Saudi Arabia: Saudi Arabia Communication Profile

The Saudi Arabian telecoms market was worth $16.2 billion as of 2014 and not only is it the major in the MENA region, but the kingdom as well has the highest social media penetration in the world and experienced 43 % increase in e-commerce between 2013 and 2014

In addition to banking and petrochemicals, telecommunications is considered part the majority interesting sectors for international investment in Saudi Arabia.

As of the end of 2013, there were 51 million mobile telecommunications subscribers; a number which is largely due to the rapidly expanding local economy and growing disposable gain for young people in the kingdom who are increasingly spending on goods and services related to mobile communications. Between 2013 and 2014, e-commerce grew by 43 %, and over the next five years, the annual increase of the Saudi telecoms market will average 3 % per year, reaching $18.7 billion (£12.2 billion) by 2019, according to numbers from Pyramid Research.

Valued at $16.2 billion as of 2014, the Saudi Arabian telecoms market is currently the major in the Middle East and North Africa (MENA) region, due largely to the fact that social mores make it difficult for people to interact in a conventional way.

Oddly enough, this has had the curious side result of turning Saudi Arabia into a place with the highest penetration of social media in the world. Dominated by three players, the telecoms industry offers a incomparable competitive landscape with abundant opportunities, particularly with regards to data, which has quickly become the key strategic focus of the major players.

“Saudi Arabia is part the top three nations in the world for data connectivity per person,” explains Hassan Kabbani, CEO of Zain, one of the country’s large-three telecoms companies.

“We are in a country where people have huge appetite for data and the internet is a major Saudi window to the rest of the world – users access data, entertainment, movies, games, trading, you name it,” he says. Though Zain entered the market later than its competitors, this actually provided it with a competitive edge, according to Mr Kabbani, in the sense that it was able to enter with the new telecommunications technology. This technology did not come easily – the company paid $6.1 billion for an operating licence which has held it back from offering real price to investors, though Mr Kabbani is confident that the company’s costly licence will pay back generous dividends.

“There are companies which claim they are technology leaders, others claim they are price leaders,” he explains. “Other companies care about their customers and consider that the customer is the source and the reason for their existence. We belong in this third category, and we are investing heavily in order to make the Zain customers satisfied, to know additional about what they want.”

It would seem that such attention to consumers is paying off for Zain, as the latecomer company by presently has 10 million customers, who were drawn to its solid network and attractive service.

Though it is sandwiched between two large dominant players, according to Mr Kabbani it has devised a increase strategy that plays nicely to its strengths. In a market of large, industrial players, he compares Zain to a boutique hotel – a hôtel de charme, where the customer is treated differently than at other hotels. “We want the customer to talk about us, and this is what’s happening,” he states.

Essential to the next increase of the company is a three-pillar plan, which Mr Kabbani defines as operational, regulatory and related to capital structure.

From an operational perspective, he explains that Zain needs to improve the customer experience at all levels, by investing in shops and in customer service.

In terms of regulation, as a latecomer to the market it as well needs to negotiate favourable terms for the very expensive licence it purchased; and as far as capital structure goes, it should focus on additional streamlined communication with shareholders.

Despite recent hiccups, Mr Kabbani has faith that there is a type of investor who does not require solid performance and an institutional approach, but instead looks for opportunities.

It is the type of investor who will see risk but as well the opportunity behind it – and who will be willing to invest in a company that has potential. That, according to Mr Kabbani, is the ideal investor for Zain.

As far as additional industrial players go, the Saudi Telecom Company (STC) is the kingdom’s market leader and oldest provider. Its increase strategies differ widely from those of Zain and are additional focused on increase in the domestic market and on providing advanced services to the enterprise sector.

“STC presents an attractive opportunity for international investors, given its proven historical performance, improved margins and EBITA, and its generous dividends yields of 6 %”

Dr Khaled H. Biyari, CEO of ST

For instance, according to the company’s CEO Dr Khaled H. Biyari, in addition to traditional telecom services, STC offer a number of managed services, cloud and data centre services, and machine-to-traditional telco services, inclunding ICT solutions to various verticals.

In parallel, the company is as well putting a better focus on fibre-optic services and tapping into the different international submarine cables that it co-owns, in order to offer other operators and internet players a suite of advanced products.

Both globally and domestically, STC has a reputation for being a pioneer in terms of adopting advanced technologies in the fixed and wireless arenas.

It introduced 4G/LTE technology as early as 2011, and presently covers additional than 85 % of the people with 4G, and 95 % of the people with 3G. In order to keep pioneering, it has been working hard to heavily deploy its fibre network across the kingdom, so that someday, it will be able to expertly accommodate the exponential increase in data usage.

