Over the past year, rumours of a partial sell-off for the state-owned Saudi Telecommunications Company (STC), have intensified. Several international telecoms operators have been linked with a possible deal to acquire a strategic stake in the company, valued at $15-$20 billion with revenues of $4 billion last year.
According to a report by Pyramid Research, the Japanese NTT and France Telecom both opted out amid tough negotiations with the STC, leaving the US-based carrier SBC. SBC Communications, part of BellSouth, is a company working internationally with joint venture deals similar to the proposed STC project, with current holdings in 22 countries.
The idea of inviting foreign investment in Middle East telecom companies is not new to the region. Batelco, for example, brought in money and expertise from Cable & Wireless, to become one year later the most technically sophisticated operator in the region. The investment also helped Batelco extend their reach beyond the borders of Bahrain into Saudi Arabia, Kuwait and Jordan.
In late August, the Saudi-owned and London-based Asharq al-Awsat newspaper quoted “Western sources” as saying that STC has already picked SBC as a strategic partner, offering the firm a stake of between 20 and 40 percent. Although none of the parties would confirm or deny the report, it was said that the deal had been finalized and was to be signed in the near future.
According to the latest Pyramid Research report, talks with SBC broke down in late September over the SBC’s terms. STC sources contend that the American company demanded “monopoly rights,” that is, the right to operate exclusively in Saudi Arabia for five years, as well as complete control over administrative and financial decisions.
SBC reportedly gave the Saudis one month to accept their offer, a period which ended this week. These terms are in keeping with SBC’s outlook on emerging markets PTTs: Because the state-owned companies are typically inefficient and lack a coherent corporate strategy or strong infrastructure, a strategic investor requires three to five years to transform the company into a commercial entity.
In any case, SBC’s proposal appears to have been indefinitely shelved by the Saudis, with prospects for a deal further hindered by regional politics. According to Pyramid Research, Saudi sources intimated that SBC’s 50 percent stake in the Israeli AUREC group is a turnoff to some STC executives, particularly in light of the current wave of violence between Israelis and Palestinians. SBC does not currently have any holdings in the Arab Middle East.
Although negotiations have apparently broken down with the last of three potential strategic investors, STC is lately beginning to behave like a private company preparing for competition. The company, which provides fixed and mobile services to an affluent and rapidly growing population, is not only stepping-up efforts to improve services, it is also pressing forward its plans to strengthen public support.
In October, STC has slashed mobile phone tariffs by up to 67 percent, has removed the re-connection fee for mobile phones that have been disconnected, and re-introduced the system that allowed customers to pay large bills with several installments.
In an effort to heighten its efficiency rate, STC is planning to let go of its “unproductive employees”. The company, reported the Al-Watan newspaper, will cancel unnecessary jobs, and discharge employees occupying these positions. STC plans to recruit new professional employees as it completes its ongoing restructuring plan next January.
In addition to embarking upon a process of reorganising its administration, the company has also announced aggressive expansion plans. Ericsson has won a bid to add 1.1 million lines to Saudi Arabia’s mobile phone network, at a cost of SR1.13 billion.
At the same time, a deal to install 600,000 fixed lines is currently being fought for by several global telecom firms. Tenders for the project were submitted November 4, with the project expected to kick-off early next year. Four Arab banks — Arab National Bank, Riyad Bank, Saudi British Bank, and Arab Bank — await the STC’s choice of a lender for $666.7 million to finance the project.
According to plans, STC will add SMS (Short Message Service) to its GSM services (Global System for Mobile Communications) early next year and add GPRS capabilities (General Packet Radio Service). Today’s modest GSM infrastructure makes Saudi Arabia the only GCC member state where SMS text messaging and WAP (Wireless Application Protocol) are still unavailable.
The fact that STC is publicly announcing these new initiatives is just as encouraging, as it confirms the company’s fresh commitment to customer service, in a new competitive environment. However, it may turn out to be the company’s most challenging battle yet, as complaints from end users continue to mount about the quality of mobile services and STC’s customer relations.
In late August, Jeddah's telephone system was brought to its knees when a power station failure caused a meltdown to several STC exchanges. Over 15,000 mobile phones, 350,000 land lines and several banks' ATM cash machine networks were affected by the failure, according to local press reports. The telephone failure comes a week after Saudi Arabia dropped off the Internet when a critical router failed at KACST, although the two incidents are unrelated
With all its problems, STC is solidly entrenched in the marketplace. The country’s largest ISP, STC enjoys advantages with the King Abdulaziz City for Science and Technology (KACST) — currently, the Kingdom’s only regulatory body — an academic institution, which is primarily involved with the hosting of Saudi’s proxy service.
The opening of STC’s ISP subsidiary, Saudi Net, has brought calls for stronger regulation of the Internet service provider (ISP) market, from other influential ISPs, claiming that STC’s ISP had been exploiting its position, and offering business users a free trial for leased lines, which have been in short supply within the Kingdom.
Saudi Net’s arrival in the market has generated other concerns, namely that the ISP doesn’t under any circumstances, gain access to the information in STC’s vast database, or get any other form of preferential treatment in the allotment of network facilities.
Local ISPs in the Kingdom recently charged that KACST’s proposed legislation to reduce the cost of higher capacity leased transmission lines benefits STC, the only ISP with high bandwidth capacity, to the exclusion of its competitors, who claim they are paying exorbitant fees for Internet services. — (Albawaba-MEBG)
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