The auction for the third Saudi Arabian mobile operator licence presents one of the last great opportunities for those regional players wanting to make a significant impact in the Gulf region, according to telecoms advisor Analysys. The consultancy is about to publish The Middle Eastern Mobile Market: Trends and Forecasts 2007-12 as well as an operator case study that describes the OSS challenges faced by a new entrant in the Gulf region.
The Saudi market is the largest in the region in terms of inhabitants, and has a relatively wealthy population whose demand for mobile services has yet to be saturated. The Saudi mobile market is already home to two of the region's largest players: domestic incumbent Saudi Telecom Company (STC) and UAE's Etisalat, through its 35% stake in Mobily.
According to Analysys Research Analyst Daniel Jones, Middle Eastern operators are increasingly looking to opportunities in Africa to expand their businesses but the Kingdom's third licence presents a great opportunity for operators such as South Africa's MTC, which is aggressively pursuing expansion in the region to compensate for decelerating domestic growth.
"The company has renounced previous strategy to focus on expansion in the Middle East and Africa," says Daniel Jones. "It recently launched a new business strategy, known as ACE (Acceleration, Consolidation and Expansion), and arranged a US$4 billion credit facility to assist with its expansion plans. As a result, MTC can be expected to be a very serious bidder in the auction." MTN would also, he believes, be in a position to launch a very credible bid; its interest in moving into Middle Eastern as well as African markets was underlined by its purchase of the Lebanese firm Investcom, which holds licences across the MEA region.
"Many smaller wealthy Gulf nations, such as Bahrain, Qatar, Kuwait and the UAE, are already reaching saturation. Countries where penetration is still low tend to have lower average incomes, such as Yemen or Syria, so this could be the last chance for an operator to reach a Gulf market with a relatively wealthy population where saturation has not yet been achieved."
And after Saudi Arabia?
Analysys is keen to stress the importance of markets outside the Gulf, for this is a sub-region to which MEA operators can turn after their Saudi contracts. Following the auction for the third Saudi Arabian mobile operator licence, regional operators will have to look outside the Gulf for major growth opportunities. Indeed, Middle Eastern operators will be forced to consider entering markets further afield as many Gulf markets reach saturation, with investments on the African continent, as well as limited opportunities elsewhere in the Middle East, looking like the most likely expansion targets.
Again looking to Daniel Jones, most of the major investment opportunities for regional operators that are looking to expand are likely to be on the African continent rather than in the Middle East, although some will remain. "African markets are seen as a key source of growth; they have low penetration levels and much larger populations than many Middle Eastern countries. Etisalat's purchase of the third Egyptian mobile licence for US$2.9 billion exemplifies Middle Eastern operators' eagerness to expand into these markets, and demonstrates their expectations for growth."
Daniel Jones highlights Algeria and Lebanon as targets for the next major investments by Middle East telecoms operators: the Algerian government is reportedly planning a sell a 35% stake in Algérie Télécom in 2007, and the privatisation of Lebanon's two mobile operators is also expected later this year.
"Such fresh opportunities are becoming rare, and operators may have to consolidate to expand geographical coverage," says Jones. "Etisalat and MTC have acquired stakes in African operators (Atlantique Telecom and Celtel respectively) in order to dramatically increase the number of countries that they operate in, but STC has yet to make an aggressive push for external growth."
The Saudi incumbent has, however, been cautious when considering investment opportunities; it participated unsuccessfully in the auction for the third Egyptian mobile licence and withdrew from the race to acquire a stake in Tunisie Telecom because it decided that domestic investment would provide a better return. Having said that, external growth was a key element of STC's recent Forward strategy, which outlined its goals for the next three to four years, so while the region focuses on competing with STC in Saudi Arabia, STC may be focusing its attention elsewhere.