Arab Mobile Communication Studies

According to a report, “Saudi Arabia Cellular Users Survey 2006” released this week by the Arab Advisors Group, 20.3 percent of Saudi Arabia’s cellular subscribers reported using both Al-Jawwal and Mobily’s networks. Arab Advisors Group carried out a major survey of cellular users in Saudi Arabia that gave insights into the usage habits of the Arab world’s largest cellular market by subscriber base and by revenues. The survey involved face-to-face interviews with 674 respondents from different households in Makkah, Jeddah, Madinah, Riyadh, Dammam and Dhahran, selected randomly in a manner proportionate to the estimated population size of the different areas. Respondents were 15 years old and above and were cellular service users. This random survey focused on the current cellular users in Saudi Arabia, and not the total population of the country. Saudi Arabia’s GSM penetration stood at 60.5 percent by end of 2005.

The Arab Advisors survey revealed that 39.6 percent of cellular users have more than one line and that sourcing from more than one operator is common. The need for separate business and personal lines was the main reason for having more than one line (53.9 percent of those with more than one cellular line). Cost savings was a reason for 22.8 percent of respondents with more than one mobile line. On the media front, newspaper ads, TV ads and word of mouth were cited as the three most effective ways that affected the cellular users choice of operators and plans.

“The survey revealed a substantial overlap of subscribers in the market between Al-Jawwal and Mobily networks. This may indicate that the actual penetration rate in the country is lower than what the reported numbers of both operators indicate: A good one-fifth of individual subscribers are subscribers of both operators, and that over 39 percent have multiple mobile lines. This trend seems to stem from the ongoing promotions in the Saudi market that include free credit, no connection fees and lengthy validity periods for prepaid numbers. This means that Saudi Arabia’s cellular penetration rate by Q3 2006 (strictly defined as number of individuals using the mobile service) is possibly around the 60 percent mark rather than the 74.5 percent number indicated by the reported subscriber numbers of the two operators. This is certainly good news for all operators as it points to the growth potential of the market,” commented Jawad Abbassi, Arab Advisors Group’s founder and general manager.

ITF Invests in Atos Origin

Injazat Technology Fund (ITF), the first Islamic venture capital firm in the MENA region, has acquired 19 percent stake in Atos Origin Middle East (AOME), a leading international information technology services provider as part of a recently structured management buyout (MBO). Injazat Technology Fund is a $50 million private equity fund that operates in compliance with Shariah principles and targets technology companies in the region.

AOME offers a full range of IT services from system design and integration to managing outsourced IT operations. Covering 19 countries, with more than 500 personnel and dedicated to over 50 large projects throughout the Middle East, AOME is the largest Consulting and Integration Partner in the region.

“This strategic investment in Atos Origin Middle East reinforces our commitment toward the development of the region’s information technology industry. We have been working with AOME management for sometime to complete one of the region’s first technology MBOs. In addition to AOME’s strong market presence and great potential it provides a high degree of synergy with other ITF portfolio companies, both at the geographic and product level” said Rami Bazzi, principal, Injazat Technology Fund.

Ferras Zalt, CEO, Atos Origin Middle East, added, “Injazat Technology Fund’s stake in AOME is bound to consolidate our standing in the regional IT industry. We see this as an opportunity to increase our contribution to developing the IT resources in the region while also enhancing the service delivery to our clients. Injazat’s support will ensure that our business has the required financial backing, and we can also benefit from the resources of Injazat’s high-profile constituent companies.”

AOME has two main lines of service — Consulting and Systems Integration (CSI) and Managed Operations (MO). CSI includes integrating new solutions as well as maximizing returns from existing IT investment. MO provides outsourcing operations to clients to manage their core IT infrastructures, including data centers, desktop support, server farms and network communication systems. AOME has handled SAP projects for some of the largest organizations and ministries in the Middle East.

Analysis of New License Potential

In October 2006, Saudi Arabia’s telecom regulator, the CITC, announced auctions for new fixed and mobile licenses in the Kingdom, with applications due at the end of January 2007. The CITC intends to award one more mobile license and one or more fixed licenses in March 2007.

“The license is very attractive to say the least; if we recall that Saudi Arabia is a sizable under-penetrated telecoms market in the Middle East,” noted Pyramid Research Analyst Dearbhla McHenry. “At YE2005, fixed penetration stood at about 16 percent with broadband penetration well below 0.5 percent. Meanwhile, on the mobile side, the performance was even less acceptable, given income levels.”

According to Pyramid Research, upon the entry of these upcoming new operators, Saudi Arabia will have the most liberalized telecom market in the Gulf, with four mobile operators and at least two fixed service providers. Based on the effective way the regulator handled the entrance of second mobile operator, Mobily, in 2005, it is Pyramid Research’s view that the CITC is likely to enforce a relatively fair playing field for the newcomers, although political considerations will probably play some part in the awarding of the licenses. Pyramid’s believes that while operators who can acquire both a fixed and a mobile license will have a significant competitive advantage overall, the auction also presents a valuable opportunity for smaller players who can roll out a broadband network quickly and cheaply using new technologies such as WiMAX.

The new mobile entrant must cover the Kingdom’s seven major cities by the end of its first year, and cover 85 percent of the entire population within five years. The new fixed service providers, however, are only required to cover 10 percent of the population in three districts within five years (not including customers covered via local loop unbundling), because the CITC has not predetermined the number of licenses to be granted. Applicants who plan to offer Fixed Wireless Broadband may bid for spectrum along with their wireline application, and the CITC will award fixed WiMAX licenses to up to four different operators in each province.