We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Wed 7 Jan 2009 04:00 AM

Font Size

- Aa +

Atheeb’s ambition

Compared with its vibrant mobile market, fixed-line and broadband internet have long been laggards in Saudi Arabia's communications sector. But all that could change with the launch of a nationwide WiMAX network. Dr Ahmed Sindi, CEO of Atheeb Telecom, tells George Bevir about his plans to challenge the status quo in the country's telecoms sector.

Compared with its vibrant mobile market, fixed-line and broadband internet have long been laggards in Saudi Arabia's communications sector. But all that could change with the launch of a nationwide WiMAX network. Dr Ahmed Sindi, CEO of Atheeb Telecom, tells George Bevir about his plans to challenge the status quo in the country's telecoms sector.

A word that dominates Dr Ahmed Sindi's conversations is ‘ubiquity'. He wants his company's broadband services to be ever-present in Saudi Arabia, and he knows that a seamless operation is vital to the success of Atheeb Telecom's WiMAX network, which he says he hopes to launch at some point over the next three months.

"One of the critical aspects is to have a ubiquitous service with uniform coverage throughout the main cities of Saudi Arabia. This is a fundamental issue, and this is something that we have realised early on," he says. "We decided to have a quality, good service anywhere you go in the city."

Once the IPO is out of the way we will be launching full commercial services, hopefully within the first quarter of 2009. - Dr Ahmed Sindi, CEO, Atheeb Telecom

Saudi Arabia has some of the highest mobile penetration levels in the Middle East, in the region of 144% in 2008, according to Business Monitor International. However, fixed-line penetration rates actually decreased from 16.8% at the end of 2006 to 16.4% by the end of 2007, while broadband penetration is estimated to be even lower, at 4%.

"The Saudi Arabia market has a lot of potential growth left, even after more than 100% penetration in mobile," Sindi says. "Although the spending on telecoms in Saudi Arabia exceeds US$10 billion per year, the spending per customer is still low when you compare it to Qatar, UAE and other GCC countries, which means there is still room to squeeze more value," Sindi says.

Fixed-line decline

Figures from Kuwait-based Global Investment House put the rate of decline in fixed-line subscribers in Saudi Arabia at 6.9%, from 5.8 million in 2006 to 5.4 million in 2007. Sindi attributes the decline to competition from mobile that is "spilling over" into fixed, following some "aggressive" propositions in the market. But Sindi says Atheeb Telecom will not be a victim of the decline.

We are not offering only the typical fixed-line services, we're offering these services in addition to a portable broadband service.

"The real focus is on portable, nomadic broadband services - that includes VoIP - and this is where the real growth is, and this is where we see a lot of pent-up demand. The penetration of broadband is still very, very low - less than 4% - and we hope to address a pretty good portion of that demand."

Despite Sindi's assertion that Atheeb will address a sizable chunk of the market, he will not be drawn on Atheeb Telecom's subscriber targets. But he does predict that broadband subscriber rates will "double or triple" over the next year.

The room for growth in the Saudi Arabian fixed-line and broadband market prompted a surge of operators and investors to register an interest in the country's second fixed-line licence when it was put up for auction last year.

Along with Atheeb Telecom, PCCW and Verizon both secured licenses, but bids by Saudi Arabia's second mobile operator Etihad Etisalat, South Korea's KT Corp and China Telecom were discarded.

Verizon has since announced that its fixed-line offering in Saudi Arabia will not launch until 2010, and Sindi says that he is "very hopeful" that Atheeb Telecom will be the first new licencee to challenge incumbent operator Saudi Telecom.

Public offering

Atheeb Telecom has 200 employees based in Riyadh and Jeddah, and is backed by Atheeb Group, a wholly-owned Saudi Arabian company with 10,000 employees involved in shipping, hardware and services for the military, real estate and fund investment. Atheeb Telecom also has the support of Bahrain's Batelco, which has a 15% stake in the company and also provides technical support. A further 35% share in the company will be divided between an initial public offering (IPO) and investment in a Saudi retirement fund.