From an investment perspective, the company presents promising opportunity backed by a record of solid historical performance. It had the highest telecom brand price in the Middle East in 2014, which has increased by 14 %, to reach $5.7 billion.

It is as well the only Saudi brand that is classified part the top 500 brands in the world by Brand Finance.

The company welcomes foreign investment and has had an investment relations team in place since 2008, which is largely responsible for creating communications channels with the financial community, inclunding both regional and international analysts and fund managers.

According to Mr Biyari, “STC presents an attractive opportunity for international investors, given its proven historical performance, improved margins and EBITA, and its generous dividends yields of 6 %.”

Adding to STC’s potential as a solid investment is the opening of the Saudi Stock Exchange to international investors. It is by presently predicted that the telecoms sector will be part the majority popular for foreign investors, and Dr Biyari sees this occasion as an excellent opportunity to improve corporate governance, enhance transparency and provide increased exposure to the financial community within the regulatory framework of the country.

As a additional established company, STC is as well additional actively involved in CSR and philanthropic projects, inclunding initiatives that contribute to the development of local human capital.

With a firm desire to become the ICT leader, Dr Biyari is setting his company on a solid path to next increase with a select set of goals.

“We will continue opening new horizons, serving our community and earning customer trust by providing innovative solutions. We are willing to go the additional mile for our customers.”

However, in the realm of ICT, it faces competition from Saudi Arabia’s third major telecoms player, Mobily.

Having just recovered from a major corporate scandal that rocked its profits and brand image, Mobily is slowly recovering and looking for opportunities in the burgeoning ICT market, backed by government spending on projects that are increasing request for high quality ICT services.

Despite these new opportunities, estimates from Al Rajhi Capital indicate that top-line increase will continue to remain moderate, as the contribution from ICT is still modest.

Furthermore, ICT is a relatively lower margin business and requires a high capex, though by 2017, Mobily expects that the business segment will contribute to roughly 20 % of its top-line, with an annual 7 % increase.

In other words, the total market size would be additional than 1.5 times the current annual revenue for Mobily.

Until ICT picks up, fixed data usage will be the major driver of increase, though the changing environment of the telecom industry has made it additional challenging for the sector as a whole to sustain increase.

According to market intelligence from Aljazira Capital, STC’s major challenges come in the form of needing additional innovative ideas and getting a better handle on capex plans.

Mobily, on the other hand, would be well served by considering a new segment of clients, revising its dividend policy – which is currently too high to be sustainable – and reviewing its operations.

Finally, Zain could benefit from a new niche business model that would allow it to better balance its high deficit and licensing fees, small customer base, and depleting capital base.

Across the board, network infrastructure is a matter of extreme importance, which Zain is constructively approaching by developing strategic partnerships with companies such as Huawei, Nokia, and Cisco, so as to better provide the types of platforms that will best serve the burgeoning needs of its customers. “It is not a case where the large fish is eating the smaller fish – we are additional about living together in a world where price can be created, we can join efforts, and have a win-win situation,” affirms Zain’s CEO, Mr Kabbani.

Mobile broadband in the Middle East offers a diverse mix of opportunities and challenges

The Middle East mobile broadband market offers a diverse mix of opportunity and challenges due to the a lot of variances between the different nations which make up this vibrant region. A lot of nations have reached mobile saturation and this combined with infrastructure improvements such as LTE 4G roll-outs creates opportunity for mobile broadband increase in these markets.

The United Arab Emirates has a well established mobile sector, with mobile penetration part the highest in the world, largely due to the country’s affluence inclunding to a significantly sized and fluid people of expatriate workers. Often, consumers own additional than one SIM card to take chance of promotional offers.

Etisalat and du have both deployed sophisticated HSPA+ and LTE networks that cover additional than 88% of the people, underpinning increase opportunities centred on mobile broadband, content and applications. Smart phones are becoming increasingly popular, accounting for close to two thirds of the country’s mobile handsets.

Kuwait as well has a very high mobile penetration and represents a bright spot amongst a region marred by civil tension. The mobile operators in Kuwait are forging ahead and developing both infrastructure and services, with the three major operators of Zain Kuwait, VIVA and Ooredoo all offering LTE services and as well deploying or exploring LTE-A services. This has created an environment where mobile broadband has become a feasible presentation with all three mobile network operators offering mobile broadband services.

