Getting connected

Saudi Arabia is intent on entering the digital economy. To do this, it has to leverage the internet and create a society that is both comfortable and able to succeed in the online environment. To this end, the Kingdom is currently creating an internet infrastructures encompassing everything from wireless hotspots through to the free internet model and broadband

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By  Matthew Southwell Published  July 24, 2003

I|~||~||~|Wireless hotspots are starting to appear on Saudi Arabia’s internet landscape. Recently, at the Gitex Saudi Arabia exhibition, held in Riyadh at the end of April, network integrator, Al Jammaz, in conjunction with Saudi Telecom’s internet service provider (ISP) business unit, SaudiNet, offered visitors the ability to log on while touring the show floor. Al Jammaz used DataValet software to automatically configure visitors’ notebooks and hook them to the internet using a 54 Mbit/s Linksys wireless area network (WLAN) kit.

“There is a growing interest in what these technologies can do for businesses,” says Samir Lutfallah, sales & marketing manager, Al Jammaz Telecom. “Linsys is the first vendor to bring 54 M/bit connections to the market. This should help push wireless networks into the mainstream,” he adds.

The ease of configuration and connection to the network enabled by DataValet will be vital if WLANs are to gain traction in the hospitality industry.

“Hotels or coffee shop owners are only going to want to operate this service if it is easy to manage. DataValet will help in that process, just automatically configuring people’s machines to the WLAN and letting them browse the web,” says Lutfallah.

AwalNet, the Kingdom’s largest ISP, has also declared its plans to introduce hotspot services in partnership with hotels and coffee shop chains. The service provider has one hotspot pilot operating in the Riyadh Marriott and plans to introduce as many as 30 wi-fi hotspots in the capital by the end of the year.

“There is strong interest from coffee shops and hotels for these kinds of services,” says AwalNet’s general manager, Abdullah Aldubaikhi.
“We’re going to focus on those coffee shops with a branch network, such as Dr Cave and Starbucks, to begin with. We’re also looking to extend these services on to local university campuses,” he adds.

||**||II|~||~||~|Regardless of its aggressive rollout plans, AwalNet’s introduction of wireless internet across the Kingdom’s capital is more of a marketing exercise than it is a revenue generator. The ISP views the proliferation of wireless services as a method to increase the profile of internet services within the Kingdom.
“Hotspots themselves are not going to make a fortune. However, they will help in promoting the internet and making it so pervasive that it becomes a part of a person’s lifestyle,” explains Aldubaikhi.

Whether Awalnet will be able to capture new customers by making internet access ubiquitous in some public spaces is open to debate. It is reasonable to assume that most customers using hotspots will already be familiar with the internet, particularly if they own a laptop or a PDA. “Most new users will not have either a laptop or a PDA, so it becomes difficult to promote internet culture through hotspot services,” says Mohsen Malaki senior telecoms analyst, Central & Eastern Europe, Middle East & Africa IDC.

AwalNet’s service initiative has been co-funded by Intel, which is keen to promote its own Centrino technologies. However, until there is greater penetration of Centrino-enabled machines in the Kingdom, such wireless services are unlikely to reach critical mass.

“We need greater penetration of Centrino machines in the market before such services enter the mainstream,” comments Aldubaikhi. “When wireless capabilities are embedded into notebooks, more users will naturally turn to such services,” he adds.

The introduction of wireless hotspots is at least an attempt at service innovation. In the four-and-a-half years since Saudi first connected to the web, a one dimensional, fiercely price-competitive market has emerged, which has left all ISPs struggling to break even. Only the largest ISPs have been able to develop value added internet services for customers. However, “this market is still all about price,” says executive director of BatelcoJeraisy’s joint venture ISP, Atheer, Yaqoob Al Awadhi.

“There is little to differentiate between ISPs. The gap between many of them is shrinking. This is a price sensitive market, and there is little focus on value added services. All the ISPs are suffering, few ISPs are making a profit… this is still a difficult market to be in,” he adds.

||**||III|~||~||~|The cash-strapped position of the Kingdom’s ISPs isn’t helped by the dominance of the prepaid internet card payment mechanism, which has exacerbated the price sensitive nature of the market. According to statistics, ISPs have to pay anywhere up to 35% of the revenue generated by prepaid cards to their distribution chain.

“The ISPs are sick and tired of the prepaid model,” says Malaki. “They are paying up to 30 or 35% of the card value in commission to resellers. That is really hurting the bottom line and the revenues,” he adds.

There is increasing momentum among ISPs that the Kingdom’s internet market should shift towards a free internet model, similar to the one already operated in Egypt. The free internet cuts out the middlemen distributors by dropping the internet access cost and relies instead on a revenue sharing model between the ISPs and the incumbent monopoly operator, Saudi Telecom (STC). In Egypt, this model has boosted the volume of internet subscribers and witnessed the development of value added services.

