Hub of potential

zoom

MEMBRILLERA: Demand for broadband is a key driver of growth.

Despite increasing competition, Saudi Arabia's telecoms market holds enormous potential for fixed and mobile operators, with low broadband penetration spurring a new wave of investment.

Saudi Arabia's telecoms sector has made huge strides in recent years, moving from a monopoly in 2005 to become one of the region's more competitive markets just four years later.

With the country having added two mobile operators, Mobily and Zain Saudi Arabia to compete with incumbent STC, combined with the recent introduction of three licences for fixed operators, Saudi Arabia's telecoms sector is on course to become one of the region's most
competitive markets.

While mobile services appear to have commanded the greatest attention in the past couple of years with Etsialat and Zain entering the fray, most industry insiders are now turning their attention to the country's pent up demand for data as the next frontier in the market.

With mobile penetration estimated to be in excess of 120%, mobile operators are increasingly looking at 3G and mobile data as being key growth areas, while keeping a close eye on developments in the fixed sector, where three companies are investing millions of dollars developing fixed wireless and fibre networks in the country.

While the mobile sector is saturated, broadband penetration lags behind most of the developed world at about 4%, compared with overall internet penetration of about 22%, according to March 2008 figures from the ITU. Meanwhile fixed-line voice penetration is also in decline, presenting an ideal opportunity for the country's new fixed licence holders to develop converged voice and data services.

Atheeb Telecom, PCCW and Verizon all secured fixed licenses in 2007. Atheeb Telecom became the first of the licence holders to start operations with limited WiMAX coverage to be expanded to the rest of the country through the course of 2009. The company's CEO, Dr. Ahmed Sindi says he sees huge potential for the company's offering of fixed voice combined with "portable" data services.

Atheeb Telecom's rivals, PCCW, which is expected to roll out a network using WiMAX technology, and Verizon, which is planning to deploy a fibre network in 2010, have been less vocal about their plans.

Milan Sallaba, partner, Oliver Wyman, sees most potential in Saudi Arabia coming from data. "The main opportunities today in the Saudi market appear to centre around broadband potential and growth opportunities that a young population with latent demand provides," he says.

"With new licenses being awarded in the fixed sector, a key opportunity in the Kingdom lies in broadband. The three recent fixed-line licensees plan to significantly shake up the market and they are expected to differentiate their offerings."

Sallaba added that the two WiMAX licences could help to "substantially boost" growth of broadband connections in the country owing to improved coverage and broadband speeds.

"Mobile broadband is expected to grow faster than fixed going forward, as it has several advantages for Saudi consumers: it is cheaper and easier to activate, and meets most user's current bandwidth requirements. The overall growth potential is high, as current broadband penetration sits below 10% of population," he adds.

Federico Membrillera, partner, Delta Partners, also sees huge potential in the broadband sector. He says that much of the demand is likely to be driven by demand for entertainment from young people.

"The demand is there. The internet plays a very relevant role by opening up the country to the world and there are not that many limitations in terms of what you can download and so on," he says.

Membrillera believes wireless broadband is the best option for operators. He points out that while the country is large and the population is quite concentrated in the main cities, there are also significant numbers of people living in more remote areas in the North and South of the country who could also benefit from wireless technologies such as HSDPA, WiMAX, and eventually LTE.

In terms of the type of technology that is being deployed by the fixed operators, Membrillera thinks that a "question mark" remains over the maturity of WiMAX, and that it could take another 12 months to see whether the technology will be up to the standards demanded by users.

Meanwhile, a potential barrier facing fibre is the length of time it will take to deploy. "It's going to take a long time, there are several operators deploying fibre but it is something that takes years - 10 to 15 years - to have well developed fibre network.

"The main benefit of launching fibre is that you can deliver broadband, voice, and IPTV, but most of the households in Saudi Arabia already have entertainment services through satellite," he says.

But ultimately, there is likely to be room for all types of broadband technology given the rapid growth of the sector and the diverse needs of users.

Content is king

While Membrillera still sees a "question mark" over the maturity of WiMAX, he agrees that the most important component of broadband is content, rather than the medium through which it is delivered.

"For me the biggest opportunity is this, once the connectivity which is the bread and butter is properly installed and developed across the Kingdom, then I think there is a lot of money to be made on the entertainment side," he says.

"Once the connectivity side is done - and the wireless technologies can play a role - there is a window of opportunity to capture the market, then whatever you put on top of connectivity, for example entertainment, it can also be extremely profitable because again there are not that many ways to have access to the outside world, and affordability isn't an issue in the country."

As one of the people involved in the roll out of infrastructure to provide telecoms services, Walid Roman, Motorola's country manager, KSA, agrees that content will be vital to the success of both fixed and wireless broadband. "I would say that data-based technologies such as broadband there is a huge amount of potential growth, both in mobile as well as fixed and all of the applications around this, triple play applications, mobile TV and so on."

Ringing the changes

The emergence of Atheeb Telecom and the continued growth of mobile data services from the mobile operators is already having a positive impact on the market, according to Sallaba. "Arguably, we are already seeing early signs of a shakeup in the Kingdom, as STC recently announced major price reductions for fixed broadband, slashing prices in some cases in excess of 50% for common connection speeds," says Sallaba.

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM