Re-aligning the scales

Zain Saudi on the implications of the new unified licence for Saudi telecom landscape
Andrew White, chief strategy and business development officer, Zain KSA.
Andrew White, chief strategy and business development officer, Zain KSA.

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With unified licences being provided to Zain KSA, Etihad Atheeb Telecom and Mobily in addition to STC in Saudi Arabia, the Kingdom's fixed-line sector looks set for heightened competition.

The Saudi government has allowed telecom firms Saudi Telecom Company, Etihad Etisalat (Mobily) and Zain to extend their licences by up to 15 years and offered all three the ability to provide fixed, mobile and internet services.

Zain Saudi Arabia’s licence, originally granted in March 2008, will now expire in January 2047 following the decision. The government will be entitled to 5 per cent of each company’s annual net profit during the extension period. Prior to this, Saudi Telecom was the only carrier in Saudi Arabia with a unified licence. With the other operators now joining in, how will the telecom landscape in the Kingdom change? CommsMEA spoke to Andrew White, the chief strategy and business development officer at Zain Saudi to discuss the implications of this landmark decision on the telco’s revenues as well as from a broader perspective, on the telco services in the country.

White says this is the most important development for the company since its inception. “The direct impact of the order to extend the company’s licence by 15 years lowers the high amortisation charge by SAR 433 million (~ $ 116 million) per year, bringing the company much closer to net profitability.”

He adds: “Through the efforts of the company’s transformation plan, supported by our Board and by the Zain Group, net losses have been reduced from SAR 1,749 million (~ $ 466 million) in financial year 2012 to SAR 972 million (~ $ 259 million) in 2015. To reach the objective of net profitability it was clear that the company needed more than just an operational strategy, however effective that has been. And of course, a reduction in the amortisation charge will help reduce the company’s net losses in future years.”

White believes that the consumers in Saudi Arabia will benefit the most from this decision because it helps the telecommunications sector in Saudi Arabia reach an equilibrium where there are three strong players, competing to offer consumers a wide range of distinct services, all of which offer excellent value for money. “This decision highlights the vision and leadership of the government of Saudi Arabia and aligns closely with the key objective of Vision 2030 to diversify the capabilities of the economy, to increase the participation of the private sector and develop the IT sector.”

Vision 2030 aims to change the nature of the Saudi economy, to become less dependent on oil revenues and to transform into a modern knowledge based economy, where digital services are the norm. Not only is telecommunications a lifeblood industry to any economy, it is a core enabler of the necessary digital services and of a knowledge based economy.

The question that arises is how Zain KSA is enabling the Saudi Vision 2030. White says: “Around 80% of Zain Saudi Arabia’s employees are Saudi. The company offers opportunities for individuals to develop key skills that are essential to realise the objectives of Vision 2030.”

In order to achieve the goals of Saudi Arabia’s Vision 2030, a National Transformation Plan across 24 government bodies has been established. For its part in the National Transformation Plan the Ministry of Communications and Information Technology has ten strategic objectives, which include topics such as making more spectrum available, enhancing broadband services, supporting e-commerce, developing ICT skills and increasing the contribution of the sector to national GDP. These indicate how important the ICT sector is to the overall National Transformation Plan and hence to the successful achievement of Vision 2030.

Zain Saudi Arabia is engaged in an ongoing dialogue to maximise its contribution to achieving the objectives of Vision 2030. “With the new licensing in place, vibrant competition in the telecommunications sector will encourage firms, such as Zain, to employ and develop talented Saudis who will be the ones to create the future wealth and prosperity of the Kingdom. It strikes me that all of my colleagues at Zain Saudi Arabia, whether Saudi or not, have the energy, drive and commitment to help realise the objectives of Vision 2030”, says White.

An important element of the decision is that Zain’s Licence will be upgraded to a Unified Licence. Effectively this means that Zain will no longer be a mobile only operator, but will be licensed to offer other services such as fixed voice and data. Clearly Zain Saudi stands to gain the most from this decision, as to date the company is only licensed to offer mobile services. Of course to offer fixed services one needs infrastructure as well as a licence. So, what’s the level of readiness of Zain Saudi?

