Our latest update on Saudi Arabia’s telecommunications market includes expanded market data sections covering the country’s fixed-line and internet sectors. Based on the latest data available, we now predict that the Saudi fixed-line market will shrink in 2009, as residential customers continue to migrate to mobile and WiMAX-based alternatives. The Saudi telecoms regulator, the Communications and Information Technology Commission (CITC), suggested that the fixed-line market saw stagnant growth in 2007. However, the regulator also noted that the number of residential fixed lines went into decline during the year. Meanwhile, although business demand for traditional fixed voice telephony has remained relatively robust in recent years, BMI expects this situation to change now that competition has arrived in the wireline market.

In April 2007, the Saudi wireline market saw its first move towards the introduction of competition, with the licensing of three new fixed-line operators. The three companies which received fixed-line operators’ licences include Saudi Arabia’s Etihad Atheeb Group (in which Bahrain’s Batelco has a 15% stake), a consortium led by US carrier Verizon (operating under the Optical Communications brand) and a group led by PCCW of Hong Kong (operating under the Al-Mutakamilah brand).

In June 2009, it was announced that Etihad Atheeb had launched fixed voice, internet and data services in two of Saudi Arabia’s largest cities, ending Saudi Telecom Company’s (STC) monopoly over the provision of fixed-line services. The network, branded GO, has been deployed using technology supplied by Motorola and China’s ZTE. Etihad Atheeb has unveiled plans to invest US$1bn in its fixed-line operation in the first five years of business. The company plans to target government and industrial hubs as well as regions not covered by STC.

STC has responded to the onset of wireline competition by reducing the tariffs on its own DSL internet services. DSL services have been responsible for much of the broadband growth to date. However, the introduction of WiMAX services is predicted to have far-reaching consequences for the development of Saudi Arabia’s broadband market. The proliferation of WiMAX will help to drive increased broadband take-up through lowering prices and increasing consumer choice. In 2009, BMI predicts that the Saudi broadband subscriber base will expand by around 51%. By the end of the year, we anticipate the number of broadband connections rising to over 1.55mn. Our newly revised broadband forecast envisages nearly 3.5mn broadband subscribers at the end of 2013, equivalent to 12.6% penetration.

Saudi Arabia has dropped from second to third place in BMI’s latest Business Environment Rankings for the telecoms markets of the Middle East. The change of position is partly due to the stronger score received by Bahrain, which has risen from third to second place in our ratings. However, this quarter also sees a slight drop in Saudi Arabia’s country structure score. The lower country structure score reflects the slowdown in GDP per capita growth which is predicted for 2009 and 2010.