Mobile broadband subscriptions outnumber fixed broadband subscriptions by a long way in Saudi Arabia, which reflects the country’s large household size. While fixed broadband normally serves the home, mobile broadband subscriptions are individual. Therefore, mobile broadband subscriptions are likely to continue growing beyond the 100% per capita penetration threshold due to some users having additional than one mobile connected device.

Iraq’s telecommunications sector began on a positive note in 2015 with the roll-out of 3G services by three operators – Zain Iraq, Asiacell and Korek Telecom. Prior to the current civil tension there was as well a progressive fibre optic deployment occurring across parts of Iraq. In the longer term - the Iraq telecoms market offers a lot of opportunities once the civil unrest stabilises and the government and operators are able to focus again on telecoms and digital increase. It has a large people of mobile phone users which have not from presently on adopted mobile broadband at any significant levels.

Yemen still has a number of hurdles to overcome before its telecoms sector can be considered progressive – not least the current political unrest which has reportedly seen attacks on telecommunications infrastructure. While four mobile operators ensure GSM and CDMA mobile services are available - mobile broadband services are still unaffordable for much of the people.

Syria is as well in the midst of civil war which is not conducive to telecoms development. Mobile broadband is however available with both Syriatel and MTN Syria offering access via 3G services. Combined, the two companies had over 1.2 million active subscribers to mobile broadband services in 2014. However with the current civil fighting and destruction to telecommunications equipment is unclear in 2015 how much this has impacted upon telecoms services.

Lebanon is home to a growing technology sector, complete with local start-up incubators designed to provide seed funding and mentoring to technology entrepreneurs. To address the infrastructure issue a number of start- up hosting locations have emerged with the support of the government, in recognition of the importance of nurturing a local digital economy to contribute to in general economic development.

Building on this environment, in late 2014 the World Bank announced it would launch its Mobile Internet Ecosystem project (MIEP) in the country. Lebanon was chosen by the World Bank because it has a highly educated people who can speak a number of languages; is home to a number of well regarded universities for the region and has an economy which uses multiple currencies. Mobile services in Lebanon are provided by Alfa and MTC Touch over the government owned networks. Both operators launched 3G/HSPA services in October 2011, followed by 4G LTE networks additional recently.

With smart phone penetration in Qatar one of the highest in the Middle East; mobile broadband services are expected to become a hot increase area for the near next. Mobile infrastructure is improving with Vodafone Qatar launching its 4G services in mid 2014 and Ooredoo Qatar in 2013. The very transient and rapidly expanding people, due to the large number of expatriate workers, creates considerable opportunity in Qatar.

Bahrain has often been recognised as being a “highly connected” country with both very high internet penetration and mobile penetration rates. This will be further enhanced by a number of recent initiatives to improve ICT infrastructure with both LTE 4G and national broadband networks becoming available. A decline in prices in recent years for both residential broadband and mobile broadband has as well assisted in this increased uptake of such services.

The telecoms market is very significant to the Iran economy and provides one the major non-oil based revenue streams. Improving and expanding telecoms infrastructure has been the focus of investment in recent years, and Iran’s tech-savvy, young people is eager to take up next generation services. Current penetration levels indicate room for continued revenue increase as mobile data services are available but account for only a small proportion of total revenue. In November 2014 the initial 4G LTE network was launched by MTN Irancell.

Israel’s mobile market is served by five mobile network operators. Factors that have helped drive competition include full mobile number portability and regulatory barriers that prevent operators from linking sales of handsets to services, or offering discounts to customers that commit to longer periods. Strong competition has led to operators focusing on mobile data and content opportunities inclunding on costs, resulting in a number of infrastructure sharing agreements.

Jordan has a very progressive telecoms market and in 2015 mobile broadband took a further step at the same time as 4G LTE services became available. With mobile voice revenue increase less likely in this maturing market; the launch of 3G/HSPA networks has underpinned dramatic increase in mobile broadband.

Turkey possesses one of the major mobile markets in the region due to its large people, which is characterised as young and increasingly urbanised and technically literate. Mobile penetration has reached levels indicative of a mature market. Healthy infrastructure-based competition exists between three mobile network operators. Increasing take up of mobile data services has in turn underpinned increase in mobile content and applications. Turkey has emerged as a noticeable front runner in the nascent mobile payments sector, supported by the country’s relatively young people and high credit card penetration.

While parts of the Middle East are currently experiencing significant political unrest and civil war - there are still a lot of positive telecoms developments in the region. It offers much opportunity due to its large people and heavy reliance of mobile services. 4G LTE deployments are underpinning a lot of infrastructure developments in the region which will lead to a higher uptake of mobile broadband services.