Saudi Arabia — Telecom Update

According to Pyramid Research, Saudi Arabia will continue to attract strong attention in the telecom sector. Pyramid believes that the Kingdom is now on the fast track to deregulation, opening up the country’s fixed and mobile sectors to further competition in 2006, although many expect a lukewarm response by investors to any move made by the CITC in auctioning a second fixed-line license alone due to the dim growth prospects of the fixed-line sector over the coming years.

To expedite the country’s entry into the World Trade Organization, Saudi Arabia has moved up its deadline for issuing a second fixed and a third mobile license from 2008 to year end 2006. In addition, to ensure that foreign players find it attractive to invest in the country’s telecom sector, while issuing these additional licenses, the CITC and the Saudi government may raise the cap on foreign investment. This move would increase foreign investment from the current 49 percent, to 66 or 74 percent. With the latest entrant, Mobily, witnessing an unprecedented response of three million subscriptions in its first year of operation, the entry of additional players will significantly liven up the Saudi telecom sector.

Pyramid Reserach stated that the new players will bring with them improved customer service, newer services and applications, as well as a greater degree of price competition, further improving the prospects of the Saudi telecom sector and increasing teledensity from 66 in 2005 to 81 by 2010.

Pyramid has found that a number of regional telcos, including Egypt’s Orascom Telecom, MTC and Wataniya Telecom, are already positioning themselves to make a bid for the licenses. Other investors expected to bid for the new licenses could be Bahrain’s Batelco, Telefonica, TIM, Telenor from Norway and South Africa’s MTN. In the case of separate auctions for the fixed-line and mobile licenses, UAE’s Etisalat could also make a bid for the country’s fixed-line license, trying to consolidate its position within Saudi Arabia.

Pyramid feels that demand is clearly uncertain for Saudi Arabia’s second fixed-line license. STC had some 3.8 million fixed lines in operation in 2005, translating to a household penetration rate of 80 percent. In order to attract interest, the CITC is currently reviewing the policy options for the scope of the second fixed-line operator, including the possibility of unified licensing, service-based competition, the liberalization of international services and the possible deployment of fixed-wireless technologies.