White says: “We believe that partnerships with those who have existing physical infrastructure, particularly last mile access to customer premises offer the most economical means for Zain to provide fixed services within the Kingdom. To this effect we have announced that we are in discussions with third parties, such as Saudi Electricity Company, although of course we remain open to partnerships with others to enable Zain Saudi Arabia to build a capability and offer services that will enable the Kingdom’s Vision 2030.

“Our relationship with Saudi Electricity Company has the potential to deliver upon the Strategic Objective of the National Transformation Plan to expand the coverage and density of broadband to the home within urban areas of the Kingdom.”

With the three leading operators licensed to offer all different kinds of services, one can only expect that this will ensure a competitive telecom market in the Kingdom. In this perspective, White says: “An independent economist would still conclude that the telecommunications market in Saudi Arabia is very concentrated, which would be considered an indication that competition is not working effectively. However recent changes such as the reduction of the mobile termination rate in 2015 and again in 2016, the allocation of more spectrum and the recent high order are very positive developments that I believe have already led to more vibrant competition in the market.”

He however hints that there still are many opportunities to increase competition in the telecommunications sector in Saudi Arabia, which will of course be to the benefit of consumers. In particular, Zain Saudi is looking forward to offering its customers an even better mobile data experience as it is allocated more spectrum in line with Vision 2030’s objective to develop the IT sector.

Be it in preparation for Vision 2030, or attempts to keep up with the surge in customers’ demand for high-speed, seamless connectivity all the time, the onus is on the communication service providers to adopt newer strategies to retain their market prominence. Over that past couple of years the global telecommunications industry has been facing a period of unprecedented change, fundamentally customers have chosen to use more of the mobile digital connectivity services offered by our industry, rather than of traditional voice services. Fortunately, customers are still willing to pay the same amount of money each month for these services. As White says: “It is great news for our industry that the gross margin on data services is higher than on traditional voice services. The challenge facing the industry is to migrate our customer’s spend from voice services to data services whilst increasing our overall gross margin and ensuring that our yield per unit of data traffic generates sufficient economic returns.”

The telecom industry is further facing new competitive forces, for example from the over the top (OTT) players who challenge the industry’s core voice revenues. However it remains the case, that only a national telecommunications company can provide the essential connectivity services that enable these applications. “At a national level, consumers choose the telecommunications service provider that has optimised their network to deliver high quality, high speed and high capacity services. And that’s why Zain Saudi Arabia invested SAR 4.5 billion in enhancing its network infrastructure and improving the experience delivered to our customers”, says White.

Like many other telecommunications companies, Zain Saudi Arabia has taken steps to digitise its customer touch points and its customer journey. An ever greater percentage of customer enquiries are now resolved through digital channels. White says: “Just to put this in context, the number of transactions handled by our well established digital self-care portal has already tripled in the first nine months of 2016. Saudi Arabia is truly a digitally connected society, which supports the prospects of success for the Kingdom’s Vision 2030.

“Zain Saudi Arabia’s gross margin has increased from 45% in 2012 to 65% in Q3 of 2016 as the company proactively embraces this fundamental shift occurring within our industry both globally and locally.”

White further adds how along with digital transformation, Zain Saudi has ensured operational transformation too. The company embarked upon its “Winning through Caring” strategic transformation programme in 2013. As a first step of the transformation program it enhanced its network to improve the delivery of next generation digital services, particularly the delivery of mobile video services that have now become the norm for consumers. The second step involved improvement of customer facing elements, such as a refresh of the retail estate, with new propositions designed to closely match the demands of consumers and build upon the company’s strengths in customer service.

The recent decision has significantly increased the strategic options available to Zain Saudi as it takes the next steps to become a strong, digitally focused, third operator, serving all of its stakeholders within the Kingdom of Saudi Arabia.

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