- 1 Definition / Scope
- 2 Market Overview
- 3 Key Metrics
- 4 Market Risks
- 5 Top Market Opportunities
- 6 Market Drivers
- 7 Market Restraints
- 8 Industry Challenges
- 9 Technology Trends
- 10 Pricing Trends
- 11 Regulatory Trends
- 12 Market Size and Forecast
- 13 Market Outlook
- 14 Competitive Landscape
- 15 Competitive Factors
- 16 Key Market Players
- 17 Strategic Conclusion
- 18 Further Reading
- 19 Appendix
Definition / Scope
- The telecommunications sector comprises companies that enable communication possible on a global scale, whether it is through the phone or the Internet, through airwaves or cables, through wires or wirelessly. They play an important role in the evolution of mobile communications and the information society.These companies created the infrastructure that allows data in words, voice, audio or video to be sent anywhere in the world. The largest companies in the sector are wireless operators, satellite companies, cable companies and Internet service providers.
- Nowadays, Telecommunication sector has become integral part of development of any country. The telecommunication industry plays its role in all aspects of a country. A country’s other sectors like education, agriculture, business and health sectors, etc., are also getting benefits from information and communication technology.
- The traditional telephone calls still continues to be the industry’s major revenue generator supported by the advancements in network technology.With the advent of new age technologies, telecom today is increasingly about text (messaging, email) and images (video streaming) and less about voice. The prevalent use of High-speed internet access for computer-based data applications such as broadband information services and interactive entertainment is being witnessed as an emerging trend in the industry. The main broadband telecom technology is the Digital Subscriber Line (DSL). The value-added services delivered over mobile networks are the growth drivers of the Industry.
- The telecom sector consists of three basic sub-sectors including telecom equipment (the largest), telecom services (next largest) and wireless communication.The major segments within these sub-sectors includes:
- Wireless communications
- Communications equipment
- Processing systems and products
- Long-distance carriers
- Domestic telecom services
- Foreign telecom services
- Diversified communication services
Wireless communications is the smallest, but fastest-growing area within the sector as the shift is towards mobile devices for communications and computing purposes.
- The Value added services offered by the mobile operators serves as the major revenue generator of the industry globally, this is closely followed by the mobile broadband segment
- The Kingdom of Saudi Arabia has the largest information communication and technology market in the Middle East by both capital volume and spending.Saudi Telecom Company(“STC”) dominates the Industry with Mobily and Zain being new entrants as Mobile Virtual Network Operators (“MVNOs”) has furthered the animosity.
- The services provided in Saudi Arabia can basically be categorized into fixed telephone service, mobile phone service and internet services.
- In the ICT development index published by United Nations, rank of Saudi Arabia improved from 73 in 2002 to 45 in 2018.
- In 2016, mobile cellular telephone subscription per 100 inhabitants was 176.59; percentage of household with internet access was 94.
- With a subscriber base of 56 million to mobile phone services and a penetration rate of approximately 135% the industry has fierce competition, and the demand for value added services is still growing.
- The telecom regulator of Saudi Arabia,Communications and Information Technology Commission (CITC) is expected to invest US$1.45 billion towards communication equipment and up gradation.
- There is a shift in the fixed-line, Internet and mobile communication market from government monopoly to liberalization in Saudi Arabia.
- It was estimated that 69.0% of Saudi Arabia's population was using the Internet in 2016. This is expected to increase to 77.0% by the end of 2021 as digital literacy levels rise in the kingdom.
- With a mobile penetration rate of 188% and a total mobile subscription base of 56 million with post paid subscription constituting 6.9 million and prepaid subscription of 49.1 million, the telecom sector is poised to post healthy growth rate in the period 2016-2023.
|Base Year||2018||Researched through internet|
- Emergence of fast evolving digital technologies,mounting regulatory pressure and global economic uncertainty are key factors in the current risks landscape which are discussed below
- Short innovation cycles are conceiving operational challenges for industry players to develop new products and services at shorter time span.
- Growing dispute over spectrum pricing and deployment, and increase in network constraints due to limited frequency spectrum available.
- Dependence on suppliers for sourcing equipment,network devices,and other components,parts and systems has increased the concentration of risk.
- IT risks involves malfunction or disruption in the operation of the systems, or cyber-security breaches, could adversely impact the company's ability to compete.
