Interview: Osama Al Dosary

To what extent has the Covid-19 pandemic affected the deployment of fibre-to-the-home (FTTH) broadband infrastructure in Saudi Arabia?

OSAMA AL DOSARY: As part of the Vision 2030, the National Transformation Programme aimed to increase fibre broadband coverage to reach 3.5m households by 2020. Three telecoms operators – Dawiyat, stc and Salam – partnered with the Ministry of Communications and Information Technology (MCIT) to achieve this sizable undertaking. However, lockdowns imposed in response to the pandemic disrupted field operations, and also put pressure on private sector cash flows. Customers were unable to fulfil outstanding payments, limiting our ability to pay suppliers. The industry managed to face these circumstances and ensure connectivity needs were met, despite considerable payment delays.

What is Saudi Arabia’s level of broadband coverage?

AL DOSARY: National broadband coverage is around 90%, demonstrating progress made since the establishment of the Universal Service Fund in 2010. The subsidisation of operator broadband coverage for commercially unviable regions contributed to bridging the digital divide in underserved areas. However, there remains the need to provide a considerable amount of the population with better coverage.

Without government subsidisation, infrastructure coverage expansion depends largely on telecoms operators’ ability to justify the investment. Network sharing can greatly improve the viability of investments by improving returns or lowering costs. It can also improve competition, and to that end, in February 2020 an open access agreement for FTTH was mandated between the country’s telecoms operators. It was a promising step that could help lower a hurdle to investment. Unfortunately, when operators attempt to improve their asset utilisation through network sharing or other wholesale activities, they often face challenges – namely the conflict between retail and wholesale strategies and objectives. This usually results in an inability to fully support the wholesale business.

How can the country ensure that more private capital is channelled into telecoms infrastructure?

AL DOSARY: Investment in telecoms infrastructure typically involves large amounts of capital because of the necessity of civil construction and other passive components. Depreciation of passive infrastructure is over 25 years, mimicking the investment strategy used by utility companies. Unlike utility firms, telecoms operators usually have an active or IT service layer, requiring significant investment with depreciation periods of around five years – entailing a shorter expected return. This can produce a conflict related to capital allocation, diverting resources from long-term endeavours. While less interesting for shareholders, these projects are crucial for development. This, in part, explains the halt in FTTH investment in 2016. It is also attributed to the global trend of disaggregation, wherein new operators emerge to focus on certain areas of the market. In particular, this has been seen in passive wholesale infrastructure services – such as towers, co-location and passive fibre – and active retail services. This trend was seen in Saudi Arabia with the establishment of the passive tower company Tawal in 2019.

In mid-2021 MCIT started an initiative to increase co-location capacity through the development of carrier-neutral facilities. The plan encourages disaggregation, enabling telecoms operators to escape these competing pressures. Companies will be able to adopt either a long-term wholesale or a short-term retail capital allocation strategy, in line with investor appetite. Importantly, consistent yields of passive infrastructure also attract investment from non-telecoms players, such as real estate investors looking to enter adjacent markets. The continuation of the disaggregation trend will help improve the performance of the telecoms sector and open the market to wider capital investment.