Saudi telecommunications grows with a CAGR of 7.1%

A 'pro-competition' regulator, high population growth and attractive demographics would be the key drivers of the Saudi telecoms sector, resulting in a compound annual growth rate (CAGR) of 7.1 per cent, a Dubai-based investment bank has said in its new report.

Al Mal capital in its recent report on the Saudi telecoms sector said that the revenue from mobile, internet and fixed telephone segments in Saudi Arabia will grow 44.4 per cent over six years – from SR45.3 billion (Dh44.3bn) in the year ending 2007 to SR65.4bn in 2013. Competition between multiple players and 'digital natives', meaning people who primarily use services such as mobile phones and the internet will serve as the stimulators of growth of telephony in the country, the report said. The report projects Saudi Arabia's telecom scene over the next six years.

Saudi telecommunications market, the largest in the GCC, is characteriesed by a appreciably high per capita GDP ($15,731, or Dh57,733, for 2007), high mobile penetration (116 per cent in 2007) and growing internet penetration (26 per cent in 2007) and a steady but surprisingly low fixed-line penetration (16.8 per cent for 2007).

Saudi Arabia joined the WTO in November 2009 and so became bound by the WTO agreement on basic telecommunications committing it to provide full market access for its telecommunications services, allowing an increasing level of foreign participation from 2005 to 2008. While 60 per cent of the country's landline services are open to competition, 70 per cent of the other services (mobile and internet) are open to other companies.

Regulatory policies with regards to interconnection and traffic regulation has helped the Saudi telecoms sector prosper and will continue to do so in future, the report said.

"Given the strength of the former incumbent STC, and in order to ensure it did not abuse its dominant market position, a Reference Interconnection Offer (RIO) was drafted by the Saudi Telecom Company (STC).

The STC RIO is reviewed and amended annually, in light of market developments, with the aim of moving the interconnections fees to a long-run incremental cost basis by 2010," it said.

"Overall key regulatory policies are in place, and, with Zain KSA launching services, there is very strong competition in the mobile segment. With the issue of three new fixed-line licenses, there will be competition in that segment as well, which should drive fixed line penetration," it added.

Competition between the players fuelled the growth of Saudi mobile market, Al Mal said. "The Saudi mobile market has benefited greatly from the introduction of competition, with mobile penetration increasing from 40 per cent in 2004 (when there was no competition) to 116 per cent by the year end 2007," the report said. The Average Revenue Per User fell 47.3 per cent as competition grew – from SR189 in 2004 to SR100 by the end of 2007, the report said.

Rising population and demographics of Saudi Arabia, the report said, have also played a role in invigorating the country's telecommunications markets. "While the increasing population is a growth driver, it is the demographics of the population that should have the greatest impact on the telecom sector, with more than 50 per cent of the population under the age of 25. These are the 'digital natives' who have grown up with digital technology such as computers, the internet, mobile phones, cameras and MP3 players. As the 'digital natives' pursue further education, the workforce will become economically self sufficient, they will increasingly use telecoms devices and services. Additionally, more than 28 per cent of the population is estimated to be under the age of 10 and currently use telecom services, thus providing a strong potential demand for the future," Al Mal said.

The STC which is owned 70 per cent by the government is now "feeling the heat" from competitors and its share in mobile, landline and ISP market segments will decline over the years, the report showed. While etisalat of the UAE (through Etihad Etisalat) and Zain of Kuwait (through Zain KSA) are the two other mobile players in Saudi Arabia, three fixed-line licenses have been awarded to firm from the United States, Hong Kong and Bahrain.

The report said STC's mobile market share will deplete to 46 per cent from the current 67 per cent, its fixed-line market share will decrease to 70 per cent from the current 100 per cent.

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