RIYADH, 26 June 2003 — The main challenge hindering growth in the telecom sector is the high cost of services provided by the Saudi Telecom Company. Also, the regulation of Internet services by King Abdul Aziz City for Science and Technology has discouraged investors.

This assessment was provided at a presentation on “Examining the Market Prospects of the Saudi Telecom Sector” at the Riyadh Chamber of Commerce and Industry last night. It was organized by RCCI’s Internet services subcommittee, whose president, Abdul Rahman Al-Abdul Jabbar, chaired the session.

The speakers were Ghassan Hasbani and Hilal Halaoui of Booz/Allen/Hamilton, an IT consulting firm based in Lebanon.

Al-Abdul Jabbar said some of the Internet service providers (ISPs) who had made an early entry into the market withdrew from it as they did not find the business rewarding enough.

But Hasbani said that despite these challenges the Kingdom’s telecom sector was expected to grow annually by 3.2 percent and penetrate 43,400 businesses by 2007. The IT sector had been posting a 30 percent growth rate annually in the last four years.

Hasbani said recent moves by the government indicated the Kingdom’s determination to forge ahead in the sector despite the challenges posed by telecom companies from the UAE. They were also part of the government’s macro approach to fulfill the requirements for WTO accession.

These were the flotation of 30 percent STC shares on the local stock exchange and making the IPO offering the first and the biggest in the telecom industry. The STC flotation, which was oversubscribed, raised more than SR15 billion from 900,000 investors, up from 60,000 market participants prior to the IPO. The measure underscored the strength of domestic liquidity and market potential to support future privatizations.

Another significant move, Halaoui explained, was the government’s decision to issue five VSAT licenses to STC and four other overseas companies in the latter half of this year. This would enable STC and others to provide the type of GSM services now being offered by the UAE telecom firms.

Al-Abdul Jabbar pointed out that the downturn experienced by the IT industry worldwide also had a negative impact on the investors hoping to establish themselves in the newly emerging IT market in the region. He said that in spite of these various constraints, the Kingdom still remained the largest Gulf market in terms of IT applications, hardware and consultancy services. Even so, he pointed out, the IT industry had not grown strong enough to cater to the various market needs, much less to export the services outside the Kingdom. “So yes, there is consumption on a large scale, but there is not much investment as such.”

It was for this reason, he explained, that IT companies from the Gulf — mainly the UAE — were targeting the Saudi market. Moreover, multinational IT and telecommunications firms had shown strong interest in increasing their areas of operation and investment, especially as the Saudi telecom sector was regarded as the most lucrative sector in view of the growing population and the constant demand for IT services, he added.