JEDDAH, 29 February 2004 — Prince Alwaleed ibn Talal, chairman of Kingdom Holding, is now in the process of setting up a consortium of Saudi investors and an international cell phone provider to win the country’s second mobile license.

“We are on the verge of concluding a strategic coalition including at least five Saudi investors in addition to a major international telecommunications service provider,” he told Asharq Al-Awsat, a sister publication of Arab News.

The Communications and Information Technology Commission (CITC) has given until March 21 for Saudi firms to apply for the high-prized license. Candidates for the license must be “a consortium of at least five Saudi companies and a cellular mobile operator,” according to conditions set by the commission in its request for prequalification. “Saudi investors will have at least 51 percent stake in the consortium,” Prince Alwaleed said. He did not mention the name of the international company which he wants to ally with. However, he pointed out that “it is one of the powerful companies” in the sector.

Prince Alwaleed said the new companies would invest billions of riyals in the telecom sector. “It will not be easy to compete with Saudi Telecom Company, which has a lot of experience in the market,” he pointed out.

Muhammad ibn Jameel Mulla, the minister of telecommunications and information technology, has dismissed suggestions that the new licensee would be backed by STC. “The new company will not be part of Saudi Telecom,” the minister told Saudi Television.

According to the CITC, candidates vying for the second license are required to state their commitment to form a Saudi joint stock company. The founding shareholders will be subject to a two-year lock-in period, and 20 percent must be made available for public subscription. The free float must reach at least 40 percent within three years.

The regulator has decided to issue only one 25-year license for the installation and operation of a GSM network. In the fourth quarter of 2006, it will consider issuing an additional license.

Prince Alwaleed said the three-year period between the second and third mobile license was short. “In my opinion it’s a very short period and will not be enough for the second licensee to establish its position in the market,” he explained.

Applicants will be invited to submit proposals for an associated 3G license. CITC will first evaluate the bids for the GSM license, and once it has selected the winner it “may” issue the winning applicant an associated 3G license.

Stringent criteria have also been set for the operator that will form part of the consortium. The operator must control and run a mobile network (or networks) serving at least 1.5 million subscribers, and it must have at least two years’ experience in deploying and operating a greenfield mobile phone system.

It must be listed on its national stock exchange and have a market capitalization of at least $1 billion. It must commit to own at least 15 percent of the new licensee “if and when Saudi laws permit such investment during the licensing period”. The operator will sign a five-year management agreement with the licensee. At the end of the period the licensee will have the discretion to renew the agreement or enlist a new operator.

The requirement for at least five Saudi partners to be involved in each bidding consortium appears to reflect a concern to spread the benefits of the deal around several local business groups. Most of the leading private Saudi business corporations have expressed keen interest in becoming involved in the business ever since the government started the process of ending the state monopoly over the industry.

The first stage was the corporatization of Saudi Telecom. In 2002 it was decided to stage an initial public offering (IPO) of a 30 percent stake. The IPO was well-received, and Saudi Telecom is now one of the largest companies listed on the Saudi stock market. The CITC recently issued a GSM license to Saudi Telecom in order to place it on the same footing as the second operator.

In his interview with Saudi Television, Mulla emphasized STC’s intent to further reduce charges. Saudi Telecom has invested heavily in expanding its mobile business in the past few years and now has some seven million subscribers, giving it a penetration rate of 30 percent of the Saudi population.