Home / STC loses monopoly in Saudi telecom sector

STC loses monopoly in Saudi telecom sector

Saudi Arabia approved on Saturday regulations for the privatisation of its telecommunications sector, marking the demise of Saudi Telecom Company’s (STC) monopoly in the kingdom.

Saudi Arabia approved on Saturday regulations for the privatisation of its telecommunications sector, marking the demise of Saudi Telecom Company’s (STC) monopoly in the kingdom.

“The executive bylaws allow new operators in the telecom sector,” the acting minister of posts, telegraphs and telephones, Khaled bin Mohammed al-Qusaibi said at a press conference on Sunday July 28, 2002.

“STC will be treated like other operators when the market is opened up for competition,” added Al Qusaibi.

The move to approve telecom privatisation regulations comes ahead of the expected year-end initial public offering (IPO), of 30 percent of the government’s stake in STC, or 72 million shares worth 3.6 billion riyals (US $960 million).

The floatation of STC, which was established in 1998, would be one of the biggest in the kingdom. Analysts predict that privatisation will help alleviate economic burdens on the kingdom, which is suffering from anaemic growth, a staggering US $170 billion in debt—equivalent to nearly 100 percent of gross domestic product (GDP)—and unemployment of an estimated 20 percent.

“Two sectors will be open for investment, the land line and mobile telephone sectors,” Qusaibi said. “Public shareholding firms will be set up and offered for subscription,” he added in a statement on the official Saudi Press Agency.

“It still early days, but statements made by the ministry indicate that KSA will open up the telecoms markets as long as there are no foreign operators,” one senior banker at a Riyadh based bank, told ITP.net. “Because of the changes in the telecom sector, and with the right products, we could see major growth in demand for all telephone services,” the banker added.

Brad Bourland, chief economist at Saudi American Bank (SAMBA) told ITP.net, “STC achieved US $1 billion in profits last year, and given that the company has P/E of 10, I estimate it could raise US $ 3 billion in terms of market capitalisation.”

According to Qusaibi, Saudi Telecommunications Authority would be in charge of organizing the sector, which is one of 19 areas that are off limits to foreign investors.

In June 2002, Saudi Arabia mandated Gulf International Bank (GIB) to arrange the IPO of STC before year-end. A senior executive at GIB in Bahrain declined to comment at the time, citing that the bank had signed confidentiality agreements.

The telecommunications sector in Saudi Arabia has been growing by around 30 percent in the past few years, and the kingdom is estimated to have 3.3 million fixed lines and 3 million GSM mobile lines, according to the International Telecommunication Union. After Saudi Arabia, comes UAE, followed by Kuwait, Oman, Bahrain and Qatar.
Saudi Arabia had a leading fixed lines development program in the mid 1980’s, and is back to being the fastest growing market in the region. High demand, liberalisation of the telecom sector, privatisation of Saudi Telecom and private sector participation are sure to change the playing field in the Kingdom.

Thirty percent of industrial giant Saudi Basic Industries Corp (SABIC), the biggest petrochemicals firm in the Middle East, was floated on the Saudi exchange in 1984 by the Saudi government.

“Its unusual for a country the size of Saudi Arabia to be without competition in the telecom sector. With time it is more likely to see foreign players coming into the market,” a senior banker in Riyadh told ITP.net.

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