Global Insight Perspective | |
Significance | The licence will break the duopoly of the incumbent, STC, and Etisalat-owned operator Mobily. |
Implications | Saudi Arabia offers several advantages, including current high ARPU levels (US$35), the largest economy in the region with GDP at US$350 billion, and a comparatively low mobile penetration of 76% that will provide plenty of opportunity for growth. |
Outlook | With original estimates of the licence costing between US$3.0 billion and US$4.0 billion, the US$6.1-billion investment is significantly more than that paid by Etisalat for its "Mobily" brand in 2004, which at the time only had STC as competition. |
MTC, established in 1983, currently operates in 20 Middle Eastern and African countries. It serves 27 million subscribers and has a capitalisation of US$17 billion. The operator competed with eight other bidders for the licence, including Samawat-Bharti Consortium (India, Singapore), Oger Telecom (controlled by Lebanon's al-Hariri family), Digicel-Tawacel Consortium, and MTN Saudi Arabia Consortium & Abdullah Al Rajhi Reliance Telecom (India), and surprisingly fended off Kingdom Turkcel (Kingdom Holding Co. & Turkcell), which is owned by billionaire Saudi Prince Alwaleed bin Talal.
Saudi Arabia is in a phase of liberalising its telecommunications market (see Saudi Arabia: 12 March 2007: Ten Consortia Enter Monopoly-Breaking Bid for New Saudi Fixed-Line Licence). The CICT has also set up a bidding phase for the fixed-line licence, which is expected to be announced in the near future. The liberalisation of both the fixed-line and mobile sectors will make Saudi Arabia one of the most open telecoms markets in the region. With fixed-line penetration levels as low as 15.8% in 2005, the additional licence in the fixed sector is not expected to affect take-up of mobile subscribers; more than anything it will catalyse the mobile market and accommodate future trends in convergence.
The awarding of the licence is still subject to approval from the Council of Ministers. Following approval, the consortium is required to fund 80% of the licence cost within three weeks. The remaining 20% is to be paid within two weeks of incorporation of a joint stock company, anticipated towards the end of 2007. MTC will have to offer 40% of the company to the public following incorporation of the joint stock company. An additional 10% of the shareholding is to be allocated to the Public Pension Agency and the General Organization for Social Insurance, 5% for each.
Outlook and Implications
- Cost of Licence: With nine strong bidders being backed by Saudi holding companies, the initial licence estimates of US$3-4 billion were sure to be beaten. The US$6.1 billion paid by MTC Kuwait is massively over that of what Etisalat paid for its "Mobily" brand for the mobile licence in 2004 in the country. Mobily at the time had the advantages 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 Mobily was preparing for the licence. The CEO of MTC Kuwait, Saad Al Barrack, said MTC and its partners intend to use the Saudi licence to create a company that will invest between US$6 billion and US$8 billion over the first five years of operation
Amongst the strength of the well-backed bidders for the mobile licence, the licence will probably be the last available in the Middle East; thus the cost was always going to exceed the price Mobily paid in 2004. - Regional Presence: This licence will give MTC a presence in the largest and fastest-growing market in the Gulf Cooperation Council in terms of population and the largest economy in the Middle East and Africa; total telecom revenues reached 34.2 billion Saudi riyals (US$9.1 billion) in 2005. 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 covering 494 million people. The cap on penetration level will not be 100%; it already exceeds 100% in other Middle Eastern states including Bahrain, Kuwait, and Israel, and is even up to 120% in the United Arab Emirates.
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 further as internet has not been taken up through fixed line; internet penetration stands at 10%. The service is expected to be switched on in 2008.