The telecoms market in Saudi Arabia has been steadily growing at an annual rate of nearly 10% for the past few years. A lot of this growth comes from the mobile sector, though more recently broadband has increased fixed-line growth.
There is intense competition amongst the operators in the Kingdom, and tariff wars are common place. STC has been the incumbent operator in the region, followed by the introduction of a second GSM mobile operator, Mobily (Etisalat) in 2005. Despite growth, the mobile penetration in the region still lagged behind other countries in the region. This allowed Zain to set foot in Saudi Arabia in 2008, further inciting competition. With mobile SIM card penetration reaching near maturity, the future growth will concentrate on mobile broadband services and applications that will be powered by the deployment of LTE and 3G networks.
Wu Weitao, president of Huawei KSA says that one of the most significant trends that he sees in Saudi Arabia is how new and more expansive broadband networks are enabling individuals to use the internet and access technology such as video conferencing, data streaming and cloud storage tools.
He said: “Devices such as smartphones, tablets and mobile Wi-Fi routers are especially meaningful in this context as they are the portals through which the Saudi public can enjoy the tangible benefits of large-scale ICT projects. Huawei has been seeing significant growth in the consumer electronics space across the Middle East and in Saudi Arabia.”
“The Kingdom has a large youth population who are tech-savvy, adopt new products and services, possess significant purchasing power and therefore represent high customer lifetime value for telecom players,” added Weitao.
Josep Que of Delta Partners said that the telecommunications sector in Saudi Arabia has proven to be a very attractive market. He forecasts continuous strong growth prospects going forward, due to the operators investing a lot in 4G.
“The key reason for this growth is that the Saudi consumer’s appetite for new services / new technologies is huge and operators are able to bring new services to the market that fulfil customer needs. An example of this is 4G. Saudi Arabia was the first MENA country to launch 4G and currently the three operators are heavily investing in 4G both from a marketing and infrastructure point of view,” said Que.
A study done by United Nations Conference on Trade and Development (UNCTAD) said that Saudi Arabia leads as the number one country in the world with the highest proportion of mobile phone users.
The Kingdom has a ratio of 188%, followed by Vietnam and Oman in the second and third places. This percentage is by far the highest when compared to the other GCC countries, with Oman being ranked second with a rate of 165%, followed by Kuwait at 160% and the UAE at 145%.
The study found an escalating trend in mobile phone usage by teenagers and nine year old children. It stated that the sheer numbers of mobile adoption was mainly for use with the Internet.
Commenting on the report, the Mobile Channels Company's (MCC) GM, Salem Alenzi, said: "The Kingdom of Saudi Arabia has scored a high growth percentage in the number of mobile phone users between the years 2005 and 2010. This proportion duplicated three times over this five year period, while it did not exceed a ratio 59 percent in 2005.”
Weitao says that the current demand for ICT services in the Saudi market is truly unparalleled on a regional level. He expects to see growth in mobile subscribers in the coming year. This will allow for the rapid roll-out of LTE especially in areas where fixed networks are not feasible.
He also thinks that there will be more value-added services being offered to consumers, with a demand for data services which could bring in revenue growth for operators.
Weitao added: “There has also been a rapid boom in the number of internet and broadband users over the last few years in the Middle East in general and in KSA in specific, where the internet user base has almost tripled and the broadband base increasing almost ten-fold. Broadband penetration in the past has not been able to grow as expected due to lack of reliable infrastructure.
However, the launch of mobile broadband has been the main enabler to increase penetration across the kingdom.”
Mobily and STC have already started deploying fibre projects, and with the push from the operators to provide 4G networks, mobile broadband will start gaining too.
According to Paul Budde, MD of BuddeComm, the telecom research firm, "STC commenced offering FttH-based broadband services in early 2011. Offered under the VERVE brand, services are offered with speeds of up to 1Gb/s. The operator revealed it aims to connect all greenfield residential areas to its FttH network and a total of 1 million households by 2015."
He added: "Bayanat Al-Oula, the data arm of Mobily, signed an agreement during 2011 with four firms to deploy FttX networks inside major cities at a cost of SAR 400 million. The networks will extend fibre access across 4,000km to 70,000 homes in Riyadh, Jeddah, Dammam and Al Khobar.
It is clear that data and value-added services are the future, and with the proliferation of smartphones and tablets, operators are poised to take advantage of the growing demand.
Weitao says that operators have a clear advantage to offer value-added services to their customers. Some of the largest revenues for the value-added market in Saudi’s telecom industry could come from entertainment such as music download and streaming, as well as games, for download and online playing. He says that Islamic services are also popular and will do well. Moreover, mobile financial services also have the potential to be another breadwinner.
He said: “Mobile Financial Services are getting more and more popular all over the world, where these services are more prominent as a means to enhance cashless transactions and provide a portfolio of mobile financial services, such as online shopping, balance enquiry, ticketing, electronic transfers and bill payments.”
Whilst these opportunities for the telcos are available now, they need to constantly evolve and provide more than just pure connectivity. Options for customers and service will play a major role in ensuring the success of an operator. With the CITC looking to further increase competition and issue three more MVNOs by 2013, current operators will have to struggle to maintain their customer bases.
Que said: “The introduction of the MVNOs will represent a challenge for the existing operators as well as an opportunity for new players that want to enter the lucrative Saudi market. The key challenge for all players will be to compete in the market without destroying the value in the market since this may put in jeopardy the future investments in the sector.”
Weitao sees more challenges on the horizon with regards to LTE, but at the same time regards it as an opportunity for operators to excel.
He said: “Experts are working in particular to confront three fundamental challenges, namely: the allocation of more wireless capacity, the development of LTE-compatible devices, and how to monetize these new and enhanced services. As we anxiously await the shift to better mobile communication, these challenges are likely to intensify before they are resolved.”
Speaking about the opportunities that Weitao sees in Saudi Arabia, he said that Huawei considers it one of its top markets. “It is by far the largest telecoms market in the GCC accounting for 66 percent of total mobile subscribers, 59 percent of total fixed line connections and 58 percent of total internet users. It therefore is one of our top markets in the Middle East, which we anticipate to continue to grow in 2012. Huawei has launched the region’s first multi-mode solution in KSA which supports both WiMAX and LTE technologies, and has helped Saudi Arabian operators to deploy the region’s first set of commercial LTE networks. ”
Que too sees opportunities in the business segment, where he says more specialisation and targeted value propositions will be required to succeed in the market. His outlook for the rest of the year is positive, but he says “2013 will be a "moment of truth" in the telecommunications sector. We will see how the competitive landscape evolves and as said before, even though the competition increases, we should expect the telecom market will keep growing at a very healthy pace.”
Weitao goes further to explain that the telecoms industry in Saudi Arabia is now ready for the next wave of growth. He explains that the youth-centric and expatriate consumer generation is bolstering strong demand and the surge in internet and mobile broadband is driving the growth of LTE technology as well as smart devices to take advantage of it. He said that there is a need for sophisticated ICT solutions that will provide continuous connectivity across both the consumer and B2B segments.