CITC Releases MVNO Licensing Framework

Saudi Arabia ' s telecoms regulator, the Communications and Information Technology Commission (CITC), released the framework for the award of MVNO licences on January 15. The process is due for completion in Q313 and is expected to attract significant interest from key regional operators. The Saudi government is keen to boost competition in the mobile market and the latest move is in line with BMI 's view that MVNO services provide a viable option to achieve that aim.

MVNOs Will Target Low Spenders
Saudi Arabia Mobile Forecast, 2010-2017

According to the CITC, interested operators have until May 4 2013 to submit bids for up to three licences for MVNO services. The successful bidders will pay a licence fee of SAR5mn (US$1.33mn), as well as 15% of their annual revenue to the regulator when they start operations. There will also be a further annual licence fee of 1% of revenue and other miscellaneous charges. The successful bids are expected to be announced 12 weeks after the application submission deadline, which is around August 2013. BMI will closely monitor key developments in this process.

We expect strong interest in Saudi Arabia's MVNO licences in view of the revenue and subscriptions growth potential in the market. Despite having a relatively high mobile penetration rate, Saudi Arabia welcomes millions of visitors every year coming into the country for work or religious purposes. This often boosts mobile subscriptions, albeit temporarily as a significant proportion of new lines soon become inactive when the owners leave the country. Perhaps the biggest opportunity is the potential for high usage and, consequently, strong ARPUs and revenues considering the relatively high income levels among locals and the likelihood for visitors to make frequent calls back home. That said, we believe MVNOs will target low spenders, including low-skilled foreign workers and youths, to gain a foothold in the market.

BMI expects FRiENDi Mobile, which formed a partnership with UK-based Virgin Mobile in 2012, to be among the top bidders for a concession to operate in Saudi Arabia. FRiENDi already operates in the country through a marketing partnership with Zain KSA and will be keen to launch full MVNO services. Other potential bidders include the UAE's du, Oman's Renna Mobile and Philippine's PLDT. du is keen to diversify its operations beyond its domestic market but with the least amount of commitment in terms of network infrastructure deployment. This strategy could be well served by MVNO services in Saudi Arabia. Renna Mobile already provides MVNO services in Oman but is also keen to expand abroad considering the limited growth opportunities in its domestic market. Omani private equity firm Oman Brunei Investment Company (OBIC) acquired a majority stake in Renna Mobile in December 2012 and BMI believes the capital injection will partly be used to finance its international expansion. For its part, PLDT has been expanding into markets with a huge Filipino expatriate workforce in Asia, Europe and the Middle East. We expect it to at least consider the Saudi market, which accounts for a significant proportion of remittances and international call traffic to the Philippines.

The award of MVNO licences will make Saudi Arabia the fourth country in the Middle East and North Africa (MENA), after Oman, Jordan and Israel, to allow MVNO services. It is worth mentioning that the Egyptian government intends to award fixed-line incumbent operator Telecom Egypt a mobile licence in mid-2013, but it is still uncertain if this will be a full network operating licence or an MVNO. We have long held the view that most MENA markets are ripe for MVNO services and this has been confirmed by recent moves in Egypt and Saudi Arabia.


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