Saudi Arabia telecoms market

Research firm BuddeComm estimates that the country’s telecoms market recorded annual growth in excess of 10% from 2002 to 2010, much of which can be attributed to mobile, although the increasing popularity of broadband has also driven fixed-line growth.

Saudi Arabia in fact helped pioneer mobile communications, becoming the first nation to launch Nordic Mobile Telephone (NMT), the first incarnation of mobile phone systems, in 1981.

TeleGeography places total wireless population penetration at 196.5%, suggesting multiple SIM card ownership is now prevalent in the country.

The introduction of Etisalat-backed Mobily in 2005 had a major impact on the mobile market, forcing STC to reduce tariffs both before and after its launch, and the introduction of Zain in 2008 increased competition further.

Recent market share statistics from TeleGeography still place STC as mobile market leader with nearly 48% market share but Mobily is breathing down its neck with 40%.

Kuwait’s Zain Group increased its stake in Zain Saudi Arabia from 25% to 37% in 2012 following a relatively weak response from other shareholders to a rights issue. The telco saw its market share slide in the last year, dropping from 17.9% in September 2011 to 12.1% in September 2012.

All three players launched LTE services in September 2011 and mobile broadband is now expected to be the main driver behind growth in the wireless sector.

Paul Budde, founder of BuddeComm, expects one of the main stories in the telecoms market in 2013 to be the fight for LTE subscribers between STC, Mobily and Zain.

“The strong growth levels recorded in the mobile broadband market only highlight how crucial LTE will be in underpinning future mobile broadband growth given LTE’s advantage of improved speeds,” he says.

The popularity of mobile broadband is being particularly driven by the country’s content hungry citizens, although strict Islamic laws restrict what can be viewed. The Saudi government has made large investments in security systems to control access to offensive websites involving sex, gambling and criticism of the Saudi government, and there is little sign of it easing its stance.

Despite these restrictions a recent study by Google found that 44% of respondents in the country use YouTube on a daily basis, with 78% of these classed as heavy users. In Google’s demographic, split 50/50 between men and women with an average age of 33, 76% of users were found to access YouTube via their smartphone, suggesting mobile video is a major factor driving data use.

Budde believes that Saudi Arabia’s culture has had a unique impact on the telecoms sector, particularly with regards to user habits.

Strict segregation in public places has led to many stories of young people utilising telecoms services such as Bluetooth and fixed and mobile online chat to connect. The online commerce market is also reportedly seeing strong sales from female shoppers due to convenience, as women shopping in public require a male guardian.

STC has held a dominant position in the country’s fixed broadband internet market since 2001, when it launched DSL services, and is far ahead of any sizeable competition in terms of market share.

The company was converted into a corporate entity in 1998, and in 2000 plans were put in place to sell an equity stake to a foreign investor. However, such a deal never materialised and the only movement in the company’s ownership structure came in 2003 when a 30% stake was sold off to Saudi investors and state pension funds.

The regulator tried to introduce more competition in 2007 through an auction process for the country’s second fixed licence, which attracted interest from 10 applicants. Atheeb Telecom, Optical Communications Company and Al-Mutakamilah qualified to obtain licences but only Atheeb was formally awarded its licence in 2009 having met conditions to float 25% of its capital.

STC is showing no signs of waiting around for further competition to emerge and is investing heavily in fibre infrastructure to increase its fixed broadband subscriber base.

Given the carrier’s dominant position across the telecommunications sector, Budde believes that privatisation may be the only option to change the status quo.

“Effective competition depends on a strong and capable regulatory framework, particularly in the fixed market where the incumbent effectively holds monopoly status. The issue is that STC is still majority government owned. As long as that is the case it will always be difficult for the regulator to implement effective measures to ensure strong competition.”