Saudicom raises questions about desire for change in KSA

Posted by Julian Herbert Friday, May 28th, 2010

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Two days of presentations and panel discussions at SaudiCom clearly demonstrated that there are lots of great ideas about how the world (or the telecoms market in KSA) could be a better place. Black Swan theories, co-opetition, partnership, new business models and all that highly worthy jazz abounded. But I think anybody could be forgiven for taking it all with a large pinch of salt.

The Kingdom has done plenty in the past decade to liberalise: STC has part-privatised; there are three mobile licensees and three fixed licensees; mobile penetration exceeds 160% and still growing, driven by the sale of mobile broadband dongles and laptops. Fixed broadband penetration has grown by over 30% in the past year.

Scratch the surface of the numbers, however and prospects for the continued growth of serious broadband - by which I mean fixed broadband - are questionable: growth in fixed subscriptions in 4Q 09 ground to a crawl; the licensing of LTE spectrum has been bodged through the award of non-standard frequencies to two of the three recipients; one of the fixed licensees, Bayanat, was acquired by Mobily in 2008, reducing the level of competitiveness which the licence awards were supposed to promote; the other new fixed licensee, ITC, is not yet off the runway and has no clear prospects of so doing in the foreseeable future, with rumours abounding that ITC owes money to the Saudi National Fiber Network and to partners PCCW.

With a fast growing mobile broadband subscriber base, Mobily has no incentive to use Bayanat’s fixed licence to enter the fixed access market. This, together with ITC’s continued absence from the fixed access marketplace means that STC remains the only real nationwide provider of fixed access services. STC has no incentive to invest in the aggressive expansion of DSL (or FTTx) availability or quality, nor to reduce prices or increase entry level broadband speeds. STC behaves as conservatively as every other incumbent past or present, to protect its revenues and massive EBITDA margins and, justifiably, until it is directed to do otherwise by government – by which I mean the regulator – it will continue to do so.

All three mobile operators (STC, Mobily, Zain), four if you include iDEN operator Bravo, gave presentations at Saudicom. From the fixed world, only STC spoke, though ITC and PCCW had people in the audience at least. The glaring hole in the line up was CITC. The regulator, which draws its budget from the operators’ annual fees (a massive 10% of net revenues), was not present to answer the following key questions:

1. how can structural issues in the Saudi Telecoms market, such as evident market failure in the transit and backhaul markets, be addressed?
2. is there really political will to address the incumbent’s dominance of the fixed access market, either by employing tried and tested regulatory instruments such as LLU, or through stringent price regulation (as happened in UAE)?
3. how can barriers to entry be lowered sufficiently to make KSA an attractive target for inward investment in telecoms?
4. is there a real desire to make the future mobile broadband market competitive, by licensing standard spectrum (700Mhz, 2.6Ghz)?

KSA has demonstrated that it wants to do the right things. Since the Kingdom made the first steps towards creating a genuinely competitive telecoms market, I would question whether political will has been sufficiently sustained, either to take real broadband to the mass market or to make the Kingdom the flagship telecoms market which it should, due to its size and wealth, naturally become.