Telecoms & IT

When Three Became Six

Telecoms & IT

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When Three Became Six

New MVNOs are the talk of the town, while mobile operators continue posting profits despite falling subscriber numbers.

An increasingly tech savvy population is also driving strong IT sales, including in hardware, software, and services, worth about $2.1 billion, $769 million, and $1.2 billion, respectively, as of end-2012.

MOBILE TELEPHONY

In 2013, the number of mobile subscribers declined due to a government initiative to reduce the number of illegal immigrant workers in the country. Changes were also made to phone registration regulations, resulting in a drop from 53 million subscribers in 2012, to 51 million in 2013, according to a Buddecomm report. And while that may seem like bad news for the operators, there was nothing but good news for stakeholders in the annual reports of Zain, Saudi Telecom Company (STC), and Mobily, the Kingdom’s three mobile operators, likely due to the low ARPU rate among the now-departed illegal workers.

The other headline news of the year is the licensing of three MVNOs, which will define sectorial developments over 2014. The newcomers include Virgin Mobile MEA, which has teamed up with STC, Jawraa Lebara, which is now partnered with Mobily, and Axiom Telecom, which is working with Zain. The new players could prove interesting from a competition perspective, and are likely to drive growth in the sector, according to industry analysts, while potentially boosting revenues among the big three as the minnows will hand over a 15% levy on revenues for the privilege of using the networks.

STC, the incumbent before liberalization opened up the sector in 2005, has the largest market share of the mobile market, at 45%, according to Analysys Mason, with Mobily on 37%, and Zain, which was the third player to join the party, just five years ago, on 18%. And the latter certainly has no concerns over the newcomers squeezing revenues, with CEO Hassan Kabbani contrarily commenting that, “from a revenues perspective, we are the largest operating company in Zain Group, although we have by far the lowest market share in Saudi Arabia,” continuing that, “this makes Saudi Arabia the biggest growth opportunity within the Group.”

FIXED TELEPHONY

STC also shares the fixed telecoms sector, this time with a single other significant player—GO Telecom, a brand under Etihad Atheeb Telecom. According to CITC, there were 4.7 million fixed lines at end-3Q2013, of which 3.3 million were residential. The overall number of subscriptions dropped over 2013, down 1.9% on the previous year due to losses in the residential sector, according to BMI. The number of residential fixed lines, however, puts the household teledensity indicator at 65.6%, with population teledensity at 16%. GO Telecom received its license, valid for 25 years, from CITC in 2009, and provides voice and broadband services over 10 cities across Saudi Arabia.

INTERNET

Mobile leads the way when it comes to broadband, with 14.4 million subscribers at end-3Q2013 compared to just 2.82 million using fixed connections. This is a result of substantial investment in 3G and LTE technology, as well as the rise of the tablet computer and the increasing sophistication of smartphones. The 14.4 million strong mobile broadband subscriber base represents a penetration rate of 48.5%, according to CITC, a figure that has grown from 42.1% in 2012, 39.6% in 2011, and just 9.7% in 2010. And while improvements in the network over the last couple of years have also had an impact on growth in this area, it is the introduction of 4G over the next few years that will likely see the sector truly take off.

In the fixed broadband arena, there are 2.82 million subscriptions, with the household penetration rate standing at 44.3%. Overall, total broadband subscriptions grew by 18.9% YoY in 2013. And according to CITC, there are now 16.4 million internet users in the Kingdom with a population penetration of 55%. This is up from 54.1% in 2012 and 47.5% in 2011. Back in 2001, the rate was just 5%.

IT

As disposable incomes rise, IT spending is set to continue its upward growth trend in theKingdom. In 2012, hardware sales reached $2.1 billion, recording 7% growth on the previous year. Software sales also grew, reaching $769 million, up 10% from $699 million the previous year. In services, sales reached $1.2 billion, up 10% on the previous year. BMI now predicts that, thanks to a young, growing population, per capita IT spending could reach $195 by 2016.

The local sector is defined by a drive to boost the rate of technology transfer to the Kingdom, an initiative that is driven by the Technology Control Company (TCC), established in 2008. Speaking on the goals of the organization, Founder and Chairman Bejad Alharbi commented that, “there is a distinct lack of technology transfer and a need for a local means of sourcing the latest technology for local firms,” adding that, “from the beginning we decided not to be box movers for international companies; we decided that we have to be a hands-on operation, keen on building our local capabilities.”

As 2014 moves on, observers will be keen to see end-of-year results and the impact of the MVNOs on the mobile telephony sector. Smart phones will also continue being the catalyst for increased broadband penetration, while fixed telephony and internet alike continue to occupy a more limited, yet crucial segment of the market.