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| Saudi Arabia to lead ICT investment in GCC |
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Posted on 28 Mar 2010 |
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Saudi Arabia is on track to lead the Gulf Cooperation Council (GCC) in information and communications technology (ICT) investment over the next three years.
While fixed-line telephony is steady, broadband penetration and internet use continue to rise, creating a window of opportunity for local and regional companies in the field of content generation. Saudi Arabia will account for 50% of ICT spending in the GCC over the next three years, according to the recently released “GCC ICT Infrastructure Report” from Kuwait Financial Centre (Markaz). The Kingdom is expected to receive around $90bn of the $180bn to be invested in ICT in the GCC between 2010 and 2012.
Growth in the Saudi ICT sector has slowed and is not expected to return to levels seen during the last decade, although this is the result of natural evolution as the sector matures. Between 2003 and 2008, ICT spending in Saudi Arabia grew at a compound annual growth rate (CAGR) of 17%. This is expected to have dropped sharply, to around 4%, in 2009. A rebound is predicted, with Markaz forecasting 8% CAGR for the three-year period ending in 2012.
Market leaders remain highly optimistic on the growth potential in the sector. “There is a lot of room for intrinsic market growth, driven by the growing local population and government spending in infrastructure, services, education and health. The Saudi economy was resilient to the international downturn and, within this context, the telecoms sector was even more resilient,” Dr Ahmed A Sindi, the CEO of Etihad Atheeb Telecom Company (GO), told OBG.
GO, an alliance between Atheeb Trading Company, Al Nahla Trading Company, Batelco of Bahrain and Traco Company, was one of the three groups awarded licences to operate fixed-line services in the Kingdom in 2007. The other two licences were awarded to Al Mutakamilah, led by PCCW of Hong Kong, and Optical Communications Company, of US company Verizon Communications. To date, GO is the only one of the three to begin commercial operations.
Growth and revenues in fixed-line telephony have remained stable in recent years. According to the latest figures from the Communications and Information Technology Commission (CITC), there were 4.169m fixed telephone lines in the Kingdom through the first nine months of 2009, representing a household teledensity of around 69% and a population teledensity of around 16.3%. This is a slight increase from the 4.1m fixed lines at the end of 2008, with all the growth in this period coming from business lines, as residential lines remained at 3m at the end of the first nine months of 2009, the same level they were at the end of 2008. According to Markaz, the fixed-line segment grew at a CAGR of 3% between 2002 and 2008, in line with a global trend of fixed-to-mobile substitution.
Fixed-line revenues were SR10bn ($2.66bn) at the end of 2008, the latest date for which figures are available from the CITC, and have been slowly decreasing from the 2001 level of SR12bn ($3.19bn).
The story is quite different though when it comes to broadband services. “The Saudi government has opened up the telecoms sector, and broadband services in particular, because of the positive effect these investments have on the economy as a whole. An increase in broadband penetration is closely correlated with economic growth. The telecommunications sector acts as a catalyst to enable faster economic growth,” explained Sindi.
Broadband registered members reached 1.985m at the end of the first nine months of 2009, up 49.2% from 1.33m at the end of 2008, representing a broadband household teledensity of 31% and broadband population teledensity of 7.8%. When the year-end figures for 2009 are released, it is anticipated that broadband users will be around the 2.2m mark.
This growth has been primarily driven by wireless broadband, which includes WiMAX and mobile high-speed packet access technologies. Wireless broadband members were up over 125% from 330,000 at the end of 2008 to 745,000 at the end of the first nine months of 2009, confirming that consumers in the Kingdom are quick to adopt new technologies and services. If these growth rates continue on their current trajectory, wireless broadband members will outnumber digital subscriber line members by the end of 2010.
The number of internet users in Saudi Arabia also continued to climb, reaching 9.8m, or 38.5% of the population, through the first nine month of 2009. Catering to this increasing user base through the development of content presents one of the brightest opportunities for local companies. Currently, less than 1% of global online content is available in Arabic, although Arabs make up over 5% of the population, according to Joanne Kubba, Google’s manager of communications and public affairs for the Middle East and North Africa.
“Saudi Arabia has a young population that wants to connect with its peers and the rest of the world through content-rich channels. Local content has had a good start, however, this is an area where we would like to see more creativity and a push from educational institutions to reward and encourage local content generation. We expect local content to grow by leaps and bounds,” Sindi said.
A young, growing and tech-savvy population that is under-served with respect to local content presents fantastic prospects for local companies and entrepreneurs. With broadband and internet users surging, and billions of dollars in investments expected over the next three years, Saudi Arabia’s ICT sector is one to keep a close eye on.
Oxford Business Group
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