Saudi mobile market set to grow by 130pc
Mobile telephone penetration in Saudi Arabia is expected to grow 130 per cent in the next five years, according to a report by HSBC on the performance of Mobily (Etihad Etisalat) in the Kingdom after two years in operation.
The country is regarded as one of the most attractive markets in the Gulf Cooperative Council (GCC) region with penetration rates among the lowest at 82 per cent of the population for mobile as of first half of 2006, and just 2 per cent for broadband penetration, the report said.
The report explained that as the largest and richest market in the region, its strong macroeconomic factors such as high GDP per capita, rising income levels and a relatively young, fast-growing population should guarantee relatively decent growth in communication spending.
It added that a reduction in handset prices and tariff rebalancing as a result of the ongoing liberalisation of the telecoms markets should also further boost usage and demand for services.
“With a GDP per capita of USD 14,500, coupled with a real GDP growth rate of 5 per cent in 2006 (around USD 355 billion in absolute terms), a fast growing and relatively young population (in 2006, 40 per cent of the population was in the 15-34 age group, while 38 per cent of the population was between 0-14) and highly affluent users,” the HSBC report said and added that Saudi Arabia is one of the most attractive markets in the region.
The Kingdom’s healthy investment climate is likewise supported by increased liquidity on the Saudi stock market, which has been characterised by significantly higher turnover.
It said that the telecoms sector constitutes around 12 per cent of the market capitalisation of the Tadawul stock exchange, of which Mobily makes up around 2.5 per cent of the Tadawuls market capitalisation. Mobily, which began operations in mid-2005, had taken a market share in the low thirties within two years, enabling it to be net profit positive by the end of its second year of operations. Mobily’s innovative business model, coupled with its good quality of service, has helped it to sustain market share and create a reputable brand. HSBC forecast Mobily to have an 86 per cent market share of net adds in 2007, which would allow it to command a mobile market share of 40 per cent by end-2007.
A survey conducted by Arab Adviser Group in Saudi Arabia in 2006 indicated that around 40 per cent of cellular users in the Kingdom had more than one SIM card.
HSBC in its report though said that only 30 per cent of users have more than one SIM card.
The report explained that the need for separate business and personal lines is one of the key reasons for multiple SIM cards. Also, ongoing promotions in the Saudi market that include free credit, no connection fees and lengthy validity periods for prepaid numbers provide a further incentive for multiple SIM cards.
“In terms of mobile penetration, in the next five years we expect the Saudi market to catch up with other similar economies and to reach 130 per cent,” HSBC said.
The report ruled out any further licence issuance by the Communication and Information Technology Commission (CITC) in Saudi Arabia, thereby fixing the number of mobile phone players in the market in the long term, with the Saudi Telephone Company (STC) being the dominant operator having the advantage of triple play with a 45 per cent market share, Mobily second with a market share of 35-38 per cent and MTC, third, with a market share of 18-20 per cent.
Mobily’s ARPU (average revenue per user) is seen around 35 per cent lower than STC’s.
At end-second quarter of 2007, Mobily’s blended ARPU stood at SR92, which is a 35 percent discount to STC’s mobile ARPU.
According to HSBC, the key reason for such a great disparity is the prepaid-post-paid mix for both companies. While STC boasts 34 percent of its subscriber base as post-paid, Mobily’s post-paid subscriber base stands at 6 per cent.
Post-paid users are generally high ARPU customers for telcos. The difference also comes from the fact that they pay a monthly fee, which is not paid by prepaid customers.
Mobily’s exceptional start made it EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) positive and captured a market share of more than 30 per cent in two years. Against this backdrop, Mobily said it is expecting “margin expansion through savings made on infrastructure sharing with STC once it builds its fiber-optic backbone by end-2007. This, coupled with strong subscriber growth, should lead to a surge in the company’s bottom line.”
The report expected that Mobily’s EPS would grow at a compound annual growth rate (CAGR) 2006-09 of 67 per cent.