Profitability and Liquidity Issues
- Risk includes changing consumer spending and ability to refinance due to the current financial conditions globally
Top Market Opportunities
Investments on ICT Industry development
- The key ICT investment priorities of Saudi organizations include data center consolidation, expansion and upgrade of networks, application modernization, and deployment of business intelligence and analytics, ICT security, private cloud, and mobility.
- Telecommunication and IT services contribute to 70.4% of ICT spending in Saudi Arabia in 2017
- Saudi Arabia is by far the largest telecom market in the GCC, accounting for 66 percent of total mobile subscribers, 59 percent of total fixed-line connections and 58 percent of total Internet users. Despite this only 38 percent of the country’s population are connected to the Internet. So this serves as an opportunity to tap into.
Relatively High Income
- The Growing income among the masses is significantly high when compared with other countries, serves as an opportunity for the industry.
Large number of High tech projects
- There has been an increase in the investment of Information and communication Technology industry by both the government and the private players on new technologies and up-gradation of network system.
- Operators are investing in LTE, LTE-A and fibre to enable additional revenue streams including enterprise focused services like IOT, Cloud services and M2M services.
The Key Drivers for the telecom sector in Saudi Arabia includes
- 4G and 5G Technology driven market: Higher speed data and better voice quality is a key driver of the market. The revenue base of the industry will only increase if the quality of services improves as well.
- Increasing demand for data: In today's connected world, everyone has the need to consume data. This in turn drives the mobile data revenues for the telecom operators. It is likely that this will remain as the key catalyst for growth.
- Growing adoption of Internet of Things (IoT):The emerging ecosystem of IoT will need continued network connectivity, equipment, and services.While wearables, smartphones, connected cars, and smart homes are emerging market opportunities, industries such as manufacturing, transport, retail, and hospitality are providing wide-scale opportunities for growth and profitability.It is this ecosystem that suppliers are targeting to widen their consumer base.
- Alliances and cross-sector partnerships:The growing number of alliances and cross-sector partnerships is a key driver in the telecom services market. As high-speed, affordable network connectivity is important for the smooth execution of any modern-day business, telecom companies are looking to work with key players across industries to improve market presence and diversify revenue mix.
- Development of digital ecosystems:Telecom service providers have begun to undertake JVs, acquisitions, and internal R&D to develop advanced and innovative digital enterprises.
- Adoption of alternate operating models:Telecom service providers need to adopt dynamic business models to stay competitive. They focus on developing core capabilities while creating strategic partnerships for other support areas such as media, content, and network infrastructure.
- Big Data analytics: Telecom service providers have access to large amounts of real-time information from their networks. Using Big Data analytics, they can improve network operations and quality of service. The increased use of smart devices generates data points such as customer demographics, relationships, call quality, and experience, which can be leveraged by suppliers in order for them to remain competitive.
- Reduced MRTS and ARPU:,The Saudi telecom sector on the whole has been witnessing declining ARPU’s (Average Revenue per Unit), due to software like Skype, viber and line, replacing the traditional voice calls.It has been observed that ARPU has decreased from SAR 86 ($23) in 2013 to SAR 68 ($18.1) in 2014 due to increasing competition, hence putting pressure on operator's profit.
- Low Broadband Penetration:The fixed broadband penetration remained considerably below the average for developed nations, at 42%.
- Mature Voice Market:The voice usage is at a relatively mature level.
- Huge cost of setting fixed line telephony:It is estimated that 18% of Saudis live in outlying/remote villages, where establishing fixed line telephony may be not feasible in terms of both cost and implementation.
- The regulatory framework is the most important challenge, ensuring that proper frequencies are located to cater to the incredible demand that is happening on the mobile network.The telecom sector in Saudi Arabia is highly regulated.
- The shortage of skilled labors is another challenge faced by the industry as companies are focusing to become a digitally-enabled organization and are investing in cloud services, then there is a need for a new skill set that is not typically available in conventional telecom companies.
- Post-paid subscribers outweigh pre-paid subscribers in the country; the pre-paid sector face challenges following the government’s regulation to finger print all SIM cards therefore transferring to post-paid subscription.
- Higher subscriber penetration levels in voice and data services The voice and data usage is at a relatively mature level.
- Other challenges include limited growth avenues and a shortage in government spending.
Connecting the IoT:
- Telecoms are aware of the potential of IOT and have invested huge sum for developing cutting edge technologies in the sector.
