Saudi telco market: problems are bigger than they appear

Are the revenues really affected by new registration processes and expats’ exit?
Biometric registration continues to cast a shadow on Saudi telco market, Expats leaving KSA, Mobily, Saudi revenues, Saudi telecom market, Unified licence, Zain, Columns

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Increasing the prices of telecom services might be one of the practical ways to counter the declining profits of Saudi telcos, according to market experts. However, it remains to be seen which telco would be the one to set the trend in motion.

The sale of mobile SIM cards in the Kingdom of Saudi Arabia has fallen to its steepest level in five years, according to a report by The Saudi Gazette. Among the reasons that might be responsible, the fingers are pointed mostly at the increasing number of expats leaving the Kingdom, and secondly, the compulsory requirement for biometric registration for each SIM card user.

According to the statistics released by the Communication and Information Technology Commission (CITC), there were 47.93 million active SIM cards in 2016 against 52.8 million in 2015, which is a drop of 4.87 million.

Taking into account the security concerns around issuance of SIM cards, early in 2016, the rule was put in place which made it mandatory to register fingerprints with phone numbers. Some of our regularisation processes have been attributed to the decline in SIM card issuance,” said Faiz Al-Otaibi, CITC spokesman.

Earlier this year, Saudi operator Mobily attributed its loss to the huge costs incurred in implementing government's biometric registration initiative. CommsMEA spoke to industry experts to dig dipper into the state of affairs and the results bring to the fore the various challenging scenarios currently plaguing the telco market in the kingdom.

A leading Riyadh-based financial analyst believes that there has been a slight increase in costs from biometric registration exercise in Q2 and Q3 across all the companies. The impact on the revenue front has been more moderate but among the three companies it has been more noticeable on Mobily.

“Mobily has the lion's share of share of the mobile prepaid market, so they were most affected when labour workers left the country, since they mostly go for prepaid connections,” says Paul Black, director of telecoms and IoT, IDC Middle East, Turkey & Africa.

The other issue that has come into limelight is the mass exodus of expats from the Kingdom. Black believes that to be the main cause of decline in subscriptions and mobile revenues. “More than 200,000 workers left the country. The closing down of one of the top three construction companies in KSA played a major role in this too. As a result, the prepaid subscriptions and the overall mobile subscriptions were hit.” However, some other analysts perceive the situation differently; their argument is that the construction workers did not contribute much to topline and could be of moderate impact only to Zain and Mobily.

One tends to wonder if the grant of unified licences to operators other than STC will effect competition dynamics. Black is of the opinion that the biggest winner of them all will be Zain because Zain had no access to fixed services till this licence was issued. Now they will be able to offer mobile and fixed services to the business community.

However, considering the fact that fixed-line business is too capex intensive, the Riyadh-based analyst doesn’t think the change would be that noticeable since. STC continues to report net losses on profits despite being the incumbent - highlighting the nature of this business. Moreover, enterprises might not really be too eager to change their fixed-line operator easily unless some really exciting value proposition comes to the fore for them. At best there could only be some quick wins by adding easy last mile connectivity for businesses.

Needless to say, declining growth is the main cause of concern because of the saturated state of the Saudi market. According to the Riyadh-based analyst, the key to the recovery is with Zain. It has generally been the aggressive of the lot and others have mostly been followers. So if Zain continues to increase prices – there is some hope of recovery. Also, sale of towers could help lower leverage of companies.

After an eventful 2016, focus on 2017 will be back to retention of customers and innovative packages helping companies boost ARPU. While the disclosures are limited, voice revenues may have stabilised and incremental growth in data is the key hope in top-line growth for companies.

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