Saudi Triumph

Economic News

22 Jul 2010
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Earlier this week came news that the green light had finally been given for a consortium led by a UAE company to take Saudi Arabia's second mobile phone licence. Thus entering the largest mobile phone market in the Middle East, this has been a good week for the Emirate's telecoms sector. Now, consortium chiefs plan a major expansion in the Arabian Peninsula, with even Saudi's "Empty Quarter" likely to hear the odd cellular ring tone in years to come, thanks to ambitious coverage targets.



Meanwhile, analysts broadly welcomed the announcement that the consortium, led by Etisalat, had won the licence, though there were also some concerns over the amount of investment the company will have to make - and how difficult securing a good market share might turn out to be.



In giving the Etisalat consortium the green light, the Saudi cabinet had endorsed an earlier decision by its regulatory authority, the Communications and Information Technology Commission (CITC), to choose the consortium's $3.46bn offer for the licence, which includes both GSM and 3G elements. The consortium had submitted the highest bid, with Etisalat CEO Mohammad Omran telling reporters on August 10 that the licence would last 25 years.



The consortium also includes the General Organisation for Social Insurance, al-Jomaih Holding, Abdul Aziz al-Saghyir Commercial Investment, Rana Investment, Abdullah and Said, M.O. Binzagr, and the Riyadh Cables Group.



Omran then added that the company plans to cover seven main Saudi cities within six months. This speed can partly be explained by the fact that the company had already started its preparations before the CITC made its decision.



"We began to work on the project during the tendering stage," Omran said. "We have an aggressive plan and are ready to start. Although the project was supposed to cover only five main cities, we put in our tender seven cities and it is a big challenge for us."



Indeed, the Saudi market could be a major mountain for Etisalat and its consortium partners to climb. Market penetration for mobile phones is currently around 35%, in a market of some 20m people. This contrasts strongly with the UAE, where Dubai has the region's highest penetration rate, at around 90%.



The sole provider at the moment in Saudi is Saudi Telecom Co. (STC) and entering its domain will require some competitive pricing strategies, while initial costs are likely to be high.



"Etisalat has to devise a strong pricing strategy and keep its operational costs low," a senior telecoms analyst told the Gulf News on August 10. "It should increase turnover to substitute the limited margin on profits."



Omran is well aware of the challenges though.



"The Saudi market is considered to be one of the most demanding for services and technologies," he said August 10. "Etisalat has devised plans to meet these requirements, including deploying the most advanced technologies and providing the latest services in line with the CITC guidelines and the Saudi market's specific requirements. Our initial focus will be on expanding the reach of GSM services to ensure that we are moving forward as quickly and efficiently as possible."



The company has a number of advantages - particularly in terms of technological expertise. Etisalat is the first regional company to deploy 3G technology, giving it a high-tech edge over its competitor.



The company is eying a market share of 7m subscribers within five years and investment of around $1bn. During this period - phase one of the project - some 4500 staff will be employed, of which 80% will be Saudi nationals.



Its targeted market share may be quite feasible too. According to the Riyadh-based Economics Studies House, the penetration rate of mobile phones in Saudi Arabia could grow from the current level to 60% by 2014, taking the total amount of subscribers from 7m to over 20m.



All of which has reflected back on the UAE. The news that the consortium had won the bid was greeted by a jump in Etisalat's shares, although these had been rising steadily since news first got out that the consortium was likely to end up with the licence. Company shares will also be appearing on the Saudi market soon, as, under the terms of the tender, Etisalat must form a public joint stock company in which it will have 35% stake, and float 20% of its shares in the Saudi market.



This reflects both the terms of the tender and the consortium's obvious concern not to appear as an outsider in the kingdom when in competition with the home-grown STC. Naturally, the Saudi market's existing occupant will try its best to out-compete the newcomer, with the result, most analysts expect, being lower prices and a more rapid expansion of services. If all goes well, it will also be good for the Emirates' claims on the leading telecoms and IT role in the region - a prize well worth battling for.

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