Saudi Arabia has a refreshing ability to buck global trends. As the world economy appears to grow shakier with each passing month, the view from Riyadh is one of firm growth and real, underlying progress. In a similar fashion, the unease with which the international telecommunications industry is currently viewed by investors and analysts alike is a far cry from the booming telecoms sector in Saudi Arabia.

This is not just a case of the Saudis coming late to the party as some of the international revelers are leaving. The opportunities in Saudi Arabia are being driven by all the right things: a reforming government is preparing for privatization and the deregulation of the sector, and a raft of demographic indicators suggests that the good business opportunities of today will be even better tomorrow.

Photo by Marco Venditti

If proof were needed of the rich pickings available, a list of the international companies involved in existing network expansion programs makes interesting reading: they might be struggling globally, but Ericsson, Lucent, Siemens, Motorola and Nokia have found that a flight to the Gulf is a flight to quality. With the commitment to further massive network expansions and upgrades explicit, there is no danger that the diet of work will continue to be anything other than nourishing.

At the moment all eyes are on the Saudi Telecommunications Company (STC), the recently formed, government-owned corporation that holds the monopoly on voice-based telecoms in the Kingdom. And this is not just for the multi-million dollar tenders it has been issuing of late. Its formation in 1998 was the first step taken towards the privatization of the telecoms sector in Saudi Arabia. The subsequent strides have been considerable.

"The attraction of privatization is to provide the flexibility that will help things to move faster," says Dr Khaled bin Muhammad Al-Qusaibi, Minister of Planning and Acting Minister of Post, Telegraphs and Telecommunications. "Previously, people used to wait for years to get a telephone and during that time there was no internet and little mobile service."

In fact, the progress made by STC has been so rapid that the collapse of talks between the company and Southern Bell Corporation (SBC) over a proposed alliance that would have seen SBC acquiring a 20-40 percent stake in STC has neither derailed nor stalled the rapid growth of the company.

"Knowing we had a business plan in anticipation of the strategic partner, even before SBC came into the picture, spurred us ahead," says Al-Qusaibi. "We are now exceeding that plan without a strategic partner...we did not have to go through a slowdown of business." And now, the current thinking is that rather than taking on a foreign strategic partner, STC will stage an initial public offering in Saudi Arabia, although several key committees are due to give a further indication on moves in this direction in coming months.

What prospective shareholders will get, though, is an interesting proposition: a fat cash-flow, a relatively young infrastructure with limited legacy issues, and a very low debt position. They will also get dynamic management bent on development.

This has led to heavy investment in fixed-line telephony — including the award of high-value ASDL contracts — which has been matched by sizeable expenditure on the expansion of the GSM network. Even satellite telephony has been launched with Saudi Globalstar and Immarsat offering their wares to a receptive audience.

It is significant that both foreign and domestic companies have been getting the work. For example, big-hitters Ericsson and Lucent Technologies recently won a $600 million contract for the installation of 1.1 million new GSM lines. And the local company Silki-la-Silki Telecommunications picked up a ground-breaking ticket for the installation of 100,000 smart-card payphones. The Silki-la-Silki deal stands out as there is evidence of new thinking in the detail: the local company will not only be building the payphones, it will also be part-owning them for their first seven years of life, and taking 16 percent of the revenues from them.

Deals such as this have raised the levels of excitement generated by the prospect of privatization. New entrants such as Al Raedah International have aggressively entered the fray with a deal-making emphasis on wireless communications. In the mobile arena, Al Raedah is working with companies such as OgerTel, a subsidiary of Saudi Oger, which is already preparing for an opening market by winning GSM licenses abroad, notably in South Africa.

"Whether it's on the bid process or the auction, or whether it's going to be on technical grounds, we would be qualified," says Saad Hariri, Saudi Oger's general manager. "It would be better to have a Saudi company bid for and win a Saudi license, so our activities now should give us more chance of doing so." Such developments in Saudi Arabia might not be as far off as some might think: Hariri forecasts that the first GSM license will be issued by the end of next year.

OgerTel is not just playing the waiting game. In the one area in which there is full competition — the internet — it is already an active player. Alongside some 25 other internet service providers (ISPs) active in the Kingdom, OgerTel is eyeing a fast growing market. Although currently small — it is estimated there are still fewer than one million internet users in Saudi Arabia — the ISPs are playing for what will ultimately be a big prize.

Saudi Arabia has the potential to be the best market for internet-related business in the whole Middle East. Not only does the 22 million-strong population enjoy a 75 percent literacy rate, it also has a per capita income of more than $8,000 a year. In addition, young people dominate the demographics, with 60 percent of the population aged 20 or under. And the young are eager to expand their use of the web. In this their leaders have encouraged them: Crown Prince Abdullah has launched a $1.3 billion program aimed at providing every schoolchild with internet facilities over the next seven years.

With international telecoms markets increasingly looking like they are stuck in the doldrums at present, the case for searching out new opportunities in Riyadh is strong and getting stronger.

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