MVNOs signal change for Saudi telecoms

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The launch of mobile virtual network operators (MVNOs) in the Saudi telecoms market looks set to expand product and pricing options for customers, and boost handset sales, as new operators look to carve out niche segments in the increasingly competitive mobile sector.

MVNOs, which rely on the network and infrastructure of existing service providers, are part of a longer-term plan by Saudi authorities to open up the market and increase competition to reduce the costs for users. Currently, two MVNOs operate in the Saudi market: Virgin Mobile, which uses the infrastructure of Saudi Telecom Company; and Lebara KSA, hosted by mobile network operator Mobily.

A third MVNO, Axiom Telecom, was supposed to have launched operations using Zain Saudi Arabia as its host provider. However, the Dubai-based company had its permit revoked last year after failing to meet deadlines to submit documents. While the sector watchdog, the Communications and Information Technology Commission, has said it intends to re-tender the third licence, Zain remains the only Saudi telco without a virtual network operator tie-up.

Despite the government drive to increase the role of MVNOs in the market, the earnings outlook in the competitive mobile sector remains unclear. Some industry participants claim that even niche segments in the market are served adequately by the traditional operators. Others argue that the country’s growing population, plus the less customer-oriented approach of the major operators, has left gaps in the market for new players. 

Tough competition

Mobile operators are competing on improved and varied services, particularly in the data segment. Virgin, which launched its MVNO operations at the end of September, is targeting the younger Saudi market with a focus on online promotion, primarily through social media. It will also offer lower-cost international connections for expatriates through its Friendi network.

Rival Lebara launched its operations in mid-December, having set its sights on the mass market at the lower end of the income spectrum, areas where it feels it can carve out a profitable niche. “The three telecoms operators have advanced service and cover almost all segments, but there are certain gaps between customer needs and services which provide openings for MVNOs to fill those gaps,” Fadi Kawar, the CEO of Lebara KSA, told OBG.

In particular, Lebara will target low-income expatriates and Saudis, designing packages for individual customer needs, replacing services such as local voice and data with more international minutes, Kawar said.

Flow on effects

The overall spending on ICT products in Saudi Arabia is expected to increase 4.6% in 2015, according to consultancy IDC, rising to a total of SR138.53bn ($36.95bn). One of the factors driving growth will be the spread of MVNOs, which IDC expects to be a game-changer for the consumer mobile market. This shift could see many private users opt for MVNO packages offering cheaper voice and data services, with customers of established providers either scaling back on their subscriptions or adding an MVNO service to their existing contracts.

With mobile phone penetration rates of 169.3%, representing around 51m SIM cards, multiple subscriptions are common in Saudi Arabia. This suggests locals may be open to taking up the MVNO option along with the products of regular service providers.

An expected increase in MVNO usage is also likely to spur handset sales, as clients buy handsets to take advantage of new services, while improved technology and lower data tariffs may lead to growth in retail activity for advanced models of smartphones. Handset sales could be especially strong among Saudi Arabia’s large expatriate community, estimated at around 10m according to industry estimates due to the growing number of packages specifically targeting expatriate clients.

However, a remaining challenge for operators, and one which the MVNOs cannot directly resolve, will be the reach and capacity of their host networks. Without ongoing investment in infrastructure by the three network operators, their virtual clients may struggle to reach their full potential. There are some concerns that tighter margins and cost cuts prompted by increased competition could limit infrastructure investment, which in turn could put restrictions on MVNOs’ revenue streams.

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