Saudi Arabia's telecom sector growing rapidly

JEDDAH — The telecom sector in Saudi Arabia is growing rapidly. Telecom service revenues have been steadily increasing at a cumulative average rate of around 15 per cent annually, increasing from SR19.8 billion in 2001 to around SR40 billion in 2006. In the same period mobile revenues represented around 75 per cent of all sector revenues (which is in line with trends in other countries).

By Our Correspondent

Published: Mon 24 Mar 2008, 8:56 AM

Last updated: Sun 5 Apr 2015, 1:23 PM

As per Communications and Information Technology Commission (CITC formed in 2001) data .fixed telephone lines reached 3.95 million at the end of 2006, of which 3 million (75 per cent) were residential lines.

This represents a population tele-density of 16.68 per cent and a household tele-density (percentage of households with a telephone) of around 70 per cent, or 70 residential phones for every 100 households. Currently, the wire-line market is a virtual monopoly with STC being the only fixed line services provider in the Kingdom. The monopoly of STC is being scrapped as the Kingdom has awarded licenses to Batelco (Bahrain), PCCW (Hong Kong) and Verizon (US).

In the mobile market, the start of competition in 2005 has resulted in major developments in terms of subscriber growth, service offerings, quality of service, customer care and reduced prices. The number of subscribers has more than doubled in just two years from 9.2 million in 2004 (40 per cent penetration) to around 19.6 million (over 81 per cent penetration) in 2006. The cumulative average growth rate (CAGR) during the last five years (2001-2006) amounted to around 51 per cent annually.

In 2006, Saudi Arabia became the first Arab country to implement mobile number portability, when MNP service was launched at no-cost to all mobile subscribers in the Kingdom.

Internet users grew from around 1 million in 2001 to an estimated 4.65 million by the end of 2006 (a penetration rate of around 19.6 per cent). This corresponds to a cumulative average growth rate of around 36 per cent annually. Broadband subscribers have grown from 14 thousand in 2001, to around 220 thousand at the end of 2006, representing a growth rate of around 85 per cent annually, with 2006 witnessing a big jump of 240 per cent.

Despite the high growth, however, broadband penetration rate of around 1 per cent is still very low compared to both the world average of around 5 per cent, and the developed countries' average of around 20 per cent. As a result, there is still a huge growth potential for broadband service in the Kingdom. A large unmet demand exists because of supply side limitations. This demand is forecast to grow at a fast rate, offering attractive opportunities for broadband network and service expansion in the Kingdom.

According to CITC and Global Research data, since its establishment in 1998, the government owned Saudi Telecom Company (STC) had been the sole provider of telecommunication services in Saudi Arabia. But recent accord of the Kingdom to join the World Trade Organisation (WTO) led the government of Saudi Arabia to approve the opening up of the telecommunication sector to competition in 2002. Following the liberalisation decision, the Saudi government invited international operators to bid for the Kingdom's second GSM licence with a requirement that the licensed operator should have at least five local companies as partners.

With the liberalisation of fixed services in 2007, three fixed-line licences were allocated., and MTC (Zain) won the third mobile licence

Earlier, in July 2004, a consortium headed by Etihad Etisalat — Mobily — of the UAE won the Saudi second GSM licence outbidding seven other operators with an offer of $3.62 billion. The 20-year licence was complemented in August 2004 with a 3G concession for $200 million. Mobily launched operations in Saudi Arabia on May 24, 2005. In July 2005, STC was awarded the second 3G licence for $201 million to start offering 3G services by December 2006.

STC is reportedly planning to spend about $15 billion acquiring firms and licences outside its home market during the year. It has invested $6.1 billion and will also target mobile phone licences in Bahrain and Lebanon.

Moreover, the company has started procedures to secure licences for the third mobile phone operator in Bahrain and the second land-phone provider in Egypt.

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