The timetable of the IPO is subject to the Saudi Arabian capital markets authority, and at the time of going to press, Sindi said he thought that it would take place "in the next few days".

The timing of the IPO will have a big impact on Atheeb Telecom, as it cannot launch until it has been made. But current market conditions may not be favourable to raising the maximum possible amount of funds.

"This is something that all fixed-line operators share," Sindi explains. "There is a decree that service provision must be done by companies that would list their shares to the public before operations, so there is a requirement by the authorities that the company must be listed before commercial operations, so this is the issue."

Sindi says that although the markets in Saudi Arabia have been affected by the global credit crisis "the fundamentals of the telecom sector and the fundamentals of the economy remain very positive and we're bullish on the economy. No sector is immune, but it is a sector that traditionally resists economic contractions. Once the IPO is out of the way we will be launching full commercial services."

WiMAX network

At a time when WiMAX appears to be losing ground to rival next generation technology LTE, Sindi says that the roll out of US network Sprint's WiMAX operation in Baltimore and the reaction it generated provided some "heartwarming" results.

"If WiMAX works in a developed place like the US I think the chances are that in a developing country the returns will be even that much more. And we think that this is going to be cheaper and faster than 3G, thus providing our customers with a better value proposition," Sindi says.

"It shows that mobile, or nomadic broadband, has a lot of value even in countries where the penetration, where DSL exceeded 30% of penetration."

He adds: "I can cite today the press release by the chairman of the WiMAX forum that says the euphoria of the early introduction of LTE is not founded or overstated, this came on the wake of excitement that LTE is coming fairly soon, but the chairman of the WiMAX forum says LTE is a minimum of two years away. WiMAX is the only 4G technology that is delivering results right now."

Atheeb Telecom has so far invested 1.3 billion Saudi Riyals (US$480 million) in its WiMAX network, and that figure is set to be increased, but Sindi is tight-lipped about how much additional funding will be ploughed into the network. Whatever the final figure, in pure investment terms, it will face a stiff challenge from rival licensee Verizon, which last month confirmed that it will spend $3 billion on its network in Saudi Arabia.

The availability of devices has been highlighted as a key area in the potential success of WiMAX networks, and Sindi says there is no shortage of WiMAX-enabled devices to satisfy consumer and business users."We have a desktop device that has phone ports, that has Wi-Fi and that has data plugs. There are USB dongles, PC cards and we hope by the middle of 2009 probably some handheld devices, so there is a whole slew of devices that will be available for consumers to access our networks.

Devices are available at very affordable prices now. It is a reality, it is not a discussion. They are available in commercial quantities. We're talking Motorola, Chinese manufacturers, Samsung and Alcatel."

Simplifying communications

Sindi says that Atheeb Telecom can achieve its goal to "simplify the way people communicate" by making sure people have robust, nomadic broadband connectivity available to them wherever they go.

"We have deployed the largest WiMAX network in Europe, Asia and the Middle East. Our coverage of WiMAX in the major cities in Saudi Arabia is very methodical. It is coverage that does not leave blank spots and that is fairly uniform within the city.

This will support the ubiquitous availability of broadband connectivity whether in the office, having coffee, in the playground, in the mall - wherever your daily activity takes you."

Geographically, it is quite a challenge. Saudi Arabia covers an area of 2.1 million sq km - an area slightly more than one fifth the size of the US, with many of its major cities spread across the country.

Although Sindi is confident that Atheeb Telecom will not struggle to reach the coverage targets set out in its licence, the final list of cities that will be covered by the WiMAX network will only be revealed when Atheeb Telecom is "closer to launch."

"We're covering the major provinces, and we will exceed our targets of covering Saudi Arabia. The minimum requirement is to cover three provinces in the first three years, seven provinces in five years and the whole 13 provinces in seven years. We will beat this significantly. And we're embarking on quite a bit of accelerated coverage effort."

