Low cost connectivity

Plans are underway to bring the ‘free’ internet model to Saudi Arabia. Spearheaded by the ISPs, the removal of subscription fees is intended to encourage more users online.

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By  Matthew Southwell Published  January 29, 2003

I|~||~||~|Awalnet, Saudi Arabia’s largest internet service provider (ISP) by number of subscribers, has confirmed that plans to provide ‘free’ internet access in the Kingdom are currently in development. Based on Egypt’s free internet model, the plan would see subscription fees abolished and ISPs instead splitting one bill with Saudi Telecommunications Company (STC).

“STC currently charges SR3 per hour [for using the internet] and we want to encourage STC to split the SR3 with us,” explains Abdullah Aldubaikhi, chief executive of AwalNet. “It will be much easier to do it this way,” he adds.

Although the proposal originated from the ISPs themselves — mumblings were heard at last October’s Arab Broadband & Internet Forum — the final decision will rest with STC and the Kingdom’s telecommunications regulator, Saudi Communications Commission (SCC). A formal proposal has yet to be presented to the monopoly PPT, but government level pressure and end user demand could ensure that one would be accepted.

“STC already has pressure on it from the government, the private sector and the public to lower the local call charges... By proposing the free subscription model, the ISPs will allow STC to maintain their current charges while being seen to make a reduction. So, if the ISPs’ plan has both government level and public support, then it is likely that STC will go for it,” says Mohsen Malaki, IDC’s senior telecommunications analyst for the CEMA region.

Further encouragement comes from STC itself. While unwilling to go into details, Khalid Molhem, executive president of STC, says the PTT is always interested in initiatives that allow it to reduce prices for users in the Kingdom

“We give it [the idea for subscription free internet] our full support; ultimately all of us want to see the end user get high quality services at affordable prices,” he says.

Despite this support, it remains unclear when a proposal will be formally made. However, should the plan be approved, it could be quickly implemented due to the existing telecommunications infrastructure in the Kingdom.

“In Saudi Arabia, the telecommunications infrastructure is already there and STC is already collecting charges for the port. Implementing the model would simply be a case of phasing out the monthly access charge and starting to share the revenues… This means that it is just a strategic decision,” says Jawad Abassi, president of Arab Advisors Group.

The ultimate goal of introducing a subscription free model to the Kingdom is to drive up the number of internet users. Currently, the market has stagnated at somewhere around 400,000 subscribers and few ISPs are making a profit. Even Awalnet, which has 100,000 subscribers, claims to have only recently broken even.

“The growth has not been as anticipated,” concedes Aldubaikhi. “We expect that with free internet it will really boom.”
||**||II|~||~||~|Evidence from Egypt suggests that the number of users will increase should the model be introduced. While no official figures are available as yet, bandwidth usage has doubled in Egypt since the model was introduced in early 2002.

“In Egypt, the model has actually worked quite nicely. It has increased demand for internet services in the country and expanded internet usage,” comments Abassi.
Malaki concurs and says the one thing that has held back further adoption in Egypt — the high cost of purchasing a PC — will not be a problem in Saudi.

“The subscription free model will drive further [internet] adoption in Saudi. In Egypt, pricing has held adoption back, because it is still quite high for some segments of the population. In the Kingdom, however, there will not be this problem,” he explains.

The subscription free model will also make it easier for users to get online, as there will be no need for them to purchase prepaid internet cards. This also means that ISPs will no longer have the headache of distributing them, as STC would collect all the bills for the service providers.

According to Aldubaikhi, doing away with prepaid cards would free ISPs to focus more on value added services and infrastructure. However, the removal of the prepaid model would also alter the cash flow of Saudi’s ISPs and there will most probably be a drop in revenue as the new system is introduced.

“With the free internet model the prepaid model will virtual disappear. The one disadvantage of this though is to the ISPs’ cash flow, because with prepaid they get the money upfront, whereas with the subscription free model they get paid afterwards,” comments Malaki.

However, Aldubaikhi believes that any short term drop in cash flow will be offset by a rapid growth in user numbers and internet airtime.

“There will be a period when we have a drop in revenues and then they will shoot up… We will benefit from greater volumes overall,” he says.

However, while a cash rich and subscriber heavy ISP such as Awalnet could survive the initial drop in revenue, it is unlikely that the Kingdom’s smaller ISPs would be able to, especially as many of them still owe outstanding payments to STC for bandwidth.

“The change in cash flow affects the companies with the small profit margins first… Therefore, it is only the ISPs with deep enough pockets to sustain the initial period of heavy competition that will survive,” says Malaki.

Alongside the changes in cash flow, ISPs will also have to ramp up their marketing spend, as this is typically all that separates ISPs in a subscription free environment.

“The expense of marketing cannot be underestimated, as when access costs are the same from all the ISPs it is the marketing that makes the difference. This was certainly the case in Egypt, where all of the ISPs say that they underestimated the amount of money they had to spend on marketing,” says Malaki.

“When you introduce the free internet model the ISP market becomes more about branding than anything else — it becomes a branding game and only those ISPs with deep pockets survive,” adds Abassi. ||**||

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