A proposal for such a model has already been handed to market regulator, the Saudi Communications Commission (SCC). Also, the National IT Plan team has recommended the migration towards a free internet model to the recently formed Ministry of Information & Communications Technology.

“One of our urgent initiatives is to [introduce] a free internet [model],” says Dr. Khaled Al Sabti, project manager, National IT Plan and member of the Saudi Computer Society.

“The model would allow the ISPs and STC to share the profits, provided that the costs to the consumer is reduced. So that the registration [subscriber] rate increases, but the costs of the individual go down — that is a win-win [scenario],” he adds.

||**||IV|~||~||~|A key player in making all this happen is STC. However, it is being tight lipped on the matter. Currently, the price competition among ISPs has brought the access price down significantly, but costs on the PDTN side remain high. IDC estimates that ISPs collect only 33% of all the total end user spending on the internet in Saudi — the remaining 67% is netted by STC through PSTN charges, broadband line costs and leased line charges. “All STC charges are fairly high. A lot of the cost to the end user goes to STC, not the ISPs,” explains Malaki.

Consequently, any free internet model will impact STC’s bottom line. “Anything that threatens that revenue stream they are going to suspicious of,” he warns.
Theoretically, the Ministry ICT and the market regulator, SCC could apply pressure on STC to embrace the free internet model. But whether they have the political power to apply such a measure remains to be seen.

With market status-quo likely to remain for the foreseeable future, ISPs must develop methods to break out from its vicious ‘price competitive’ cycle. In other local markets, such as Kuwait, the regulator has become heavily involved in the market to manage prepaid card prices. Although Saudi’s internet market might be heading in that direction, it is not a long term solution. Increasingly ISPs must innovate to move prepaid card holders to greater revenue generating services — namely broadband.

Saudi’s early broadband market has suffered infrastructure problems. Initially, as many as 50% of applicants for ADSL services have been turned away because they were more than 5kms from the nearest exchange. STC is attempting to improve the situation with a three pronged strategy. It is reallocating DSL connections to the most requested centres to match demand, adding more DSL connections to the busiest areas and finally building new exchanges. These initiatives should enable STC to double the broadband capacity by the middle of this year.

“STC is exploring technologies to address [the distance restriction of ADSL],” says Abdualla Al Musa, general manager, SaudiNet. “In addition, there are outside plant projects at STC that provide fibre to the curb services that deal with this problem in certain areas,” he adds.

||**||V|~||~||~|However, to increase the level of broadband penetration, both ISPs and STC must start working together to develop cost effective packages for businesses and consumers. Currently, there is still strong demand in areas that have good coverage, such as Riyadh. However, the cost issue is still deterring many. “If they want to allow more users to come onboard there has to be more innovation with the tariff packages for DSL,” suggests Malaki.

Many ISPs should look at what the UAE’s PTT, Etisalat, and Bahrain’s Batelco have both developed a range of broadband packages, targeted at different segments of the market. The packages offer a set amount of time as part of the package and for any usage over that time, the customer must pay an additional fee.

“These services could be easily extended to residential and [small to medium enterprise customers]. These services also help control and manage the international bandwidth costs for ISPs,” says Malaki.

Innovation of the broadband pricing structure could help ISPs break out of the current stagnant market position. Rather than move customers from prepaid to subscription services, ISPs will be better off, moving customers straight to broadband services. “Next year [ISPs] are going to start marketing broadband and prepaid is going to a stepping stone, where subscribers are migrated to prepaid,” predicts Malaki.

A concerted effort to drive internet subscribers to broadband services will bring the local content issue to a head. Despite the constant talk about Arabic content, there is still precious little dynamic, quality, local Arabic content online. Awalnet is planning to take at least part ownership of the content issue later this year when it introduces a comprehensive content portal, says Aldubaikhi. The site, which is due to pilot over the summer, has already got 10 content providers signed up for it.

“Arabic content is a real issue and we’re trying to address that concern,” says Aldubaikhi.

“We’re looking to promote the existing content and bring content providers together and add marketing muscle. There needs to be more dynamic and relevant content and space for expression and feedback. We have to build an online community,” he adds.

||**||VI|~||~||~|Due to its sheer size and involvement within Saudi Arabia’s society, the government apparatus has a big role to play in building the online community. Interactive online e-services could potentially drive consumers and business to the internet.

“The government is the largest part of the economy and citizens tend to interact with government often,” says Malaki. “If the government starts implementing e-government initiatives then citizens would start using the internet to access e-government content. Once the private sector sees people accessing content then that is an incentive to create content and attract [people],” he adds.

Although Saudi has begun developing e-government services, progress is varied, and many services currently lack the necessary level of interaction. Furthermore, few online portals have developed a viable content provider business model. According to Aldubaikhi, it is planning some form of revenue sharing model for its portal.

However, for the market to take its next evolutionary step, it has to shift its focus from competition, based not just on price, but on value. Once that can be implemented there is hope that the internet market will be able to move forward at pace, and not the fits and starts that have characterised it’s first four years of operation.
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