One of the effects of the current low-oil price environment has been a return of the concept of Saudiisation to the top of the economic agenda – a development which has had significant impacts on the telecoms sector. In 2016 the Kingdom introduced its latest iteration of the nitaqat framework, a system that evaluates companies on their Saudiisation level and assigns them a colour category accordingly: yellow or red for those with poor performances, and platinum, blue or green for the businesses that employ the most nationals. In applying the scheme over the past two years, the Saudi government has paid particularly close attention to the telecoms retail industry, which until recently had been largely served by an expatriate workforce.
Transition Time
On September 5, 2016 the telecoms retail segment reached its deadline for achieving complete Saudiisation. Shops dealing with mobile phones or their maintenance had been given six months to comply with the directive, but the failure of some to meet the new requirement resulted in closures and fines. However, despite the determination of the authorities to enforce the policy, the application of the framework to the industry has seen mixed results. Finding sufficient numbers of Saudis to replace expatriate workers in the sector has been challenging, and in the view of some, the transition to a wholly national workforce would have been more successful carried out in stages. “It was impossible to replace expatriates with Saudis all of a sudden. We should have allowed Saudis to work with expats for some time to get the necessary experience and overcome difficulties,” economist Mansour Al Ghamdi told local press in early 2017.
There have, however, been some successes. As part of the Kingdom’s Saudiisation initiative, the Ministry of Labour and Social Development has established a new telecoms complex in an eastern district of Riyadh. Some 83 retail outlets, all run by Saudi nationals, offer the same mix of handset and accessory sales and maintenance services as the expatriate-run shops they are intended to replace. Many of the young Saudis who are employed at the complex received training in areas such as customer service, mobile phone maintenance and sales skills from the ministry before taking up their jobs. This training was carried out electronically through the Doroob electronic portal, the ministry’s e-learning platform that aims to provide citizens with the skills needed by enterprises, small businesses and entrepreneurs in the Kingdom. According to the ministry, the complex, which opened in February 2017, has provided more than 160 jobs for young citizens. “Having skilled and motivated labour is the most important part of the business,” Abdullah Ali Al Zahrani, CEO of Contact Centre Company, told OBG. “Giving agents autonomy provides them with motivation and a stake in the company.”
Catching Up
While the nitaqat policy has placed some pressure on the retail channels utilised by the Kingdom’s telecoms operators, the bigger question for many industry observers concerns their ability to emulate other industries in moving business away from in-person transactions. The rapid evolution of digital channels, in this view, is the more important focus when it comes to customer acquisition and retention. The trailblazers of this trend have included the global banking industry, where people are now paying bills and transferring funds using mobile technology; the media, which is making content directly available on customers’ smartphones; and booking-based activities, such as travel and events, where customers can purchase and manage tickets online.
Surprisingly, the telecoms companies that have been the enablers of this digital disruption are now playing catch-up with other sectors, while they, too, face disruptive trends from free communication platforms like Skype, Viber and WhatsApp. A 2017 report by McKinsey, a global consultancy firm, found that telecoms operators in the region have more ground to cover in this process than their counterparts in some of the more mature markets. A look at regional telecoms firms’ websites found that 90% do not have a product comparison tool, provide automatic usage indicator updates for consumers or allow customers to apply online for the delivery of a SIM card. Around 70% of them lacked a full search function, while 50% had a “very limited” online shopping market in terms of product array and payment options, and no ability to secure financing for purchases. A similar picture emerged from a study of the companies’ mobile apps, many of which lacked the range of customer touchpoints that have become common in other markets. None of the apps offered product comparison tools, 95% had no search engine, 85% offered no option to open an account and 30% lacked dynamic advertisements.
The digital interaction between Middle Eastern telecoms firms and their business customers is another area which has yet to be fully developed. While around 70% of regional companies offer online account management tools, fewer than 50% have established dedicated business-to-business help services. Moreover, none of the surveyed companies allow new business customers to submit applications online or offer mobile apps for customers to manage business accounts.
Making Moves
To gain ground in this respect, the Jawwy brand is a new mobile service that has been developed with a young demographic in mind. Created by the Saudi Telecom Company (STC) with the assistance of leading global and regional telecoms firms, as well as some of the most innovative technology companies in Silicon Valley, the product is a digital-first service which works off an app, allowing customers to personalise, monitor and manage their cell phone plan in real time. Customers are free to choose the data and minutes they want, upgrade or downgrade at any time and share a plan across multiple devices. SIM cards can be purchased online and delivered within three working days, and live help is available both through the app and the company website.
While selling to consumers and businesses through traditional retail channels will remain central to the development of the Saudi telecoms sector, the proportion of customers who are serviced through digital channels will rise as platforms such as Jawwy are emulated in the market. “Digital services distribution is becoming a key channel and having an impact on the business model that telcos adapt today. The future should push telcos towards more efficient and transparent business models that are performance driven,” Faisal Al Saber, CEO of STC Channels, told OBG.
Strategic Shift
Saudi Arabia’s telecoms companies operate in a rapidly evolving environment where competition is undermining revenues, and pushing up the cost of subscriber acquisition and retention. Digital channels represent a cost-effective answer to these forces, albeit one that requires an industry overhaul. Legacy IT systems and traditional organisational structures are hindrances to the efficient development of such channels, and have brought about a scenario in which firms are following rather than leading their customers’ shift to online interactions.
According to a recent report from A T Kearney, a global management and consultancy firm, emerging market operators acquire just 0.3% of their customers via e-channels, while mature market operators secure an average of 5% through digital channels. In some mature markets, subscriber acquisition through digital means is as high as 37%. The report highlights important advantages in shifting to digital channels: in mature markets the average revenue per user gained from customers acquired through e-channels is 27% higher than that derived from customers signed up through traditional channels, while the cost of securing and retaining e-channel customers is 56% lower.
The argument for developing digital channels in Saudi Arabia is a strong one. In the competitive domestic market, the challenge for industry players is to ensure their digital offerings are capable of both attracting new customers and retaining existing ones. Methods to this end are likely to include incentives such as web-only offers, personalised recommendations, online partner and affiliate programmes, e-payment and autopayment solutions, and enhanced customer support and billing.
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