Liberalisation to fuel growth in Saudi mobile market

Subscriptions to mobile services in Saudi Arabia are expected to undergo tremendous growth during 2004, fueled by strong pent-up demand from a large yet under-penetrated addressable market.

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By  Richard Agnew Published  February 9, 2004

Subscriptions to mobile services in Saudi Arabia are expected to undergo tremendous growth during 2004, fueled by strong pent-up demand from a large yet under-penetrated addressable market. Research group, IDC, says the licensing of a second mobile operator by the end of this year and the possible introduction of an virtual mobile operator (MVNO) in 2005 will provide further impetus for market growth in 2005 and beyond. A new report by the analyst house says the launch of mobile prepaid services in 2002 fueled an unprecedented expansion of mobile service subscriptions in Saudi Arabia. In both 2002 and 2003, growth in the number of subscriptions was accompanied by equally rapid growth in voice traffic. However, the addition of new value-added services has lagged behind the growth in voice traffic, mainly because the incumbent operator, Saudi Telecom (STC), has been slow to introduce and market these services, IDC reports. STC, nevertheless, has started to adapt its marketing strategy to the impending entry of a second mobile operator in 2005. Over the past 18 months, IDC says that STC has been focused on rapid subscriber acquisition through the introduction of its prepaid service, which has lowered the entry barrier for lower-spending subscribers and customer without a credit history. The incumbent has also reduced activation fees and deposit requirements. According to the analyst house, STC will likely continue with this strategy while also attempting to enhance its notoriously weak customer care, expand its direct and indirect sales and distribution channels, and introduce new services that present the operator as an innovator and a quality brand. “Due to the impending liberalization of the mobile services market, the incumbent Saudi Telecom is expected to focus on retaining and expanding its market share through streamlining of costs, improvement of service offerings, and targeted tariff reductions,” says Mohsen Malaki, senior analyst, Telecommunications Group, IDC CEMA. “This will be balanced with better understanding and segmentation of the customer base and continued expansion of direct and indirect sales and distribution channels for both contract and prepaid subscriptions,” he adds. By contrast, the new entrant is expected to have a dual focus upon entering the Saudi mobile services market. "The new entrant is likely to leverage the expected high subscription growth rate in the early years of its launch by endeavoring to attract a large number of new customers via prepaid services,” says Malaki. “The new entrant will also attempt to churn high-spending subscribers from Saudi Telecom in order to avoid being pigeonholed as a low ASPS [average spending per subscription] operator,” he adds. Malaki points out, however, that the option of national roaming is not likely to be offered to the new entrant. This means it will have to focus on rapidly building out its infrastructure to expand its geographic coverage—a critical competitive advantage that should help attract high-end subscribers away from Saudi Telecom. IDC believes that the liberalisation of the Saudi mobile services market together with the strong pent-up demand will be the key drivers of growth in subscriptions and spending over the next four years. As the subscription base expands, domestic voice traffic will contribute an increasing share to the mobile voice market in Saudi Arabia. By contrast, international mobile calls are expected to decline as a share of total voice traffic and spending, though they will grow significantly in absolute terms. Because the tremendous growth potential of voice will preoccupy the incumbent and new entrants in the medium term, IDC believes SMS will not become a significant part of overall mobile spending until the end of the forecast period. As for MMS, the government’s restriction on camera phones is a major inhibitor for this service, though IDC believes that this obstacle should be resolved in time for the expected launch of MMS in 2005.

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