KSA's broadband potential

Operators in KSA are seizing on broadband as the best means to revive flagging ARPU

Tags: Nokia Siemens NetworksSaudi ArabiaSaudi Telecom CompanyValue PartnersZain - Saudi Arabia
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KSA's broadband potential Saudi Arabia is emerging as a dynamic market for mobile broadband.
By  Roger Field Published  May 27, 2010

Saudi Arabia's telecoms sector is something of an anomaly, with mobile penetration far above international norms at about 190%, while fixed broadband penetration remains well below average for developed nations, at about 42%, according to figures from research firm Value Partners.

But with the country's three mobile operators, STC, Mobily and Zain all offering competitive mobile broadband packages while also testing LTE, Saudi Arabia is fast becoming the region's leader in mobile broadband.

While LTE is unlikely to be a significant commercial force before 2013, Saudi Arabia does already have a 4G operator in the form of WiMAX player Atheeb Telecom, which offers broadband packages with speed of up to 2Mbps, as well as voice services using voice over internet protocol (VoIP).

While the speeds offered by Atheeb might seem limited in comparison with the 21Mbps downlink speeds claimed by Mobily on its HSPA+ network, the service has had a significant impact on the country's fixed internet sector, offering a reliable broadband service without the installation delays often associated with DSL connections.

Another company, Saudi Integrated Telecom Company (Saudi ITC), which won a 4G licence at the same time as Atheeb Telecom, is planning to deploy an LTE network. The company has originally gained a WiMAX licence, but decided to change it to LTE, and is expected to launch by the end of the year or early 2011, according to sources close to the company.

Meanwhile, incumbent operator STC is also progressing with its plan to deploy fibre across the country, and announced last month that it had launched a fibre to the home service with speeds of up to 100Mbps in parts of Riyadh, Jeddah, Dammam and Al Madina.

But it seems to be mobile broadband that has gained most attention in Saudi Arabia in recent months, with Mobily touting its HSPA+ network which is capable of speeds of up to 21Mbps, while STC and Zain are also set to launch their own HSPA+ networks. All three mobile operators have also been carrying out LTE trials that have proven the viability of mobile broadband at speeds of up to 100Mbps.

For Walid Romman, Motorola's country manager for Saudi Arabia, much of this development in the broadband sector is down to the level of competition in the country's telecoms sector, combined with the legacy of a relatively low internet penetration rate.

"Even when we saw mobile penetration moving over 100%, the data penetrations in Saudi Arabia were still relatively lower than other markets in the region," he says.

"Saudi Arabia is also a very large country, the largest in the Middle East in terms of geography and population. With the recent introduction of new operators, all of this prompted a heated competition between the operators to provide niche technologies especially in the broadband arena. That is why we see Saudi is a leader in the region in terms of introducing new tech."

Furthermore, with mobile penetration at about 190%, according to data from Value Partners, Saudi Arabia's three mobile operators increasingly see the need to invest in data services as a means of addressing falling voice ARPU, according to Zoran Vasiljev, a partner at Value Partners.

"This is one of the strategies where they can work on maintaining or even increasing their ARPUs because people are looking at their phones more than putting them to their ears. People are becoming more interested in data experience than voice," he says.

He adds that while Saudi Arabia has a low fixed broadband penetration rate, which is around 42%, HSPA subscriptions have soared and are now among the highest in the region.

The rapid growth of mobile broadband is also evident from 3G subscriptions in Saudi Arabia. Indeed, according to data from Delta Partners, the number of 3G subscribers in the country is expected to more than double this year, from about 6 million users in 2009, to about 15 million by the end of 2010. By comparison, in 2006, there were just 500,000 people using 3G services in Saudi Arabia.

Of these 3G users, the majority - some 3.8 million - were on Mobily's network at the end of 2009, compared to 1 million on STC's network, and 1.2 million with third entrant Zain.

Zain, which was the third mobile player to enter Saudi Arabia back in August 2008, typifies the shifting emphasis towards data in the country. Having launched in the country when the mobile market was already saturated, Zain is now turning its focus squarely on data, according to Ismael Fikree, COO, Zain KSA.

Fikree says that the company initially focused on voice and then after six months launched a "user friendly" broadband package including a "Pay per Day" tariff that allows users to pay as they go.

"They pay for the service for the day they use the service. Those days they don't use it they don't pay. We were the first in the region in KSA to offer this," he says.

Fikree describes competition in Saudi Arabia's broadband sector as being "very aggressive" with three mobile operators and two fixed.

"It is very aggressive competition because of the opportunities we have in Saudi Arabia, and the penetration has not reached to the level if you compare Saudi Arabia with the rest of the GCC region," he says.

"So there is a big play from all of the operators, they are doing a lot of investment, including Zain, to grasp as much as possible the untapped customers.

LTE plans

A key part of the battle for market share in the broadband sector - long term at least - is LTE. While users might have to wait a couple of years before they can really experience LTE and buy LTE-enabled products, the operators are keen to make sure they are ahead of the game, and also to prove to end users that they are at the cutting edge of technology.