- The telecom companies can use the cloud to deliver higher quality, more flexible and more scalable enterprise IT services at lower cost than on-premise solutions by applying cloud computing.
- The next generation of WiFi will have the same or better reliability as cellular, hence it is expected to be carrier-grade.By 2020, more than 90% of wireless hotspots will be carrier grade, according to a 2015 WiFi industry survey.
Integration with Content:
- The strategy of most CSPs seems to be owning the content, so however it is consumed, they still derive revenue from it (and user data).
- Commoditization of the mobile voice market and stiff competition in the domestic market have led telecom operators to reduce tariffs for both standard and bundled services. The decline in Blended ARPU is expected to continue in Saudi Arabia during 2018-23 due to growth in subscriber base and price reduction amid aggressive competition.
- STC’s blended ARPU fell 47.3% to SAR72.0, while that of Mobily tumbled 44.8% to SAR65.0. The rate of decline in ARPU in Saudi Arabia is expected to be in the range of 2.0%-2.5% over the next three years.
- The growing demand for mobile broadband and Value Added Services (VAS) services should help operators to partially offset the decline in ARPU.
- Initiatives such as infrastructure sharing with existing operators,optimizing spectrum utilization, and technology optimization could help operators control variable costs and protect margins.
- One of the government-owned agencies, considered to be a key player in the market, is the Communications and Information Technology Commission (CITC). The agency plans to enhance the sector that will provide unique communication services to subscribers and encourage investors to take part in leading projects. CITC will increase investments in the sectors of hosting, cloud computing, supporting small and medium enterprises (SMEs) and boosting secured networks and information.
- The state-owned entity has also issued a regulation that obliges all mobile companies to link new and existing subscriptions into the subscriber’s finger print. This advancement seeks to decrease penetration rate which currently stands at 168% total and affect the total number of subscriptions.
- Saudi Arabia’s economic reforms also include ‘Unified Licenses’ which will be provided by the government to mobile companies that will allow them a full range of telecom services. This decision will replace the old habit of companies applying for separate licenses for each service provided such as mobile and fixed lines, but now companies are abiding by one license. The Unified License decision will provide with more options and better prices.
- Other government plans include increasing investments of broadband and increasing the contribution of information technology industry to non-oil sectors GDP by 2.24% in 2020.
- Saudi Arabia plans to extend licensing periods as well for companies up to 15 years in return for 5% from the annual net income of each company during this period. This decision will play a key role in decreasing annual amortization of telecos.
Market Size and Forecast
- Saudi Arabia, sporting the largest telecom sector in Middle East in value as well as volume, accounts for more than half of the market share in GCC. It has achieved $18.8 billion revenue in 2016.
- Mobile voice and data segments together will account for 76.1% of total revenue in 2017. Fixed voice and Internet segments will account for a combined 22.3%, while pay-TV will hold the remaining 1.6% share in 2017.
- The broadband penetration rate, which is quite low is poised to increase from 11% in 2016 to 18% by 2023 as the government under the national transformation plan focuses to invest in the development and maintenance of infrastructure to provide broadband connectivity to all the regions of Saudi Arabia.
- In 2017, 22.85 million people accessed the internet through their mobile phone in Saudi Arabia.In 2023, this figure is projected to amount to 27.44 million mobile phone internet users.
- Fixed Internet segment revenue increased from US$3,780.2 million in 2012 to US$4,098.0 million in 2016 at a CAGR of 2.0% during 2012-2016 and is further expected to grow at CAGR of 2.4% for 2016-2023 and is expected to increase to US$5,482.4 million by 2023.This increase in the fixed line revenue is primarily contributed by the increase in the Internet revenue between 2016 and 2023.
- In the case of ARPS, Fixed voice ARPS is expected to decline from US$66.8 to US$50.3 between 2016 and 2023. Also, the fixed Internet ARPS is expected to decline from US$103.2 to US$92.4 between 2016 and 2023. The decline in the fixed voice ARPS is because of the decrease in the number of subscribers due to the shift in consumers preference from voice to data.
- Due to the increase in the digital literacy levels there is an expected increase in Internet usage from 69.0% in 2016 to 82.0% in 2023.
- It is expected that overall service revenue to grow at a CAGR of 4.2% during 2017-2022 to reach $21.0bn. Growth will be driven by data services given the increasing adoption of 4G, FTTH and the popularity of OTT services.
