Preparing for change

The anticipation is building in Saudi Arabia with respect to the licensing of three mobile virtual network operators in 2013. The kingdom is seen as offering the business model its greatest chance of success in the region, and interest to participate is high from regional and international parties alike

Saudi’s three incumbent telcos shall be forced to alter their view of the market and their participation in it should they intend to survive the entry of MVNOs in tact

The licensing of MVNOs in Saudi Arabia is a process that has been spoken about for at least three years with no real progress having been achieved in moving the development along. However, the position changed this year, with Saudi Arabia’s Communications and Information Technology Commission (CITC) commencing a consultation process in March, which resulted in confirmation that three new providers would be licensed.

Saudi Arabia already has a highly competitive mobile telecom sector, with the three operators – STC, Mobily, and Zain – having together pushed mobile penetration rates to close to 200 per cent. The difficulties for third-entrant Zain to make headway in the Saudi market signal the challenging environment; hence the entry of three more service providers is likely to further compound the complexity and stakes in the market.

Mobily, the operator backed by Etisalat, has been the most vocal of the three network operators in expressing its preparation to bid for one of the MVNO licences. Abdullah Al Baddha, Mobily’s director of wholesale, explained that the operator had considered its strategic reaction to MVNOs and had decided to embrace the pending business model rather than attacking it.

“There were three ways to look at the MVNO proposition in the Saudi market. To attack it, embrace it, or a hybrid of the two, and we decided to embrace it,” Al Baddha said. “Mobily will apply for one of the licences and is already in the process of implementing its own Xius MVNO platform,” he added.

In May Mobily awarded a mobile virtual network enabler (MVNE) management contract to India’s Xius. Xius was contracted to employ its Mobile Services Platform infrastructure and framework, currently deployed in multiple global locations, which will provide Mobily’s MVNO with its own separate network components and capabilities.

"We chose Xius Mobile Services Platform after an exhaustive selection process that included an extensive list of vendors," said Eyas Al Hajery, Mobily’s senior executive VP for Wholesale and Carrier Services in May. "The platform will enable Mobily to provide carrier class comprehensive MNO/MVNE services to potential MVNOs.”

Al Baddha forecasts that the Saudi Arabia’s three MVNOs could ultimately garner as much as 7-10 per cent market share amongst them, with each enjoying an individual share of 3-4 per cent of Saudi Arabia’s overall mobile market.

“We have already signed an MVNO agreement with the partner that we hope to work with, but I am unable to disclose who that partner is at this time,” Baddha said at the beginning of December.

Amongst the interested MVNO players would be Virgin Mobile Middle East and Africa (VMMEA), which is already active in Saudi Arabia through its partnership with Zain KSA to offer prepaid mobile packages that specifically target international customers. The current collaboration has been described by the partners as an outsourcing agreement and it offers VMMEA unique on-the-ground experience of the local market.

VMMEA is already the pre-eminent MVNO in Oman, counting around 400,000 subscribers in that market, accounting for approximately eight per cent market share. The MVNO’s ARPU in Oman is close to the amount reported by the network operators.

Another player sure to be interested in the Saudi opportunity is Renna Mobile, the MVNO that competes against VMMEA in Oman and recently sold a majority stake in the company to the Oman Brunei Investment Company (OBIC). Financial terms of the transaction were not released but Renna Mobile CEO, Joakim Klingefjord did say that much of the capital invested by OBIC will be earmarked for Renna Mobile’s further expansion plans.

Effortel, a Belgium-based MVNE that was founded in 2005, has also expressed interest in the Saudi MVNO development, with the company’s CMO, Liudvikas Andriulis, telling Comm. that, “I believe there remains a great deal of opportunity for MVNOs in the Arab world. We are looking forward to developments in Saudi Arabia in this respect, for example, and even beyond the Gulf region, markets such as Pakistan are of great interest.”

Generally, MVNOs target specific niches of a wider market, and the stagnating subscriber growth and falling margins mean telcos in Saudi Arabia may look to MVNOs to help reduce churn.