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KIRKALDY: Operators must re-evaluate revenue generating services.

With Saudi Arabia's two leading mobile operators, STC and Mobily increasingly battling falling ARPU and rising competition following the entry of Zain into the market in 2008, all three operators are now looking to offer more innovative services to gain and retain customers, and revive revenues.

"The main challenges facing operators in Saudi are the beginning of market saturation, contracting margins, and increasing churn pressures," Sallaba says. "High penetration and geographic dispersion have also recently started to constrain growth."

Sallaba adds that to counter this, operators will need to be "increasingly innovative" and up-sell to create additional revenue opportunities with services such as BlackBerry and iPhone at the top of the value chain, while also offering innovative pricing packages and value added services to customers across the value chain.

Indeed, 3G and 3G+ services are one area of growth potential for mobile operators, with 3G penetration relatively low. For example, Mobily revealed that 300,000 subscribers has signed up for HSPA (high speed packet access) broadband in the last eighteen months since it launched the service in mid-2007. 3G services can also give operators scope to include additional value added services.

But aggressive pricing packages can also create problems if they are not properly considered, according to Sallaba. "Extensive mobile promotions and price reductions both in fixed and mobile services result in likely margin squeeze across the board. In a context where additional top-line growth could be restricted, this may become a serious challenge. To protect value, operators are required to be increasingly thoughtful about their promotions and pricing, and more rigorous on general cost management," Sallaba says.

He adds that churn rates have increased significantly over the last three years and "may become a major concern for the market" as new competition and promotions have spurred Sim card replacement and certain users appear to have started switching between Sim cards purely to make use of the latest offer.

"As a result, operators are advised to more closely manage their churn numbers, as well as tightly controlling their acquisition and retention cost to minimise an otherwise adverse bottom-line impact," Sallaba says.

A further challenge that faces the mobile operators, and STC's fixed line operation, is VoIP. While VoIP services may help ISPs by giving consumers, and particularly expatriates, a strong reason to take a broadband connection it can further erode revenues for traditional operators.

As Noel Kirkaldy, director of wireless broadband for Motorola Home & Networks Mobility in Middle East says, part of the challenge for operators is to take a "different stance" in terms of their revenue.

"We are starting to see disparity between voice-based focus of the industry and ever decreasing ARPUs, and the potential of the VoIP cloud hanging in the background and how they handle that, as opposed to realising that operators need to move into new forms of revenue such as dual play, which is voice and data, and triple play which is voice, data and video.

"People realise they need to take a different stance from a voice focus to move into broadband and then into the video side, which is starting to have a major effect on all telecoms operators. It is not just media and telecoms, it is all one with the various technologies," he adds.

"Voice traffic has risen exponentially in the past two and a half years, we have seen it in regional markets like KSA. Two issues, one is the ecosystem the cost of the devices as well as the liberalisation that has really taken effect and KSA is a classic example going from 2-3 operators."

But while the mobile sector presents its share of challenges to operators, it is also clear that there remains plenty of potential. Aside from having a population of more than 28 million people and GDP per capita of some $20,700, Saudi Arabia also has a large population of young people and a steady inflow of expatriates.

"The mobile side is definitely an opportunity," Membrillera says. "It has been a huge business and will continue to be a relevant business for several reasons, some of them linked to social elements and others to the economic development - it is a country that is still pumping in people, there is a lot of growth in front of the country and telecommunications is a basic need."

The "social elements" that Membrillera refers to mainly concern the perceived lack of entertainment available in Saudi Arabia, which leads to people having more disposable income to spend on telecoms. "Telecoms covers a social need, it gives some freedom," he says.

The importance of branding and the aspirational value of telecoms was partly demonstrated by the success of Zain. Since the Kuwaiti mobile operator entered Saudi Arabia's already saturated mobile sector in August 2008, it has managed to take a 10% slice of the market, with what Membrillera describes as "quite healthy ARPU."

For Membrillera, Zain's ability to attract customers also shed light on the importance of branding in a country like Saudi Arabia, demonstrating the need for operators to differentiate themselves.

"The brand has a lot of attributes, it's fresh, it's new, it's aspirational and that is something that is properly crafted," he says.

"They have managed to capture the attention of the Saudi market and on top of this they have launched something which works which is quite basic.

"But if you compare this to the Mobily launch: Mobily launched when the market was less developed, but it was not to the level of what Zain did."

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