Telecommunications is arguably the most exciting sector in Saudi Arabia, especially when it comes to mobile telephony. Once the sole domain of incumbent Saudi Telecom Company (STC), the mobile segment has become a dynamic, fast-growing and fiercely competitive one, with three operators fighting an aggressive battle for subscribers, revenues and profits. According to the recently released “GCC ICT Infrastructure Report” from Kuwait Financial Center (Markaz), the mobile subscriber base in the Kingdom has expanded 596 percent from 5m in 2002 to 34.8m in the first nine months of 2009, representing a penetration rate of 134 percent. Driving the growth was a combination of large-scale infrastructure investments and the rapid entry of new players, leading to new offerings and an improvement in quality and customer service. The report predicts this trend will continue as Saudi Arabia is expected to account for over 50 percent of ICT spending in the GCC over the next three years. Of the nearly $90bn expected to be spent on ICT infrastructure in the Kingdom by 2012, $67b is projected to be spent on telecommunications. Since it launched its services in 2005, Etihad Etisalat (Mobily) has posted impressive numbers – both in subscribers and profits – and 2009 was no exception. The company posted the strongest growth numbers among mobile service providers for 2009. Mobily's services revenues rose 21 percent to reach SR13.06bn ($3.48bn) versus SR10.79bn ($2.88bn) the previous year. Net income rose 44 percent to SR3.01bn ($804m) from SR2.09bn ($558m) in 2008. Commenting on the results, Abdulaziz Al Sughayer, Mobily's chairman, said in a statement: “The Hajj season was better than expected, with Mobily capturing 52 percent of pilgrims (1.3m of the 2.5m pilgrims) who visited the holy sites. The 3.5G network in and around Makkah saw a 73 percent increase in traffic compared to the previous year.” Mobily closed 2009 with an overall subscriber base of 18.2m, including mobile broadband customers. “Market share increased to 41 percent compared to 39 percent in 2008,” David Murphy, the company's chief marketing officer, told local media. “We expect similar success this year as we have major expansion plans.” One market watcher agrees, as brokerage firm Morgan Stanley raised its price target for Mobily following the announcement and concluded that the company was “well positioned to be a winner in the fight for revenue share in Saudi Arabia”. Legacy operator STC is by no means ready to hand over its title as the Kingdom's market share leader. The company had a mixed year in 2009; revenues rose but income was down. However, STC did manage to cash in on its first foreign investment – its stake in Maxis, a Malaysian telecoms operator – and more international action is under way from the biggest telecoms firm in the region. STC operating revenues reached SR50.75bn ($13.53bn) in 2009 up 6.9 percent from SR47.47bn ($12.66bn) in 2008. Net income for the year fell 2 percent to SR10.82bn ($2.89bn) from SR11.04bn ($2.94bn) the previous year. Mobile market share data for STC was not available but OBG estimates it to be at least 41 percent based on figures from the two other carriers. STC's 2009 figures are unaudited. Contributing to STC's net income for the year was a SR684m ($182m) gain from the November floatation of 30 percent of Malaysia's Maxis Bhd. STC acquired a stake in Maxis in 2007, through its acquisition of 25 percent of Malaysian investment holding company, Binariang GSM Sdn Bhd. Binariang owned 100 percent of Maxis at the time of the STC investment. “It was a wonderful investment for Saudi Telecom,” Muhammad Al Jasser, STC chairman and governor of the Saudi Arabian Monetary Agency, said in a CNBC interview. “It was our first foray into international markets and it's proved to be a very good one.” STC also demonstrated that its first foray abroad would not be its last. Having won Bahrain's third network operating license in 2009, STC is expected to launch mobile services under the Viva brand in Bahrain in the first quarter of this year. STC already operates the Viva brand in Kuwait, where it was the third operator to enter the market shortly after Kuwaiti telecoms giant Zain entered the Saudi market, also as the third operator. Mobile Telecommunications Company Saudi Arabia (Zain) is still finding its financial footing in the Saudi market since launching commercial services in August 2008, although it has made impressive strides in market share. Zain's revenue for 2009 came in at just over SR3bn ($800m) and net loss for the year amounted to SR3.10bn ($827m). Not having a complete set of full-year figures to compare, it is interesting to look at fourth quarter numbers. For the three-month period ended Dec. 31, 2009, the company posted revenues of SR895m ($239m) compared to SR424m ($113m) during the same period the previous year, an increase of 111 percent. Net loss in the same timeframe narrowed to SR657m ($175m) in 2009 from SR930m ($248m) in 2008. Zain claims an 18 percent market share. Zain's figures are unaudited. Not deterred by the initial losses, Zain continues to aggressively go after subscriber market share and invest in infrastructure. While the company currently relies on Mobily's network, according to the Kuwaiti press, Zain is in serious talks to obtain a loan worth between $500m and $600m to develop and expand its network in Saudi Arabia. With the spirit of competition alive and well and billions of infrastructure investment planned, the Saudi telecommunications sector will continue to be an interesting one to watch. As the three operators continue their aggressive turf battle, the winners will be the Kingdom's millions of mobile users. __
