Global Insight Perspective | |
Significance | The operator will finally compete with Etisalat and STC. |
Implications | Mobily has already taken a significant portion of market share and mobile penetration is significantly higher now compared to when Zain first won the licence. |
Outlook | Zain is one of the few operators that will be able to provide very competitive services in Saudi Arabia, but current market conditions mean it will have to compete heavily on products and services, not just price alone. |
Zain will be the third mobile operator in Saudi Arabia after it launches on 26 August 2008, according to Reuters, competing with the incumbent, STC, and Etisalat's Mobily. The operator won the licence in March 2007 when it operated under its old brand MTC, paying one of the highest licence fees in the region so far of US$6.1 billion (see Saudi Arabia: 26 March 2007: MTC Kuwait Wins Third Mobile Licence for US$6.1 bil.). The launch is slightly off schedule as it was originally planned for June 2008; however, the operator will launch prior to the festival of Ramadan during which it aims to tap new business.
The operator will launch in a market that has seen significant progress since Zain won the licence in March 2007. Back then, mobile penetration stood at 78%, but at the end of 2007 it had risen to 114.7%. Mobily has been operating in the country for almost three years now and has competed well with STC to take a market share of around 40%. Both STC and Mobily have launched 3G services and provide significant coverage across the country. While mobile penetration is now relatively high, ARPU levels are still among the highest in the region of around US$50 per month.
Outlook and Implications
- Cost of Licence: The US$6.1-billion cost of the licence is significantly higher than that paid by Etisalat for its "Mobily" branded mobile licence in 2004. At the time, Mobily had the advantage of only having to compete with STC and a widely available market share—mobile penetration was 32% and 41% in 2003 and 2004 respectively, the years in which Mobily was preparing for the licence. However, the licence is among the last available in the Middle East, making it very desirable from an investment and strategic perspective.
- Regional Presence: This launch will give Zain a presence in the largest and fastest-growing market in the Gulf Cooperation Council in terms of population, and the largest economy in Middle East and Africa. The operator has already made significant investment in growth markets in Africa, which have a higher customer base. However, greater revenue has come from its Middle Eastern operations, where it has a presence in Kuwait, Jordan, Bahrain, Iraq, Lebanon, Sudan, and now Saudi Arabia. The licence will give MTC an increased total footprint of 494 million people.
- Penetration Levels: Saudi Arabia has already exceeded the 100% penetration mark, but while this is typically a sign of a plateauing market, many other Middle Eastern markets have far exceeded this point. Bahrain has a penetration level of around 148%, while the U.A.E has a massive 172% and could hit the 200% mark by the end of the year.
- Outlook: With mobile having substituted fixed line for a few years now and with a relatively young population (58% of the total population is below 25 years old), Saudi Arabia is a fast-growing and attractive market. The roll-out of 3G services is expected to stimulate growth in the mobile sector. In Zain's other markets it has been a leader in 3G applications and services, and is of course expected to provide services on a par with, if not better than, Mobily and STC. While the entrance of a third player should see prices fall, Zain will be able to compete on products and services, which are significantly better than other operators, so a massive drop in ARPU is not expected in the initial stages of launch.