By Greg Wilson
Three of Saudia's largest ISPs have merged. As a result, the new entity boasts a huge share of the kingdom's Internet market and a plethora of services.
I|~||~||~|The Saudi Internet service provider (ISP) market has undergone upheaval with the merger of three of its biggest players — Al Alamiah Internet & Communications Company, Al Faisaliah Group’s ISP business unit, AlwNet, and Naseej. The as yet to be named ISP superpower has laid claim to leadership of the Kingdom’s consumer and business Internet markets with approximately 25% market share and 100,000 subscribers.“Between Al Alamiah, AlwNet and Naseej, we will have the biggest customer base in the Kingdom. We will be almost double the size of the nearest ISP,” says interim chief executive officer (CEO), Dr. Badr Al Badr.“Together we are going to have something like 25% of the local market, we will have the biggest bandwidth connection and obviously the best of the three teams are going to be joining the new organisation,” he adds.The merger has been driven by the need to generate critical mass in terms of subscribers. The Saudi ISP market has always been characterised by high operational costs — mainly due to the tariffs that ISPs have to pay to King Abdulaziz City of Science & Technology (KACST) and telecoms incumbent, Saudi Telecommunications (STC) — and the low margins stemming from an overcrowded commodity service market. The financial dynamics have resulted in nearly all ISPs failing to make a profit. “With low margins the need for economies of scale becomes more urgent,” says Jawad Abbassi, president, Arab Advisors Group. “When your profit margin is very low on a service you need as many accounts as possible. This is the driving [factor] behind the merger,” he adds.The newly formed ISP is also able to command a larger bulk discount when purchasing bandwidth from KACST. Although pending price cuts from STC and KACST will reduce this advantage the new ISP will be able to leverage its financial weight to buy more bandwidth at a lower price than its rivals. "We are also consolidating our bandwidth purchasing," says Dr. Al Badr.The critical mass in terms of revenues, infrastructure, bandwidth and subscribers should put the merged ISP in a position to expand its services into more profitable areas. Before the merger each of the three ISPs had their respective strengths — Al Alamiah was strong in hosting services, AlwNet had a large base of leased line customers, while Naseej was one of the leaders in the consumer space. The ISP superpower intends to leverage on its areas of expertise to deliver ‘innovative’ services. “Merging the massive resources and expertise of these three organisations is essential in order to invest in the future. That means taking this into new grounds and developing new services,” says Dr. Abduljarbar Abduljarbar, CEO of Naseej and head of Advanced Business Systems.“We’re going to offer far more value added services and far [greater] quality of service. We’re going to be investing more in the customer support services,” he adds.Before the newly formed ISP can deliver value added services, it first has to complete the integration of three separate ISP infrastructures and existing services. Topping the agenda is the consolidation of the different points of presence (POPs) throughout the Kingdom. “These ISPs need to try and leverage their combined regional reach,” says Mohsen Malaki, senior telecoms analyst, Central & Eastern Europe, Middle East & Africa IDC.“[The new ISP] needs to consolidate the networks and points of presense, allowing them to offer national roaming, where the same subscriber in Riyadh can go to Jeddah on a trip and use the POP in Jeddah instead of dialling into Riyadh on a long distance call,” he explains.According to Dr. Al Badr, the ISP superpower has already appointed a ‘world class’ consultant to work on the integration of the different data centres around the Kingdom. “Our geographical coverage is going to be much bigger. We’re now going to have points of presence in all the key areas,” he says.Further integration work will also consolidate the customer information that each ISP has gathered in three years of operation. However, the ISP is making a point of minimising the impact on its customers. “It is important to take [great] care because we have made a commitment to our customers that they will see only improvements in the quality of services and customer care,” says Al Dr. Abduljarbar.||**||II|~||~||~|With the ink barely dry on the ISP agreement, there is already speculation that further market consolidation is likely in the coming weeks, as other Saudi ISPs attempt to secure their positions. The new ISP giant has already invited other ISPs to join it. According to Dr. Al Badr, three ISPs in the local market have shown a keen interest. “Our business plan calls for acquiring others ISPs… we are very growth orientated at this company,” says Dr. Al Badr.Adds Jawad Abbassi, “this will trigger more consolidation, like we have seen in Jordan, Lebanon, and Egypt. We have a situation where the margins will go down further and the ones that will survive are the ones with volume, meaning the ones with big accounts or subscriber bases. The smaller ones will reach liquidity crunches that will result in either closeure or acquisition,” says Abbassi.Further market consolidation could be driven by STC and KACST, if and when they become more aggressive about collecting long overdue bandwidth tariffs from some of the Kingdom’s smaller ISPs, says Dr. Abdullah Al Musa, CEO of STC’s Internet business unit, SaudiNet.“We can expect more mergers by the end of the year… The merger is a good thing for the whole market. Consolidation will drive the quality and quantity of services in the market place and that can only be good,” predicts Dr. Al Musa.Although still one of the largest ISPs in the Kingdom, it is unclear whether SaudiNet will merge to preserve its market position. The ISP claims to hold 11% market share, but it is unlikely to buy any market rivals any time soon. “SaudiNet will consider any opportunities for a potential merger,” says Dr. Al Musa. However, working out the logistics of such a deal would prove complex and time consuming because of the ISP’s STC connection. “It is easier for the other ISPs to do possible mergers because there are less [parties] involved,” he adds.Atheer, the joint Batelco/Jeraisy ISP venture, which up until the merger announcement lead Saudi’s ISP market with approximately 70,000 subscribers, remains confident of its market opportunities. Although the new market challenger may have the edge in subscriber volume, Atheer is claiming to still offer the most comprehensive Internet coverage and broadest range of retail and corporate value added services. As Atheer gears up to assault the corporate market afresh the ISP is leveraging on its trump card — regional service coverage. “We already have economies of scale, we already have reach across the region through Batelco’s other ISP business units,” says Atheer’s executive director, Rashid Al Snan. Over the last 18 months, Batelco, Bahrain’s PTT, has made several strategic investments in numerous ISPs in Egypt, Jordan and Kuwait. However, the service provider now intends to begin leveraging services across all its ISP business units.Gitex Saudi Arabia witnessed the launch of Batelco initial pan-Gulf service in the form of World Cup prepaid SMS cards that will send users SMS updates on World Cup results. However, more corporate services are due to follow in the near future.“Regional roaming will come soon,” promises Al Snan. “We’re already talking to multinational companies about the services that we can offer them across the region…. Companies will be able to sign up with us and have services in all these countries,” he adds.Just how many ISPs will be left standing and how quickly further market consolidation takes place still remains a matter of some debate among the ISPs. However, with price cuts of as much as 45-to-50% from STC and KACST due soon confidence appears to be high that the Kingdom’s ISP market is maturing and that the market will witness the all important improvement in services.||**||