While many of its regional peers continue to battle declining market share, STC Group, Saudi Arabia’s incumbent telco, has achieved a significant turnaround in its fortunes in the past year.
The rise in STC’s fortunes was evident from its Q1 results. The telco posted a 60% increase in profit in the first quarter of the year, compared to the same period last year. Its net income during Q1 reached SR 2.5 billion ($66m) compared to SR 1.6 billion for the first quarter last year. STC’s Q1 profit rose by 8% compared to Q4 2011.
While some of this growth has been driven by STC’s international operations and investments in the MEA and Asia, the company has also been busy in its home market of Saudi Arabia, where it faces tough competition from Mobily, Zain KSA and fixed-line players including ITC.
Jameel Al Molhem, CEO at STC KSA, says that STC has become the biggest telecom provider in the MENA region with a presence in 10 countries. “It has grown considerably in 2011 with revenues exceeding SAR 56 billion and growing by 8.5% since 2010. STC’s Saudi market share has also increased to 60%. This performance has been driven by the execution of STC’s LEAD strategy which in turn has driven us to focus on key drivers of growth, such as broadband excellence, operational efficiency and consolidation,” he says.
Al Molhem adds that “traditional business segments” have experienced moderate growth, while newer offerings, such as LTE services, IPTV offerings, and FTTH connectivity, also played a key role.
Enterprise also made a significant contribution to the telco’s performance in KSA. Al Molhem says that STC has been adapting its service offering for enterprise in recent years, as business growth in Saudi Arabia stands at a healthy annual rate of about 5%.
“We want to be at the forefront of this growth,” he says. “For SMEs, we are focusing on flexible, price-attractive bundles in which our customers can combine in a modular way fixed and mobile voice services, DSL as well as internet on the move. Large enterprises and governmental institutions, on the other hand, are served with tailored solutions that allow for managed services, scalability, and quality of service.”
As an example, Al Molhem points to STC’s machine-to-machine communication offering. This enables companies in various industries, such as financial institutions and transportation, to execute operational tasks remotely. “This allows a significant decrease in required resources and costs,” he says.
STC has also invested in cloud computing services capabilities. “For our cloud computing offer we are using our tier-IV data centre to offer both Infrastructure-as-a-Service and Software-as-a-Service.” He adds that STC’s cloud business model allows companies to decrease set-up fees and focus their spare IT resources on “mission-critical” activities.
On the subject of regulation, Al Molhem points to the growth of the telecom sector in KSA as a vindication of the country’s policy of liberalising the telecom sector. However, he adds that the sector also needs policies that offer operators a genuine incentive to invest in the infrastructure and services that the country needs.
“Let us look at some ICT indicators; domestic broadband penetration has increased from nil in 2005 to more than 46% today, mobile penetration has increased from 60% to 198% over the same period,” he says. “ICT recent investments contributed to 9% of total economic growth, most of which came from the telecom sector (5.5% out of 9%) - an average economic benefit of SAR 50bn and 60,000 jobs per year. These results would not have materialised without the liberalised and supportive ICT policies and regulatory framework in the Kingdom.
“Although these figures are encouraging, it is important to shift from sector liberalisation to sector development, where the provision of available and affordable high speed broadband is a main pillar,” he says.
“This should be translated into enabling policies that encourage investment in next-generation infrastructure, guarantee access to critical frequencies necessary for LTE, and continuously revise current regulations to match new market trends and dynamics.”
STC’s Q1 results were also buoyed by some major investments made in the past 12 months, particularly in mobile broadband. He says that STC continues to deploy its network infrastructure “aggressively” throughout the country and points out that 82% of Saudi Arabia’s population is now covered by 3G. “More importantly, we have accelerated the availability of 4G LTE services, with targeted population coverage of 66% by the end of 2012,” he adds.
For fixed connectivity, STC has also continued to expand FTTH services. “We have currently deployed 160,000 lines, and have committed more than SAR 12 billion in investments on the Integrated Broadband Strategy for the period 2011-2014,” he says.
Amid tough competition from its rival operators, STC has also been busy expanding into other areas in the consumer sector. This consists of entertainment via its premium IPTV service, Invision. “Invision is our premium IPTV service that offers customers full access to the best pay TV content from leading sources in the region as well as access to a library of the best western and regional video on demand,” Al Molhem says. “Customers get the true cinema experience through a range of interactive TV services such as pausing, rewinding live TV and a seven day catch up service for premium linear TV channels. All these great features are included as part of the Jood 3 and Jood 4 bundles.”
But STC has also made a foray into the digital content sector via Intigra, which is a separate company that it created exclusively to explore this high-growth sector.
With the mobile apps sector also growing rapidly in Saudi Arabia, Al Molhem says that STC is preparing to launch an app store called “STC Appshop”, an independent website hosting 25,000 applications.
According to Al Molhem, STC Appshop will be the “richest catalogue” of exclusive and non-exclusive applications in Saudi Arabia. He adds that it will be compatible with most mobile devices and mobile operating systems including iOS, Android, Symbian, Research In Motion. It will also be available in English and in Arabic.
With analysts often citing the lack of locally-produced Arabic apps and content, STC is trying to encourage the development of local apps. The telco is working to encourage “technology entrepreneurs” through its developer community program and offers a distribution platform for their content through the STC Appshop. STC is working with governmental and educational institutions such as Badir and KACST to spread awareness of the schemes, according to Al Molhem.
“Locally relevant and culturally sensitive content is always in great demand. Saudi audiences are mature in their preferences of content and are very discerning,” he adds.
STC is also investing in e-learning initiatives. The telco has launched an e-learning portal called ‘Vitamin’, which allows students throughout the country to browse academic materials in preparation for exams.
Another service launched was ‘Easy Clinic”, which enables primary healthcare centres to automate their electronic healthcare files along with all their business processes and procedures, effectively becoming paperless centres.