Three major Saudi ISPs to merge

Naseej, AwalNet and Alamiah.net, three of Saudi Arabia's largest ISPs, have just agreed to merge, according to a source close to the companies.

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By  David Ingham Published  April 3, 2002

Naseej, AwalNet and Alamiah.net, three of Saudi Arabia's largest ISPs, have just agreed to merge, according to a source close to the companies.

The merged company will have a combined customer base of an estimated 75,000, around a quarter of Saudi Arabia's existing Internet subscriber base.

Sources have been predicting the merger for weeks, but only last week Naseej was still denying that a marriage was imminent. “Maybe there have been discussions between the chairmen of ISPs, but there is nothing on paper,” Turki Al Toaimi, marketing manager at Naseej, said then.

The size of the merger is a surprise, but consolidation between Saudi's ISPs is seen by analysts as vital if the industry is to survive and even prosper. Since the internet was switched on in Saudi Arabia in 1998, ISPs have protested bitterly about the high prices they have to pay Saudi Telecomms (STC) and King Abdulaziz City (KACST) for the local and international bandwidth needed to run their services.

“Still, we are paying very, very high costs to STC and KACST," says Rashid Al Snan, chief executive officer at Atheer, the joint venture between Batelco and Jeraisy. "I would challenge any ISP if it said it made a profit last year.”

However, ISPs can obtain bulk discounts on bandwidth bought from STC and KACST. Consolidation, therefore, would allow ISPs to reduce their cost structure and give them a better chance of achieving profitability.

Further merger activity therefore seems inevitable. TriNet and Dallah, both based in the Western region, are reported to be talking. Atheer freely admits it is looking to take over companies, but only on the right terms.

“We’re still talking to a number of companies, but nothing is confirmed yet,” says Al Snan. “The process takes time. You try to enter into a win-win. You cannot enter a merger and then find you have problems.”

Abdullah Q Shahin, financial analyst at Communications Development Corporation, an investor in IT companies, confirms the need for ISPs to ‘bulk up.’ “You need volume to make money,” he says. “What you’re interested in as an ISP is customers.”

Shahin predicts that large family companies that got into the ISP business when it was a buzz sector will increasingly be prepared to simply sell off these non-core and unproductive divisions. “These big groups ended up with ISPs because it was a fad, and now, three-four years down the line, they’re not interested any more,” he says.

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