STC seeks new market strategy as privatization drive decelerates

Published April 16th, 2001 - 02:00 GMT

After months of deliberation, the Saudi Supreme Economic Council had finally announced in mid-February a list of 22 business activities barred from foreign involvement. The list was passed as part of the Kingdom’s invigorated efforts to present gradual market reforms in key industries. Appearing on the exclusion list is the country’s telecommunications sector, which is to remain, at least until 2004, blocked to foreign ownership of property and company stakes and excluded from government incentive programs, aimed at attracting such international firms. 

 

This does not necessarily suggest, however, that the Saudi government is altogether withdrawing from its initial commitment to the privatization of the country’s telecom services. It may also indicate that, as one of the major components of the national privatization strategy, along with the electricity and air transport sectors, the telecoms market is to await further resolutions on several key issues before it is opened to foreign investment.  

 

Back in 1998, the Saudi government began the telecom privatization process by passing control of the national services to a joint stock company, which was named Saudi Telecommunications Company (STC). Gradually taking over from the Ministry of Post, Telephone and Telegraph (PTT), STC carried out major telecommunication projects kingdom-wide, while treading a path that will eventually enable it to operate on a commercially competitive basis.  

 

The STC was designed to operate as a major holding company, ultimately consisting of several subsidiaries. The private sector was expected to acquire equity participation in the STC by the end of 2000 — an option, which until recently was potentially open to foreign involvement. A shortlist of potential partners, that were to be given extensive management control of the network operations, included Southwest Bell (SBC) and France Telecom. The target date for the selection of the partner was set for the summer of 2000. 

 

However, according to a recently released Pyramid Research report, negotiations between the STC and the US-based telco SBC, over the sale of a strategic stake in the company, broke down earlier this year, shortly before the government ruled out foreign investments in the sector for the next four years.  

 

With the telecom market’s decelerated move along the path to privatization, this latest delay has led STC to seek a new market approach, taking the first step by pursuing a home-grown restructuring strategy. Reflecting a desire to transform into a knowledge enterprise, STC plans to develop a customer-focused corporate environment, preparing for the privatized, competitive market down the road.  

 

According to Pyramid Research, this newly adopted strategy calls for reducing STC reliance on outsourcing to foreign companies and revived plans to hire 500 Westerners, mostly in an advisory capacity. Plans to consolidate the company’s 13 district control centers into three regional branches and spin off fixed telephony, mobile telephony, data services and Internet services into separate strategic business units, are underway.  

 

With regard to fixed telephony, Pyramid Research points out that one result will be the creation of three viable regional telcos, each potentially open to foreign investment by 2004. STC’s mobile services unit is also well on its way to becoming an independently functional business unit. The GSM division is expected to spin off by mid-2003. STC’s new Internet Service Provider and first full-fledged strategic business unit, Saudinet, began operations in May and surpassed its parent company’s expectations. Although still lagging behind its 28 competitors when it comes to market share, Saudinet in nonetheless well positioned to emerge in the medium term as a regional ISP player, forecast Pyramid analysts.  

 

According to STC figures, released in February, the number of fixed lines in Saudi Arabia stands today at three million, while the mobile subscriber base tops one million. STC’s customers are served by the company’s 23,748 employees, and more than 17,000 trainees. — (Albawaba-MEBG)

© 2001 Mena Report (www.menareport.com)


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