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Telecom and ITFavorable demographics driving growthThe Saudi telecommunication sector has experienced robust growth in the past few years,largely driven by KSA’s young demographic profile (68% of the people are below the age of 30)and rising per capita income. Currently, the telecommunication sector index of the Saudi StockExchange comprises four companies—Saudi Telecom Co (STC), Etihad Etisalat Co (Mobily),Mobile Telecommunication Co. (Zain) and Etihad Atheeb Telecom Company. STC enjoyed amonopoly in the fixed-line telecom service segment until recently, while Mobily and Zaincompete with STC in the mobile telephone service segment.KSA’s low penetration levelindicates significant room forgrowthIn 2008, the KSA Government granted licenses to Bahrain Telecommunication Co. (Batelco),Hong Kong’s PCCW Ltd (PCCW), and US’ Verizon Communications Inc (Verizon); with theirentry, STC’s monopoly in the fixed-line telecom segment has ended. Of the newly licensedplayers, Etihad Atheeb Telecommunication Company completed an IPO of SAR300mn inFebruary 2009, which was oversubscribed 3.5 times. The entry of new companies is expectedto accelerate the expansion of existing infrastructure and implementation of new technologyplatforms. However, with increased competition owing to the entry of new players such asMobily (in 2005) and Zain (in 2008) in wireless telecom segment, the average revenue per user(ARPU) of Saudi telecom sector has seen a sharp decline in the past three years.Despite being one of the largest mobile markets in the GCC region, the country had a relativelylow mobile penetration (116%) and fixed-line penetration (16.8%) in 2007. During 1H-08, theSaudi telecommunication market recorded a mobile penetration rate of 123.3%. KSA’s fixed tomobile substitution has also increased significantly over the last three years. This dented thegrowth in new fixed-line subscriptions and hence restricted the growth in revenue from thissegment. In the operational fixed landline category, KSA had 4mn lines by the end of 2007,taking the fixed-line penetration level at 17%. Internet penetration grew to 26% in 2007, and isexpected to be a catalyst for growth in the telecom sector in the long term.Exhibit 92: Fixed-line and mobile subscribers (per 100population) in KSAExhibit 93: Broadband subscriber lines and internet users (per100 population) in KSA17.01601012016.5120890616.08060415.54023015.02003 2005 2007 2009E 2011EFixed-line subscribersMobile subscribers002003 2005 2007 2009E 2011EBroadband subscribersInternet users0Source: EIUSource: EIUThe sector continues to be among the lucrative markets in the GCC due to its low penetrationlevel compared with other GCC peers, and favorable demographics. Saudi Arabia ranked fourthin terms of mobile penetration in GCC, with UAE being the first with 173%, followed by Qatarand Bahrain with 150.4% and 148.2% penetration levels in 2007 respectively. Moreover, fixed-JUNE 2009SAUDI ARABIA FACTBOOK65