Arabia is more complex, with a number of virtual network operators (VNOs), most of whom are either systems integrators or ISPs, carving niche segments in the market. "VNOs have managed to find a niche market that avoids direct competition with SaudiDATA," says Mohsen Malaki, MEA Program and Consulting Manager for IDC's Communications Group. "They do this by providing data connectivity solutions to market segments not directly addressed by SaudiDATA, such as selected vertical sectors, as well as the small and medium businesses (SMB) segment."

IDC has identified the key data connectivity features and characteristics by customer segment in Saudi Arabia. "Discussions we had with selected corporate customers, as well as a survey of WAN Managers in the country, indicate that enterprise adoption of connectivity solutions is diverse, varying between large enterprises and small and medium-sized businesses (SMBs), as well as by vertical sector," says Malaki. "Any successful marketing strategy needs to take into account the different WAN and connectivity needs of each of these market segments."

The customer segments tapped into by the VNOs, namely the SMB segment and large enterprises from selected verticals, all ranked the price of data connections as their highest priority in selecting a service provider. By contrast, STC's Key Account customers ranked connection performance and geographic availability of the service as the most important selection criteria. "It is no surprise, given the selection criteria per customer segment," says Malaki, "that the competitive advantage of VNOs has been their cut-throat prices for IP VPNs. Meanwhile STC's SaudiDATA subsidiary has identified its nationwide coverage and ATM core network as its key strengths."

"Analysis of the customer segments and the competitive landscape indicates that, on the face of it, the growth rates in the Saudi data communications market seem to imply tremendous opportunities for the two new entrants who are to be licensed by the regulator in the second half of 2004," says Malaki. "The concentration of buying power in the hands of a few customers is a significant caveat to this opportunity."

According to the study's findings, an overwhelmingly large proportion of data communications connections and spending in 2003 was generated by very large businesses and government customers, particularly those that are on the STC key accounts list. With the impending competition in the market, IDC expects STC to defend its market position vis a vis its key account clients. Therefore, IDC believes new entrants will face an uphill battle in trying to churn such customers away from the incumbent, and its data business unit SaudiDATA.

"New entrants will need to devise detailed go-to-market strategies that take note of the fact that the largest segment of the data connectivity market, namely the very large businesses and government segment, is entrenched with the incumbent operator," says Malaki. "New entrant strategies should focus on piecemeal offers to these enterprises, such as backup links for their main or core WAN connections or alternate routes for key WAN links. Eventually, these client relationships could develop further, allowing the new entrants to churn WAN connections from the incumbent."

The SMB market segment, on the other hand, is very under-penetrated, according to the IDC study. Many of the SMBs, particularly small companies, are not likely to develop a sudden appetite for data connectivity solutions. IDC believes that successful players will need to target medium-sized enterprises that have a pent-up demand for connectivity but, due to price sensitivity or other factors, have so far refrained from spending on connectivity solutions. "Tapping into the large, under-penetrated, and vertically diverse SMB segment will be a drain on the sales and marketing efforts of any one service provider," says Malaki. "Players need to consider indirect sales channels that can target these customers more attentively." With a spending CAGR of over 12% between 2003 and 2008, data communications is a significant growth opportunity for new entrants according to IDC's forecasts. IDC believes that the question is no longer whether the market will grow, rather, it is which custo mer segments are generating the spending, and how can new entrants tap into those segments most effectively.

IDC's Saudi Arabia Data Communications Services 2004-2008 Forecast, sizes, forecasts, and analyzes the trends seen in the data communications services market of Saudi Arabia. The study segments the market by service type, bandwidth, access technology, and business size (not site size). Forecasts in this study are to 2008, while historical figures are listed for 2002 and 2003.