Price wars in the kingdom

The saying goes, “if it looks like a duck, swims like a duck and quacks like a duck, then it probably is a duck”. It seems to be apt in describing the state of price competition in Saudi Arabia’s mobile market. Despite operators in the kingdom suggesting the market is not in the throws of a price war, recent promotions point to an extremely price-competitive environment, which will impact ARPUs negatively. Michelle Mills reports

Zain Saudi Arabia launched commercial services as the  third mobile operator in Saudi Arabia on August 26, 2008 and in less than two months garnered 966,000 subscribers. Speaking at the GSM > 3G conference in Dubai in December, CEO Marwan Alahmadi said the operator’s unique ‘You pay we pay’ offer had been instrumental in attracting customers in a market with a SIM card penetration rate in excess of 100 per cent. The crux of the campaign was that whatever a customer spends in one month, the following month he receives the same amount back in free credit, with the lifetime offer available indefinitely for the first 500,000 customers.

Alahmadi believes Zain is sending a strong signal to the incumbent mobile operators – STC’s Al Jawal and Mobily – that it is not looking to start a price war, while at the same time the operator is seeking to heighten the perception of value in the market. From the outside looking in though, Zain’s approach does appear to represent offering more services for the same money, which essentially is a form of indirect price competition. “So far, none of our offers are really below cost and all of them are approved by the Communication and Information Technology Commission (CITC),” stated Alahmadi.

“If you look at our ‘You pay we pay’ offer, what is the maximum discount a user can receive? If a customer spends 1,000 rials (US$267) and the next month he spends exactly 1,000 rials, then the discount is 50 per cent. If he spends more, then the discount goes down. If he spends less, he loses part of his credit. The average discount that a customer receives is in the range of 20 to 30 per cent, and we believe this is very reasonable for a third entrant in a market that is highly penetrated, in order to acquire customers.”

Marwan Alahmadi, CEO of Zain Saudi Arabia, says that despite more than 100 per cent mobile penetration, when taking into account double SIM card penetration and the spike in temporary customers during the annual Hajj season, there is plenty of addressable market left across the kingdom for the third entrant

The commercial launch offer of ‘You pay we pay’ was the final step in Zain’s multi-stage launch process in Saudi, having acquired the third licence in July 2007.

“Numbers in this part of the world distinguish people, whether it be by their licence plates or their telephone number, it really has a high value,” Alahmadi recalled with respect to the operator’s successful prelaunch registration effort. “This campaign was not just to generate revenue it was the offer of a premium service, which came with access to airport lounges and concierge services.”

An additional launch offer made to Zain customers in Saudi was a double Zain SIM pack, with calls between the two numbers charged at a low rate. When credit on one of these accounts is recharged, the customer receives 100 per cent bonus credit, which is then split between the two SIMs.

“We started with a network of almost 1,500 base stations, covering 43 cities and 15 highways on our own network. We entered a national roaming agreement with Mobily in the remote areas that we could not reach at launch,” Alahmadi said.

Alahmadi still believes the Saudi mobile market is one of the most promising in the region, offering Zain strong room for growth in subscriber numbers.

Market leader STC has come a long way in the past 10 years, a time when there were only 600,000 mobile phone lines and two million fixed lines in the kingdom. STC now boasts a combined 23 million mobile and fixed subscribers and one million ADSL users. The telco is investing in a next generation network, and its mobile network extends to 98 per cent of the population, comprising 10,000 base station sites. While STC has experienced extraordinary inorganic growth through its overseas investments in the past 12 months, it is set to lose ground further in its domestic market as service and value competition intensifies.

In November, STC launched a one-month promotion where local and international calls were free after five minutes, which the market responded to with unprecedented demand. However, local news sources reported that demand was so high from expatriates wanting to call India, Bangladesh, Pakistan and the Philippines, that the network became congested and many callers experienced difficulties in connecting at all.

“A price war is in the wrong direction. We do not want to become involved in a price war and compete just on price,” commented STC’s vice president of regulatory affairs, Hamoud Al Kussayer in November. “It is not our mandate. I think there is enough market for everyone to survive, and while prices are declining, operators need to differentiate themselves by their services,” he added at the time.

Meanwhile Mobily, owned 26.5 per cent by the UAE’s Etisalat, did not hold itself back from creating enticing customer-friendly packages to reduce the impact of churn, and increase market share in the lead-up to Zain’s market entry and immediately thereafter. Mobily launched offerings such as a free WiMAX installation and modems; significantly reduced call rates; and established a roaming alliance with Etisalat in the UAE and in Egypt.

Mobily built on its initial competitive advantage of being the first to offer 3G services, with its 3.5G network launched in June 2006. It paid US$200 million to obtain the 3G licence, in addition to the US$3.2 billion paid for its GSM licence. This enabled the cellco to introduce services such as video calling, multiplayer gaming, mobile TV and highspeed Internet to the Saudi market ahead of Al Jawal.

By the end of 2007, Mobily counted 11 million customers, representing a market share in excess of 30 per cent. In December 2008, the company announced it had signed up 300,000 HSPA broadband subscribers, and according to the GSM Association, Mobily has the busiest mobile data network in the world, carrying approximately 18.5 terabytes of data daily on its network. This data traffic is supported by 95 per cent population coverage and a network of 12,000 kilometres of fibre optic backbone.

