Joesp Que, partner, Delta Partners. Joesp Que, partner, Delta Partners.

Middle East is a late adopter of MVNOs but the expected developments in KSA might stand out as an international case study.

Early this year, Communication and Information Technology Commission (CITC) launched a public consultation on the licensing process for Mobile Virtual Network Operators (MVNO), officially igniting the process to issue three new mobile licenses in Saudi Arabia.

While the MVNO concept has been widely adopted in the European market with over 500 active MVNOs, the success stories in Middle East are far and in between. Oman has some degree of success in the region, with FRiENDi Mobile and Renna Mobile successfully capturing 11% of the market share. In contrast, Qatar’s MVNO scene has been severely hindered by regulatory constraints, prompting mobile operators to take legal actions against the regulatory authority, ictQATAR.

As such, the MVNO process in Saudi Arabia is being closely followed, not only for the relevance of the market but also for the innovative licensing rules proposed by CITC. Contrary to common market practices, the number of MVNO operators is restricted to three. Each Mobile Network Operator (MNO) is only allowed to host one MVNO and each MVNO applicant is required to partner with an established international MVNO with significant expertise as a pre-requisite for a preliminary agreement with a MNO. Since there are less than a dozen of international MVNOs that meet current CITC’s criteria, the implicit selection process when setting up consortiums warrants that successful bidders will have strong financial and operational support from both local and international shareholders. Evidently, this process is quite unique in a global context.

With this set of MVNO licensing conditions, CITC balances two critical objectives within the purview of any Telecom Regulatory Authority (TRA), that is the promotion of healthy market competition with issuance of new licenses, and the need to establish a robust regulatory framework for mobile operators that encourages long term investment in areas such as mobile broadband networks.

However, Saudi Arabia is already highly penetrated with 54.5 million subscribers, raising challenges to the success potential for MVNOs, which should be addressed by CITC and considered by Saudi investors planning to invest in MVNOs.

Back in 2009, during the fixed services market liberalisation process, CITC also issued three fixed telecom licenses to new players with support from international telecom operators. However, only Etihad Atheeb Telecom (Go) is currently active in the market, since Optical Communications Co. (Verizon of USA) and Saudi Integrated Telecom Co. (PCCW of Hong Kong) never launched commercial operations.

Research shows that regulatory authorities can have a significant impact on the MVNO development. Even in Europe where the MVNOs are abundant, the concept shows varying degrees of success from market to market, with some countries (e.g., Belgium, Germany, Denmark, Norway) taking advantage of MVNO-friendly regulatory policies.

Continues on next page