Availability and affordability are the keywords in Sindi's description of Atheeb Telecom's approach to network roll out. Although Sindi will not reveal details of Atheeb's pricing structure, other than to say it will be "very competitive", he makes no secret of his desire to target the country's sizable youth market.

"Saudi Arabia is characterised by a young population - more than 60% of the population are younger than 35 years old. Young people have interesting buying habits. They use technology in interesting ways, and that's why we are in business in Saudi," he says.

The size and speed of the network are two areas that Sindi is confident that Atheeb Telecom will perform well in.

Regulator's role

Most new entrants to the market call for a firm hand from the telecoms regulator in order to create what is usually described as ‘a level playing field', and in this regard, the Atheeb Telecom boss is no different.

"There is a lot of competition in the Saudi market, and if the regulator does not come there with strength the chances are you will see a lot of consolidation and a lot of investments will be lost, unless the regulator steps in with clear leadership," Sindi warns.

"I think the challenges going forward are pretty significant and the jury is still out on that. Specifically in how the regulator would actually curb the actions of the incumbent to drop the prices to bundle the services like the fixed and the DSL, to bundle their ISP offering with their voice offering and the continuous reduction of prices that they are taking."

Sindi is unhappy that wholesale prices offered to the new operators are not at a discount to prices offered to consumers.

"The interconnection rates for fixed-lines are actually higher than some of the retail rates offered in the market, and this is something that needs to be looked at and studied. There is still room for strong regulatory action as far as implementation is concerned and as far as ensuring that the dominant players don't bundle their services in such a way that it will be considered anti-competitive."

Price control for the incumbent operator, STC, and any operator deemed to have significant market power, is what Sindi says he would like to see in the Saudi Arabian market.

"We think it is likely to happen," he says. "The regulator has launched an effort to study mobile, fixed, and data service provision market. We await the results of this exercise which hopefully will declare some of the existing service providers as dominant in ISP and also some new service providers as dominant in data service provision.

"The regulator must ask itself, what is it that they require? If they want broadband - especially in the Middle East - if they want broadband to really explode, to offer all of these services so that we develop our region in unprecedented ways, there is no shortcut."

Sindi is confident that the strategy Atheeb Telecom has developed in Saudi Arabia could be replicated in other countries in the region.

"What we are trying to do is prove that this business case works, but you need to have few strategic commitments and you need to have the strategic vision that will enable this type of service to actually be a mainstream service rather than a niche service offered only for a certain limited segment. "We're interested in Egypt, whether through this corporation or through some of our founding shareholders.

We keep our eye on other opportunities, but the focus right now is to make sure that this business model works in Saudi Arabia and delivers the results that we are promising it will deliver."

Local Loop UnbundlingFor Dr Ahmed Sindi, WiMAX was the obvious choice for developing a fixed network in Saudi Arabia. He says the technology has advantages over local loop unbundling because the success of the latter, in Saudi Arabia at least, is reliant on the implementation of fair regulations.

"The first choice was WiMAX, the second choice was the LLU, bit stream access. LLU will work only if the challenger can control the quality of service and if the price and proposition is reasonable: if you take any of these two elements you are finished before you start," Sindi says.

Sindi says the crux of the matter for LLU is pricing methodology. "LLU and pricing of the service has got to be designed in such a way to reflect the costs. We're not talking about the costs the incumbent has paid for their network, that doesn't matter. They cannot pass on their inefficiency to the new operator," he says.

"The devil is in the detail. Regulatory framework is necessary, but not sufficient. The sufficient part is to make sure the pricing and service level agreements are commensurate with the regulatory regime and are actually being enforced in a timely fashion."

Arabian Business: why we're going behind a paywall

For all the latest tech news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Real news, real analysis and real insight have real value – especially at a time like this. Unlimited access ArabianBusiness.com can be unlocked for as little as $4.75 per month. Click here for more details.