Zain KSA, which is working with Huawei, Ericsson and Motorola to build "the biggest trial in the world" for LTE, expects trials to end in the third quarter of the year, when it will decide which supplier to work with for the deployment.

In terms of the timeframe for the deployment, Fikree says that LTE "will not be commercial before 2013." He added that it will take about three years from now for the ecosystem to develop in terms of LTE handsets, bundles and compliance.

"If you look at the mobile industry in general it takes time for new technology to become mature and to see customer premises equipment and terminals in a commercial range," he says.

"As you see, GSM took a few years to become mature, and Zain launched 3G in Bahrain in 2005 and 3G really took over in 2007 and 2008. Three years from today you will see real LTE products satisfying the customers."

But in the medium term, internet users in Saudi Arabia are already benefitting from improved mobile broadband speeds with Mobily having launched the country's first HSPA+ network earlier in the year, and STC and Zain KSA also working to upgrade their HSPA networks.

In terms of 3G market shares, Mobily leads, followed by Zain and then STC. By the end of the year, Delta Partners estimates that Mobily will have 8.6 million 3G-WCDMA subscribers, Zain 3.4 million, while STC will have about 3.1 million.

Data drivers

Bernard Najm, Nokia Siemens Networks' country director for Saudi Arabia, adds that the lack of fixed infrastructure for broadband, and the length of time it has traditionally taken to get a DSL connection have also aided the rise of mobile broadband.

"Last year, to get a DSL line was really a headache because the capacity was limited [...] and the availability of fixed broadband was very limited and the roll out was very slow, so when Mobily introduced the mobile broadband on HSPA and HSUPA it really picked up momentum," he says.

Najm adds that the growth in mobile broadband is expected to be quicker than fixed, which has generally experienced a slower roll out. Mobile broadband is also aided by quicker activation, he says.

"Growth in the mobile broadband would be much stronger than in the fixed broadband. Last year we had about 140% year on year growth but I expect that to be even higher within the next two years, I expect it to go beyond 200% for at least two years and then it might flatten out a little bit," Najm says.

With mobile and fixed broadband subscription growing rapidly, the country's operators, as well as vendors and content providers are actively looking at how the networks are being used, and are also keen to predict future consumption trends.

For Fikree, one of the main reasons for the sharp growth in internet use is entertainment. "Saudi Arabia is a country with a huge focus on internet. The country has limited entertainment services, and internet and sports are the two main elements for the people to really entertain themselves," he says.

Furthermore, the demographics of the country also give room for continued optimism. Fikree points out that the population is "very young" with more than 50% of the population under 24 years old - an age group that is particularly keen on social networking sites and services that use video streaming.

Nokia Siemens Networks' Najm also points to government initiatives such as the Universal Services Fund project, which is intended to help ensure broadband services reach remote and rural areas.

"We are seeing a deployment of up to 4000 or 5000 sites within the next two or three years and the intention is to get the internet outside the main cities," Nokia Siemens Networks' Najm he says.

Regulatory woes

While Saudi Arabia is shaping up to be among the most competitive telecom markets in the Middle East, and many industry insiders speak favourably of the country's telecom regulator, the organisation still comes in for some criticism.

For example there are some doubts about the available frequency for LTE, with Mobily and STC struggling to confirm the issue with the regulator, which could have serious implication for the speeds LTE is capable of delivering, according to Najm.

"Depending on the success of this negotiation, and how much spectrum everybody will get, we could get peak downlink speeds of up to 160Mbps. But if they get only 15MegaHertz this will go down to 100Mbps. It really depends how much spectrum each of them is allocated," he says.

Meanwhile, Zain's Fikree says that while Zain KSA has a "normal" relationship with the regulator, he is disappointed that some regulation, such as that for mobile number portability (MNP), has not yet been implemented.

"The three operators have declared that we are ready technically to implement MNP since 2009, but for more than one year the regulator is unable to force all the operators to implement it on a commercial basis," he says. "We have a very good regulatory body in KSA but the problem is with the execution of the law."

Content drivers

With Saudi Arabia's broadband capacity growing at a frenetic pace, companies involved in content provision are actively looking to grow their businesses in the country. For example, Seachange, a software applications company, has a subsidiary called On Demand that focuses on the broadcast and broadband operator market, and views all of Saudi Arabia's operators as potential targets. The company, which provides video and music content to STC, is looking to bring video-on-demand (VOD) and other on-demand content to broadband operators, including cable and IPTV operators. "To be able to drive content you need a broadband network such as a fibre or cable network or potentially a mobile network with 3G capability or 3G+, so all of those operators become our target. We are in touch with most of them," said Georges Dabaghi, On Demand's general manager for the Middle East. "Operators are now moving to liberalise bandwidth. They are building bit pipes and they want drivers. The driver we see today is mainly from video because of the capacity that it requires. From standard definition you go into high definition, and then into 3DTV and the usage pattern is also moving more to on-demand services rather than something you just sit down and watch."

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