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Saudi telecoms newcomers find a tangled web

In 2007, Etihad Atheeb Telecom paid $139m for Saudi Arabia’s second fixed-line licence, bringing to an end a monopoly enjoyed by Saudi Telecom, the kingdom’s incumbent provider. Customers, frustrated by the slow, unreliable internet service of Saudi Telecom (STC), quickly opted for the wireless broadband services, including voice and high-speed data, that Etihad Atheeb began to provide under the brand name Go in certain cities.

But two years on, a group of young Saudis has organised a boycott of STC, in protest at persistent high prices and poor service, while the newcomer’s managers complain that fair competition remains a far-off goal.

For a new player in the telecommunications sector, success depends mainly on the ability of the regulator to enforce access to existing infrastructure, but in Saudi Arabia enforcing fair competition rules has been weak at best.

“We have a lot of problems with the incumbent operator, and we are not seeing enough actions from the regulator to stop it,’’ says Ahmed Sindi, Etihad Atheeb’s chief executive. “We do not have access to critical infrastructure like dark fibre; we do not have access to conduits of transmission between various cities because the pricing is very high; and interconnectivity has been delayed massively.”

With a young, rapidly growing population and up to 7m expatriates, Saudi Arabia’s telecoms market is one of the most coveted by local and international companies.

Telecoms service revenues have been increasing at an average rate of about 15 per cent annually, according to the Saudi Communication and Information Technology Commission. Telecoms service revenues rose to SR40bn ($10.7bn) in 2006 from SR19.8bn in 2001, but three-quarters of the total came from mobile services.

In 2002 Saudi Arabia launched a $4bn initial public offering of STC as part of official efforts to speed up privatisation of public enterprises. Thirty per cent of the company has been floated, while the rest is owned by pension and social insurance funds.

When the kingdom joined the World Trade Organisation in 2006, it took further steps to open the telecoms sector to competition and invited international operators to bid for the country’s mobile and fixed licences.

In 2005 STC also lost its mobile phone monopoly when Etihad Etisalat, or Mobily, began services. Last year, a consortium led by Kuwait’s Mobile Telecom won a third mobile licence.

But while the mobile market is well regulated, critics say competition rules are not enforced when it comes to fixed lines, in part because of the complexity and also because of a lack of means to enforce rulings. The incumbent can derail negotiations for common use of infrastructure for months, especially in countries where monopoly has been the norm for generations.

Atheeb – whose shareholders include the local Atheeb Group and Bahrain Telecom Company (Batelco) – is not the only operator to have won a fixed line and data licence. Optical Communications, led by Verizon Communications of the US, and al-Mutakamilah Company, which is led by Hong Kong’s PCCW, will join the Saudi market soon.

“It is irresponsible when the incumbent can bundle mobile with fixed data in one offer and the mobile services are being heavily used to subsidise losses of data line,” Mr Sindi says. “If this continues, it means the fixed operators will be driven out of the market. The regulator has fantastic rules, but we need to see stronger intervention to stop these practices.”

STC did not respond to a series of calls and e-mails posing these criticisms.

“STC’s main problem is a huge bureaucracy,” says Hisham Abu Jamea, chief investment officer at Bakheet Group, a brokerage. “They still think they are the biggest; they still have a government mentality; their customer service is bad; their internet service is very slow. They cannot afford it with the new competitors in the market.”

Atheeb says its chances of survival depend on investing in the latest technology to meet the appetite among Saudi clients for high-speed communication.

The company plans to invest SR3.8bn by 2014. In January it launched a successful initial public offering of 30 per cent of its capital, in spite of a downturn in the Saudi bourse. The offering was almost 2.5 times oversubscribed.

“We tried to be creative. We provided a nomadic service where you can take your internet everywhere,” Mr Sindi says.

“The shareholders decided to invest in the latest 4G technology. It will be very difficult to compete with us on this level.”

Источник: Financial Times

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