With the arrival of mobile virtual network operators (MVNOs) targeting those with less to spend on telephony, the Kingdom’s larger operators are hoping to garner profits from contracts with more lucrative segments of the population including businesses and corporate clients. Their strategy is driven in part by the Saudi government’s expansive budgetary stance and its continued spending on major infrastructure projects, which create the need for additional and improved telecoms and ICT networks.
While the Saudi Telecoms Company (STC) and Mobily are each further sub-dividing their business client offerings into solutions for small, medium or large enterprises, Zain offers a more generic package of business services. “The MVNOs here in Saudi Arabia are the first of their kind in the whole Middle East,” Fadi Kawar, the CEO of the MVNO telecoms firm Lebara, told OBG. Being so new to the market, there will be challenges, but also significant opportunities.”
In October 2014 Zain announced it was to be the first mobile operator in the GCC to offer its customers Microsoft Office 365 as part of their monthly bill under a syndication arrangement. The package includes single per user licences for a suite of its software programmes, customisable business email addresses, all Microsoft Office online collaboration tools, and the ability to share files and access applications on multiple devices, such as tablets and phones, as well as desktop computers. Subscription to the service is bundled in with Zain’s monthly charges and the firm provided a support centre as part of the deal, which was clearly aimed at entrepreneurs and small and medium-sized enterprises (SMEs).
Zain’s SME customers are also offered deals on other subscription services, including Blackberry devices, ready to go broadband packages, bulk messaging, and machine-to-machine (M2M) advice and support. M2M services enable business customers to work out how they can enhance the capacity of the machines used in their organisations for improving data sharing.
The business solutions being offered by all three companies show that the traditional divisions between telecoms and IT are fast disappearing. STC, Mobily and Zain all offer business clients mobile phone packages based on both voice and data plans, broadband services, roaming deals and handsets, but they are also helping their business clients to find software solutions and ways to store, secure, share and recover data. Both STC and Mobily offer business clients services that enable them to manage the location of vehicles in their fleets.
In 2014 Mobily signed a partnership agreement with Jasper Technologies, a California-based company that provides M2M solutions, helping some 1600 business clients around the world to leverage possibilities offered by the “internet of things”.
Jasper Technology’s founder, Jahangir Mohammed, said, “The internet of things is not about things, it is about service.” As they move from a core business model based on serving a mass consumer market to one focusing more on higher value contracts with businesses and corporate clients, Saudi Arabia’s telecoms operators are also focusing on standards of service. “The corporate sector is very lucrative, but it also requires hard work,” STC’s corporate performance management general manager, Sacha Dudler, told OBG. “It’s about delivery, performance and quality. STC’s focus on the business and corporate sector appears to be paying off, according to the most recent statement of company performance, issued with its half-year results in July 2014.
Business Sector Revenues
STC said that a 14% year-on-year (y-o-y) increase in business data services revenues in the first six months of 2014 drove an overall 6% rise in its Saudi Arabia enterprise business unit’s takings. Meanwhile, in Mobily’s annual report for 2013, published in mid-2014, the company noted that business sector revenues were up 23% over 2012, and said by the end of 2014 it was expecting 32% of its revenues to come from data. In the report Mobily also explained why it was planning to focus more on the business segment. “Mobily’s strategic growth focus is increasingly on the business sector, working to a suite of B2B products and services,” said the report. “The B2B segment is expected to show annual growth of 7% by 2017, representing a market worth SR38bn ($10.1bn). Mobily’s B2B strategy aims to maximise value from current growth areas and new entry into selected segments in Saudi Arabia. The key growth areas will be hosted, managed and execution services along with fixed internet.”
STC’s corporate clients include many government departments and state-owned entities adopting smart technologies. In fact, Ahmad Y Al Khiary, CEO of IT Security Training and Solutions, told OBG, “The government is moving from automation service to e-service because there is demand from the public. This is driven by higher transparency, a well-equipped population and, overall, the need for better governmental service. However, this step forward requires further investment in information security.”
In December 2013, the state-owned company won a major contract to provide infrastructure for one of the country’s major new cities. Under the 15-year agreement STC will build and develop Medina Knowledge Economic City’s telecoms and IT infrastructure, including 40 km of fibre-optic cables as part of the $7bn project. The company said it expected the first phase of the contract to be completed by 2016, by which time the city will have grown to 2.3m sq metres of developed land with 10,000 homes and a population of 32,000. Development work will continue and the city is expected to eventually house 150,000.
Albilad Capital also reported that STC had previously provided IT services to Olaya Tower, King Abdullah University for Science and Technology, and Princess Noura University. “STC is fully aware of its market position and role, and we are driving quite a few initiatives with the government to help fulfil its mandate to transform Saudi Arabia into a modern information society,” Dudler told OBG. “We are also working on strengthening our ICT capabilities to meet the needs of the huge economic city developments and other projects that are developing the country, so it’s more about being a social corporate citizen and understanding our role in that sense.”
Mobily has also been engaged in contract work in one of the Kingdom’s new economic cities. It is two years into an eight-year contract worth SR600m ($160m) to provide telephony and IT services for King Abdullah Economic City (KAEC). Under the deal Mobily is providing infrastructure for integrated telecommunications services, with data transmission and broadband internet services, by laying fibre-optic cables in the new city. The company will also provide a data centre and smart city services for those living and working in KAEC. Mobily has provided a communications management service to the expanding city, which is being developed on 168m sq metres of land adjacent to the Red Sea. The company also signed an agreement with the Royal Commission for Jubail and Yanbu to develop telecoms and IT services that will make Yanbu a smart city, according to Mobily’s 2013 annual report. Mobily is to be responsible for the design, installation and operation of the IT and telecoms network for the city and the industrial zones.
Mobily signed agreements in 2013 with international IT firms to provide a range of services: a deal with IBM created a security operations centre providing managed security services to help businesses protect against security breaches and avoid data or financial losses, and the company also collaborated with IBM to create a private cloud service.
Through an agreement with Virtustream, Mobily also began to offer a range of enterprise cloud services that could be adapted to meet the needs of SMEs. In addition, it signed an agreement with SAP to bring the firm’s cloud-based solutions to its corporate clients, and planned to invest SR22bn ($5.8bn) in capital expenditure from 2013 to 2017, including an expansion from 38 data centres to 56.
A telecoms sector report published in June 2014 by AlRajhi Capital said that a move towards a hybrid telecoms-ICT company made sense for both STC and Mobily, given the decline in voice revenues, the saturation of the mobile subscription market and the Saudi government’s commitment to infrastructure project spending. The change of direction would also have an impact on profit margins. The report suggested the contrast would be strong for Mobily, which had reported a combined annual topline growth rate of 22% year-on-year during 2010-12. ICT businesses also tend to have relatively lower margins than other businesses and require high capex initially, said the AlRajhi Capital report.
According to Dudler, one way to improve margins is to expand the company’s pool of in-house knowledge and capabilities so that it does not have to rely on engaging costly third-party contractors. “But this is something that STC wants to change and we are working to scale up our ICT capability,” Dudler told OBG.