Saudi Arabia's telecoms sector looks set for consolidation with Mobily planning to acquire a majority stake in Atheeb Telecom. Saudi Arabia's telecoms sector looks set for consolidation with Mobily planning to acquire a majority stake in Atheeb Telecom.

Bhanu Chaddha and Krishna Chinta, senior telecoms research analysts at IDC, analyse the merits of Mobily’s plan to acquire a majority stake in Atheeb Telecom, Saudi Arabia's struggling fixed-line operator.

This recent development is in line with IDC's April 2012 prediction, given after the companies entered into a partnership in which Mobily resold GO Telecom's fixed-line voice services. IDC predicted, "Mobily may well be planning to acquire GO in the long term, as GO fits well with Mobily's vision to become a fully integrated provider of telecom services in KSA."

This acquisition is a logical way forward for both organisations. GO Telecom has failed to make an impact on the competitive dynamics of the fixed-line and broadband services segment in Saudi Arabia. Mobily, on the other hand, has the financial resources and sales and distribution channels to leverage in order to turn around the performance of GO Telecom.

Launched in 2009, GO Telecom has an established presence in 12 cities across Saudi Arabia. However, it had managed to acquire less than 5% of the fixed-line services market share by the end of 2012.

Furthermore, the company has experienced many financial difficulties since its launch. In May 2011, GO's shares were suspended from trading on the Saudi Stock Exchange as the company's losses amounted to 95% of its capital. The company has taken a number of corrective actions (e.g., increasing its share capital and focusing on cost optimization) since that time, but its performance has continued to suffer. For the financial year ending March 2013, GO registered a negative earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 32% and a net loss of approximately $73.3 million (SAR 275 million).

GO's performance has also been impacted by indirect competition from mobile operators that have recorded success with high-speed data services offerings, such as 3G and LTE. More than 95% of the country's population is now covered by 3G, and operators are focusing on expanding LTE coverage. The coverage and bandwidth speeds of mobile data services overshadow GO's WiMAX-based offerings.

Mobily has been interested in the fixed-line services space for some time now and has taken measures to transform itself into a fully integrated provider of telecommunications services. In 2008, it acquired Bayanat Al-Oula, a company licensed to provide data services in Saudi Arabia, and Internet service provider Zajel Network for offering fixed-data services. The acquisition of Bayanat helped Mobily to launch WiMAX services and, later in 2011, introduce Time-Division Long Term Evolution (TD-LTE). This provides Mobily with an alternate route to the fixed broadband market.

The acquisition of Bayanat helped Mobily to raise its stake in the 12,600km Saudi National Fiber Optics Network Project from 33.3% to 67%. Furthermore, Mobily has set an ambitious fiber rollout plan to cover 800,000 residential and commercial units in the country by 2016 (over 500,000 units by the end of 2013). It has started to offer high-speed broadband services over its limited fiber-to-the-home (FTTH) network, and it recently introduced IPTV services, while the acquisition of GO will provide Mobily with the flexibility to develop multi-play bundles and target 100% of customers' communications budgets to compete head to head with STC, currently the only company in Saudi Arabia offering multi-play services.

Continues on next page