Approximately 2.5 million visitors converge on Saudi Arabia during the annual Hajj pilgrimage, and operators are keen to cash in on the temporary population

Mobily has also undertaken a review of its retail strengths and weaknesses, resulting in a revamp of its flagship stores and customer service points in 2008. The cellco operates 32 flagship stores – including three megastores in Riyadh, Jeddah and Khobar – as well as 240 fully-branded outlets operated by partners. The revamping was a joint project between retail and marketing business units in JANUARY 2009 27 Saudi competition order to enhance Mobily’s retail image and reinforce the brand in the Saudi market.

“The revamping was a smart move because we made the market feel that we are the one that is coming, it was Mobily’s new store concept that the market had been waiting for, not Zain,” stated Mobily’s retail operations manager Mohamed Radwan.

Mobily’s review revealed areas that the cellco could improve upon, which includes store zones that were not clearly evident, the lack of ‘play zones’ for customers to interact with and learn about the operator’s 3.5G, gaming, video and music services; as well as the stores’ lack of a visible format strategy, in terms of how stores are used differently.

Mobily’s evolving concept vision is based on four principles: to attract customers into a zone through a compelling design which sparks curiosity; allow customers to freely explore and seek their own version of knowledge; foster an emotional connection through the branded experience, interaction and sales consultation; and provide for a sophisticated showcasing of capabilities.

To date, eight stores have been revamped with features including Internet cafés where visitors can surf the web at no additional charge; three giant screens displaying inspirational videos linked to Mobily’s 3.5G services; self-service recharge and billpaying kiosks; gaming areas with seating; and interactive displays where visitors can try out video telephony, video mail and TV streaming services, among others.

“Our KPI is to serve 80 per cent of our clients within eight minutes and we will stick to that as much as possible,” commented Radwan. “Our in-store concept promotes our services and is interactive, so the customers will not be bored if they have to wait. Some customers take longer to be served – for example, a customer may take their time to choose their new phone number and we can not tell them to hurry up – but at the end of the day, if a customer is waiting or being served, it is a win-win opportunity for Mobily.”

STC refreshes corporate image in the face of intensifying competition

In late September 2008, Saudi Arabia’s market leader STC unveiled its new corporate identity and logo focussed on four key values – transparency, progressiveness, straightforwardness and brilliance – to guide the telco into the next phase of its development.

Chief executive officer Saud Al Dowaish stated the operator wanted a more neutral name – than Saudi Telecom Company – that could be leveraged internationally, while keeping reference to the Saudi origin.

“In simple terms we wanted to modernise and simplify the brand while in the same time create a sense of unity to enable us to consolidate all the sub-brands under one single umbrella,” Dowaish said at the launch. “Doing so will enable us to realign with global design trends as adopted by the most recent rebrandings of many global companies as well as maintain a very strong corporate image with a striking new logo.”

The logo plans to express freedom from boundaries and position STC as, “the spirit and heart of the progressive Saudi nation”. In third quarter results, STC recorded its first fall in quarterly profit since June 2007, which has been attributed to expansion costs in Asia and the Gulf.

Net profit was SAR3.01 billion for the third quarter, a drop of 4.32 per cent.

Al Dowaish told press that most of the company’s foreign profits in the quarter came from Oger Telecom, the Dubai-based firm STC bought a 35 per cent stake in earlier in 2008 for US$2.56 billion.

Saudi Arabia: No price war?

December 2008: Mobily offers Hajj pilgrims free highspeed Internet connectivity through WiFi. It also gives away more than two million gifts to Hajj pilgrims – branded umbrellas, water bottles and bags – at holy sites, airports and border crossings.

December: STC offers SIM plus handset bundles to Hajj pilgrims for only 150 rials, including 50 rials worth of credit.

November: Mobily halves rates for all national and international calls, for a period of one month. A local call costs as little as 10 halalas (US$0.03) for preferred numbers.

October: Mobily customers recharging prepaid accounts receive 70 per cent free credit, on top-up amounts of more than 60 rials, for a period of two weeks.

October: STC introduces unlimited free local calls for new landline subscribers at the flat rate of 399 rials per month. STC halves international rates for calls from prepaid telephone cards or phone booths during Eid Al-Fitr.

September: Mobily customers receive 60 per cent discount on calls after the third minute. New WiMAX subscribers also receive free installation and modems.

August: STC launches unified international roaming service in 30 countries. Customers will only be charged 1 rial per minute to receive a call and 1.50 rials for outgoing calls.

August: Zain launches ‘You pay we pay’ lifetime offer for first 500,000 customers. Whatever the customer spends one month, the following month they receive the same amount back in free credit. It also offers double SIM packs, with calls between the two numbers charged at a significantly lower rate. When a customer recharges one of the accounts, he receives 100 per cent bonus credit that is then split between the two SIMs. Roaming customers also access One Network’s local call rates in 16 other countries in Middle East and Africa.

July: Mobily launches mobile roaming alliance with Etisalat in the UAE and Etisalat Misr in Egypt, with savings of up to 53 per cent.