With a population of 29.6 million and a high ARPU, Saudi Arabia offers the telecom sector an opportunity to grow in the coming years. The population is very young, with around 29% under the age of 15 and a median age of 25, an important figure to consider telecoms penetration for the country. Saudi Arabia Jawraa Lebara, which is working with Etihad Etisalat, and Axiom Telecom, with Zain Saudi, are the two MVNOs that are operating in the country. A new MVNO was announced in September 2014, Virgin Mobile Middle East and Africa will launch its services with STC.
“I expect Virgin to have a very big impact on the market. Firstly, because of the strength of the Virgin brand and it’s track record in the telecoms industry. With most of KSA being pre-paid customers, recent surveys suggest over 85%, this will be Virgin’s main target where it has already been in other countries. Also, an aggressive pricing strategy will almost certainly be on the cards — which is exactly what happened when Vodafone launched in Qatar back in 2009. In terms of opportunity, although Saudi Arabia has such a large population it also has a very high mobile penetration rate and with three operators already in country it will be a big challenge” said John Armstrong, managing director at JCA Associates.
According to Riad Hartani, partner at Xona, the MVNO would augment the telecom eco-system by targeting specific market segments that would otherwise not be optimally served by existing mobile operators during the first phase. “Over time, the offered MVNO services would evolve into setting the benchmark for services to be offered by other operators, creating as such a richer offering to end users,” he continued.
The telecommunications market also witnessed another important announcement at the end of 2014, as Saudi Arabia's bourse regulator launched an investigation into Mobily, after the telecoms firm restated a year and a half of its earnings, months before the Kingdom is due to open its stock market to direct foreign investment.
“This has affected my company directly as we have been working with organisations that partner Mobily in KSA so its knock on effect has hit home loud and clear. It’s obviously going to affect some companies more than others. On the other hand, there are often delays in projects in KSA and the wider region so we can’t say that this is the first time something like this has happened and it probably won’t be the last. Mobily still have ambitious growth plans in wireless and broadband and all indications are they will pursue these areas aggressively on completion of the findings of the audit,” commented Armstrong.
According to Hartani, it is not clear at this stage that Mobily financial errors are impacting the telecoms sector in the country. “If this is an error that is an isolated event, it shall not impact the market negatively,” he said.
“The situation with Mobily has led the market to adjust its growth and profitability expectations of Saudi Arabia operators. Moving forward, investors will further scrutinise reported and projected growth. As for customers, no current or expected impact to the quality or variety of services has been seen,” said Abdulrahman Addas, partner at Bain & Company.
According to IDC, spending on ICT products and services in Saudi Arabia will increase 4.6%, year on year, in 2015, to total $36.95bn.
“Government is promoting ICT via various ways. This would include evolving the regulatory environment to develop a better competitive environment, funding of ICT incubators for technology development, developing smart and digital city zones are some relevant examples. Operators form part of the value chain in all these initiatives, as solution providers or direct customers,” said Hartani.
Analysts consider ICT one of the growth opportunities for the telecoms sector. “There is a huge amount of investment and a lot of exciting projects being led by the government, and if you look closely probably the most important of any major construction or infrastructure project in the Kingdom is the technology behind it. This is one of the main reasons why traditional hardware vendors are now buying software companies to complement their product portfolio with the technology that makes smart systems a reality. The operators themselves will also have their own plans, with STC leading the way and its competitors not wanting to fall behind,” said Armstrong to CommsMEA.
Other future investments in the telecoms sector in Saudi Arabia involve data centre, cloud offerings and converged and smart solutions for government and business customers.