October 20, 2010 / 2:04 PM / 9 years ago

FEATURE-Telcos scramble for piece of booming Saudi market

RIYADH, Oct 20 (Reuters) - Khalid al-Khulaif has several phones and six computers at home but he’s still in the market for more. It’s the Saudi way, and it’s the reason companies are scrambling for a piece of the Gulf Arab region’s biggest market. With a population of 29 million and a per capita income of $16,000, the world’s largest oil-exporter dwarfs the small states on its periphery, and its rigid social system makes the allure of phone or internet connectivity all the more powerful.

“I have six computers, laptops and one desk computer,” Khulaif said, standing behind a row of computers in a busy shop in a district of Riyadh full of electronics shops.

Dozens of small shops advertising the latest BlackBerry and iPhone models line the streets the Saudi capital, where business starts in earnest after the last evening prayers in the conservative birthplace of Islam.

Some say getting connected, albeit through the filter of phone or internet, fills a void in a purist Islamic society with a strict system of public morality — alcohol and cinemas are forbidden and unrelated men and women cannot mix.

“Entertainment in Saudi Arabia is scarce, we can say, and definintely there is... the opportunity to provide them with as many services as possible to provide them with the extra social requirements that they are looking for,” Hisham Zaki El Jamal, Director of Strategic Financial Planning and Investments at Saudi telecoms operator Mobily, told Reuters.

Saudi Arabia has 47 million mobile phone users — that’s one and half phones for each of its people — and could have 60 million by 2013, said Josep Que at IT consultancy Delta Partners, which recently carried out a study on the Saudi telecom market.

“Saudi Arabia will grow, in absolute terms, more than the rest of the (Gulf Arab) telecoms markets together,” he said.

ROOM FOR GROWTH

Saudi Arabia plans to spend $400 billion by 2013 on an infrastructure development programme, the world’s biggest stimulus relative to gross domestic product. It is not clear how much of that will go on telecoms, though Que estimates that Saudi Arabia’s existing three operators will make $6 billion in capital expenditures over the next three years alone.

With two thirds of Saudis under the age of 30 and penetration levels for services such as broadband internet still lagging behind some other Gulf countries, foreign operators and manufacturers are racing to lock in the customers of tomorrow.

Bahrain’s Batelco BTEL.BH recently said it was considering buying a stake in mobile operator Zain Saudi 7030.SE, which paid $6 billion for Saudi Arabia’s third mobile license. The Manama-based firm has already bought into Atheeb Telecom 7040.SE, the first private Saudi fixed-line phone operator.

Dominant state operator Saudi Telecom 7010.SE is in a battle with Mobily 7030.SE, an affiliate of Abu Dhabi-listed Etisalat ETEL.AD, which says it has gained market share. “The mobile phone is the most important thing for Saudis. If a new model came out today people would buy it as soon as it hit the market,” Raad al-Aziz, a Syrian salesman at a telecoms showroom, said. “They don’t care about the price, they just buy it. Compared to other countries and Gulf states, Saudis are the largest buyers of such devices.”

INTERNET PENETRATION

There is also plenty of room for internet expansion in Saudi Arabia. Que said broadband internet penetration was just 4 percent, compared to 26 percent in nearby Bahrain. The number of users could rise 82 percent to to 5.9 million by 2014.

The number of internet users has risen to 10 million in Saudi Arabia but total internet penetration is only 38 percent, compared to 52 percent in tiny Qatar, 75 percent in the UAE and 88 percent in Bahrain, John Sfakianakis, chief economist at Banque Saudi Fransi, said.

“There is tremendous room for growth,” he said, adding that customer services need to improve.

Saudi blogs often include complaints from people who keep getting wrong bills and poor technical support.

Even in the capital the internet can be slow during peak evening hours, too slow to play internet videos or open large attachments. In the rural and remote areas, internet is even slower.

Access is also exacerbated by an elaborate system of censorship overseen by the authorities, blocking anything with a hint of pornography or sites critical of the government.

Back in downtown Riyadh, teenagers in traditional white robes mill around checking out the new models of phones and laptop.

“I came here to sell my old mobile and to buy a new BlackBerry. Each time a new mobile hits the market I come here to see it,” teenager Mussab al-Sharif said.

Salesman Ali Hajeh is thrilled at the brisk business. “We used to sell 40 computers a day and now we sell about 60 or 70,” he said.

Editing by Lin Noueihed

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