September 18, 2012 / 4:45 PM / in 5 years

UPDATE 1-Saudi's Mobily positions for telecom liberalisation plan

(Recasts, adds details, quotes from CEO and analyst)

By Angus McDowall and Matt Smith

RIYADH/DUBAI, Sept 18 (Reuters) - Saudi Arabian telecom group Mobily has signed agreements with several third-party operators, aiming to secure market share ahead of a planned market liberalisation that will intensify competition in an already saturated sector.

Like its rivals Saudi Telecom Co (STC) and Zain Saudi, Mobily - formally known as Etihad Etisalat - needs to link up with one of the so-called mobile virtual network operators (MVNOs) which will be licensed to operate under a regulatory change set out last December.

Such MVNOs lease excess capacity from conventional operators to offer telecom services, looking to win customers to their own brand but whose business contributes to the underlying network provider.

“We signed an MoU (memorandum of understanding) with a number of MVNOs,” Mobily Chief Executive Khalid al-Kaf told reporters on the sidelines of a company event.

Kaf said he expected the Kingdom’s three operators to each sign up an MVNO by year-end, meeting the regulator’s timeline.

Saudi Arabia’s mobile penetration is already the fourth highest in the world at 191 percent, or nearly two subscriptions for every resident, according to the International Telecommunication Union, so MVNOs will likely have to woo customers from other operators rather than bringing in new subscribers to the sector.


The attraction for host operators is that they can count the MVNO subscribers as their own, while an MVNO can also help the host target different customer groups outside of its core market. Mobily - the kingdom’s No.2 operator by market value - and sector leader STC have largely focused on wealthier customers, so their MVNO partners could aim at lower-income groups.

That would heap pressure on third operator Zain Saudi, which has struggled to compete against its better-resourced rivals.

Zain Saudi, an affiliate of Kuwait’s Zain, is a distant third in terms of market share, according to data from Informa Telecoms and Media, but the operator is now putting up a better fight, in part by targeting lower-income residents.

Its market share was 16.4 percent at June-end, up from 14.8 percent in March.

“Zain Saudi has become quite innovative with its packages as well as continuing to be aggressive on pricing,” said Matthew Reed, a senior analyst at Informa in Dubai. “Mobily and STC could host MVNOs that will target the lower end of the market, which is where Zain Saudi is.”

Mobily’s Kaf also said the operator - an affiliate of Etisalat, former monopoly operator in the United Arab Emirates - does not require any new financing following the signing of a 10 billion riyals ($2.7 billion) sharia-compliant loan in February.

“That was good enough for the time being. If the business required another financing, we will do so,” said Kaf. (Editing by David Holmes)

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