- The voice market has achieved maturity with high mobile penetration.while the data segment is witnessing growth, driven by the young and tech-craving demography aided by increasing usage of smart devices.
- Moderate organic growth is expected in mobile subscribers for the period 2018-2023 as the market is highly saturated.
- Growth is expected to come from migration to 4G and other value added services (VAS) as a consequence of increasing operators investment into developing their 4.5G and 5G capabilities.
- Little to no growth is expected in the fixed voice segment and fixed broadband subscriptions is expected to grow aided by the development of fibre by both the Government and the operators.
- ARPU is expected to increase as operators have shed low cost pre-paid subscribers and have increased focus on more lucrative services.
- Investments are increasingly made in LTE,LTE-A and fibre to enable additional revenue streams including IOT, cloud services and M2M services to counter the stiff competition existing in the sector.
- Emphasis is laid on Enterprise services to offer profitable opportunities to the operators, owing to strong macro economic performance aided by demand for operational efficiency.
- The fixed-line, internet and mobile communication market are all liberalized today in Saudi Arabia. Also, as a step further towards liberalization, three MVNOs licences were put up for auction. All this transformed the market from govt. owned monopoly to aggressively competitive market.
- Owing to liberalization in 2003, with the introduction of MVNOs, along with reduction in MTRS; the competitive landscape of the Saudi Arabia’s has improved. There has been influx of international telecom service providers in the kingdom.
- The market is characterized by aggressive competition among service providers.with increasing competition, the market players are fighting aggressively through tariff cuts, which are eventually affecting their profits.Hence, they have turned to exploring additional revenue streams.
- Due to increasing competition in the market, operators will be investing in network infrastructure and venturing into enterprise-focused services such as IoT/M2M and cloud computing.
- Growth in the market is expected to be driven by high demand for smartphones and high-speed networks as well as boosted by govt. policies aimed at developing the ICT industry.
- Customer satisfaction depended upon Customer care service,Promotion schemes,Service quality and the major factors of customer satisfaction were coverage of network, promotional and value added schemes, SMS and MMS quality, customer care services.
- It has been observed that variables like Price, Service quality, Brand Image affected customer loyalty in the telecom sector in Saudi Arabia. It emphasized on Value added services and Customer Relationship Management.
Key Market Players
Saudi Telecom Company:The subscriber base of mobile is about 81% of the total Saudi Telecom subscribers who are contributing about 73% of the company's total revenue, the number of service subscribers reached 25.2 million subscribers. Contributing to 61% of the total mobile phone users in Saudi Arabia.The company boasts a revenue of US$13.6 Billion in 2016 and clocking a net income of $2.27 billion in the same year. STC is the market leader of telecom sector in KSA and holds a market share of 45%
Mobily: Mobily was regarded as the fastest growing mobile operator in the Middle East. Mobily has a mobile subscriber base of 20.72 million. It holds the healthy market share of 37%.The company has generated net revenue of SAR 6.7 Billion and clocks net income of SAR 35.4 Million. Mobily is the market leader in mobile broadband.
Zain KSA Mobile Telecommunication Company Saudi Arabia is a telecommunications services company that offers fixed line, mobile telephony, and Internet services under the brand name Zain Saudi Arabia. Zain was the third largest mobile network operator in Saudi Arabia holding a market share of 18%. It has a mobile subscriber base of 10.08 million subscribers.The company has clocked net profit of SAR 12 million.
Saudi Arabia’s telecom market has shown robust performance in terms of both value and volume growth. In coming years,the market posts a promising growth picture.From 2016 onward, the telecommunications market in Saudi Arabia is expected to see service revenue increasing on an annual basis. Among various segments in the market, mobile and fixed data segments are expected to emerge as the largest revenue-contributing segment by 2023, boosting growth in the market. However, Mobile data revenue is anticipated to account for a greater proportion of total telecommunications revenue in 2023. Saudi has one of the largest mobile subscription base and posting a healthy growth on the CAGR front in comparison to other countries.
- ARPU - Annual Revenue Per User
- CAGR - Compounded Annual Growth Rate
- GDP - Gross Domestic Product
- US$ - US Dollar
- CITC - Communications and Information Technology Commission
- STC - Saudi Telecom Company
- MVNO - Mobile Virtual Network Operators
- ICT - Information and Communication Technology
- SAR - Saudi Riyal