Calling For Growth

Saudi Telecom Company (STC), the biggest country’s biggest telecom operator, is scouring for acquisition targets in the Middle East and Asia and plans to continue to invest in data technology to help beef up its revenue, a senior company official told Gulf Business.

The firm, which has operations in 10 markets, is waiting for the global economic outlook and regional picture to stabilise before investing in new assets or seeking expansion, said Ghassan Hasbani, STC’s CEO of international operations.

“We are waiting until the economic situation becomes clearer in the next few months, that will result in a path on decision making in certain acquisitions and expansions because the global economy now is uncertain,” said Hasbani in an interview in Dubai.

STC, which has mobile, fixed line and internet operations, was bidding for the third mobile license in Syria, but the process was halted by the government, which is busy battling demonstrations against President Bashar Al-Assad.

STC, majority owned by the Saudi government, has over 140 million subscriptions in mobile and fixed line. Besides Saudi Arabia, the firm operates in Bahrain, Kuwait, Jordan, Lebanon, Malaysia, Indonesia, Turkey, South Africa and India via its licenses, units and stakes, according to its website. Indonesia, India, Bahrain and Kuwait are some of STC’s fastest growing markets, according to Hasbani.

In Saudi Arabia, STC competes with Etihad Etisalat, a unit of UAE’s Etisalat, and Zain Saudi, a unit of Kuwait’s Zain.

STC generates nearly a third of its revenues from its international operations and is planning to raise the percentage to 50 per cent in the next three years, Hasbani said

“Every single country in the Middle East has the potential for a new license or for an existing company to sell its assets; the question is when and at what value,” said Hasbani. “There aren’t any processes that are alive today.”

STC’s second quarter net profit rose nine per cent to 2.25 billion Saudi riyals from a year-earlier period, the firm attributed the increase to “strong growth” in fixed line and mobile domestic broadband and higher revenues from international operations.

Telecom operators across the Gulf region are venturing beyond their home turf due to high penetration levels, which in some countries exceeds 200 per cent.

Subscriptions in the Saudi Arabia are forecast to rise by 37 per cent to reach almost 73 million by the end of 2016, from 53 million in 2011, according to Informa Telecoms & Media. Saudi Arabia’s current population is around 25 million.

That’s why operators such as STC and UAE’s Etisalat are pooling investments into boosting their networks for data coverage to carve a bigger piece of the telecom pie.

According to STC’s six-month income statement, net revenues from data services stood at 3.46 billion riyals or 13 percent of the 26.9 billion riyals in net revenue from total services.

“Income will remain voice-dominated for quite sometime, let’s not overrate data as such,” said Hasbani. “Everywhere, voice is the biggest revenue generator, but data is growing very fast and more data usage on the network also supports voice usage.”

The increase in smartphone sales in the region is helping boost data usage. Saudi Arabia is the second-biggest market for BlackBerry smartphones after the UK in the Europe, Middle East and Africa region, according to Patrick Spence, managing director, global sales and regional markets at BlackBerry’s manufacturer, RIM.

But data usage in the Middle East region as a whole remains low compared to other regions, and will take time to reach the levels enjoyed in developed markets.

“The (low data revenue) figures could be skewed by relatively high voice prices. Other mobile broadband prices are also still high, which could be a disincentive for people to take that particular type of services,” said Mathew Reed, senior analyst at Informa in Dubai.

Keen to cash in on the smartphone trend, STC, Etihad Etisalat and Zain Saudi have scrambled to launch the high-speed mobile network service known as long-term evolution (or LTE) in Saudi Arabia.

However, STC does not expect the LTE investment to return a quick profit, given the infancy of the technology in the region and lack of proper infrastructure and handsets.

“We do have plans for LTE in other markets, but we are taking it market by market, depending on demand and depending on availability of spectrum for LTE,” said Hasbani. “It is going to be two years before LTE gains the status of wide market acceptance that is driven by the wide availability of handsets, and wide acceptance of applications.”

However, Reed warned: “To continue to maintain their position and grow does requires a lot of investment in new technology and networks. But it can take some time before those investments pay off because the uptake of some of these new services is going to be small in the short-term or even medium-term.”

Informa is forecasting Middle East LTE subscriptions will rise to nearly 14.6 million by 2016 from 96,400 in 2011.

“A lot of video traffic is eating up capacity while ARPU (average revenue per user) is waning as competition increases,” said Hasbani. “We are not in the business of simply building dump pipes to carry data traffic cheaply or for free. We are approaching it from smart services, where we create classes of services for data usage, that allow everyone to have access to everything, but also allow people who want a better experience to pay more for that experience.”