On Guard

Mobily’s tenure as the new entrant in Saudi Arabia is set to draw to a close in less than a year, as an MTC Group-backed cellular operator enters the market. Mobily’s pragmatic CEO Khaled Al Kaf discusses with CommsMEA how he believes the Saudi market is large enough for all the players to operate successfully, and how investment in convergence is expected to bear fruit for the Etisalat-backed operator.

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By  Tawanda Chihota Published  April 3, 2007

|~|Al-Kaf200.jpg|~|Mobily CEO Khaled Al Kaf says he is not overly concerned with the entry of competition into the Saudi market as he believes the kingdom has the capacity to absorb a third player.|~|The lead-up to the award of Saudi Arabia’s third mobile licence has left incumbent mobile operators Al Jawal and Mobily out of the limelight, enabling them to shore up their defences ahead of the entry of a new operator. The fact that the MTC Group, having bid the highest amount for the new licence, is the likely new entrant, is an additional strategic consideration the incumbents will have to take on board given MTC’s strong track record of successfully developing networks outside of its domestic market of Kuwait. Mobily, as the second entrant into Saudi’s sprawling mobile market probably has the most to lose from the entrance of a third player, though the company’s CEO, Khaled Al Kaf continues to exude a confidence in his company’s ability to remain successful and progressive despite the tightening of the competitive landscape. He believes that the convergence between wireless and wireline networks, fixed and mobile environments, is the differentiator that will continue to give Mobily an edge over its latest competitor. “Looking to the complete convergence concept is important to us,” Al Kaf tells CommsMEA. “We are looking to be a differentiated company from the third entrant in Saudi Arabia and we plan to achieve this by providing a fixed-mobile convergence solution. So before the end of the year you will see fixed-mobile substitution services Mobily will launch in order to be a market leader,” he adds. One of the building blocks to Mobily’s convergent strategy is its recent application for the fixed line licence, which Saudi Arabia’s Communications and Information Technology Commission (CITC) is set to award in 1H07. Last month the CITC confirmed that it had received 10 applications for the fixed line licence (see table) and that in the coming weeks the regulator would study and evaluate the applications to determine the qualified short-listed bidders. “We submitted the regulation fee regarding the fixed licence, we also submitted our bids for the WiMAX frequency band in order to strengthen our position and provide total mobility with broadband services in the kingdom,” Al Kaf says. “The fixed line licence will be used for the high end of the consumer market, and the SME market, which requires a high bandwidth fibre network delivering speeds of up to 14Mbps.That is where we will be developing high bandwidth technology, over an IP-based technology, over a MPLS fibre network within the metropolitan cities of Saudi for the business sector.” A copy of Mobily’s monthly operational report obtained by CommsMEA, highlights the range of activities and launches the operator is involved in, as the countdown to the arrival of new competition grows nearer. The operator reported 6.45 million subscribers at the end of February 2007, with the number of “3G long-distance video service users reaching approximately 500,000, during the first three months of the launch of the services.” Mobily launched 3G in June 2006, and in September went on to introduce BlackBerry. However, Al Kaf believes more still needs to be done to fully capitalise on the operator’s investment in HSDPA, and believes 2007 will be the year for this to begin to be achieved. He sees a lot of room left for the operator to improve in the way it communicates the benefits of the technology to end-users, and starting in April Al Kaf says a number of product launches addressing high bandwidth data services will start to be introduced by Mobily giving rise to the improvement in the utilisation of 3G spectrum. ||**|||~|Saudi200.jpg|~|Saudi Arabia has a mobile penetration rate of about 70%, and one of the highest average revenues per subscriber of around US$35.|~|Mobily is also looking to expand its presence in the kingdom, not just from a network perspective, but also from the development of its points of presence, reach and channels. The operator is planning to cover 90% of the total populated area of Saudi Arabia, and has already completed the rollout of more than 900 3G and 3.5G base stations. Mobily’s network already covers 16 major cities and regions in Saudi Arabia, with coverage being extended to cities including Dharma, Remah, Auhud, Rafidah and Saraht Abaid recently. The operator’s points of sales, including fully branded, co-branded and retail shops have been steadily expanded across the kingdom, and its seven authorised dealers – Holding House Company, Safari, Saudi Call, Mobilecom, Axiom, AlpMesbah, and Al Haddad – have a network of distributors and sub-distributors located in more than 3,600 points of sale across the kingdom. “We want to expand outside the major large cities and to have our services become more widely available in Saudi Arabia,” Al Kaf points out. Mobily is also playing an active role in getting its financing together. Last month the operator announced it had signed an Islamic financing agreement amounting to around US$2.875 billion in the largest-ever syndicated Islamic loan, in order to fund its rapid expansion throughout Saudi Arabia. Banks involved include Samba, Saudi French Bank with Calyon, Saudi Hollandi Bank with ABN Amro, National Commercial Bank and National Bank of Abu Dhabi. “When we started Mobily about two years ago, it used a short-term bridging loan. That loan was only for one year and then extended for another year. So what we have now done is to arrange mid-term financing based not only on a project basis, but on a corporate financing basis,” Al Kaf explains. He believes Mobily was able to secure a very good deal with respect to the mid-term financing, the majority of which will be used to cover the bridging loan that the operator took out to pay the licensing fee. “The remaining amount will be used for operational requirements, for the expansion of the network and towards acquiring the fixed licence. There is also a condition in this mid-term financing that Mobily will also have a right to receive additional financing of US$500 million in order to develop the fixed licence operation,” Al Kaf adds. In the period since launching commercially in May 2005, Mobily has generated revenues of SAR6.1 billion (US$1.67 billion) to the end of 2006, with profit of SAR700 million after only 18 months of operations, and Al Kaf believes this strong performance has gone some way in helping the operator gain the confidence of financiers. Like most operators facing the challenge of new competition, Mobily is looking to improve its customer care credentials, though Al Kaf has a unique approach to achieving this. He believes the recruitment and retention of the best staff members within the company will translate into the best customer care being offered to subscribers. Thus Mobily is expanding its customer care centre to one of the biggest in the region, and was scheduled to open it at the beginning of April in the eastern province of the kingdom. “So in general I think we are addressing the needs of subscribers - marketing wise, sales wise and customer care wise, and internally by developing retention and good care concepts within the company,” Al Kaf says. According to Mobily’s operational report for February, the number of Mobily staff amounted to 2,453, more than 82% of them being from Saudi Arabia. Training provided to employees totalled 23,222 days, and for the first time the operator opened shops designed only for women. The sheer size of the Saudi mobile market, the largest in the Gulf, offers Al Kaf comfort that three operators will be able to grow their businesses profitably in the coming years. “The market has strong buying power and is more highly penetrated, however, there is still a role to be played by the untapped market,” Al Kaf suggests. “It depends on the strategy of the newcomer. I believe buying power in Saudi, particularly in the youth sector, SME and corporate sector is strong and there remains scope for growth there,” he adds. What Mobily says it will not become embroiled in is a price war, believing there is sufficient room for all three players to grow successfully. “However should the third operator, or any operator decide to embark on a price war, the market may dilute a little bit but we will come to see common sense that it will not be to the benefit of any operator nor the public to drop prices too low,” Al Kaf warns. ||**||

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