Saudi Telecoms Sector: Mobily still ahead

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Saudi Telecom SectorTelecom –Industrial04 December 2011Mobile broadband accounts aresurging, and are way ahead offixed-line DSL.Figure 1. Fixed-line and mobile subscriptions in KSA (ARC estimates, 000s)4,5004,0003,5003,0002,5002,0001,5001,0005000Fixed line DSL (STC only) Other MobileSource: Company data, Al Rajhi CapitalFigure 2.Saudi mobile market: forecasts for penetration and accountsAt 195%, Saudi mobilepenetration rate moving fastertowards maturity.90.080.070.060.050.040.030.020.010.0240%220%200%180%160%140%120%0.02008 2009 2010 2011 2012 2013 2014Accounts (mn) Penetration (%)100%Source: Al Rajhi Capital estimatesFigure 3.Combined revenues and ARPU estimates70.0105We believe ARPU will continueto fall and will stable aroundSAR75 by 2014.60.050.0100911009540.0889030.0838520.010.078767580750.02008 2009 2010 2011 2012 2013 201470Revenues (SAR bn)ARPU (SAR)Source: Al Rajhi Capital estimatesDisclosures Please refer to the important disclosures at the back of this report. 2
Saudi Telecom SectorTelecom –Industrial04 December 2011Broadband growth still intactcompetition intenseThere is a substantial increasein CITC figures for broadbandsubscriptions for H1 2011. Itshows 13 mn fixed and mobilebroadband accounts.Accurate data for the size of the Saudi Broadband market is very difficult to obtain. TheCommunication and Information Technology Commission (CITC), the Saudi telecomregulator, publishes figures on the size of the telecom and internet markets in a ratherconfusing manner. According to the recent H12011 report, the total broadband (fixed andmobile) subscriptions at the end of H12011 stood roughly at 13mn (11mn for mobile and2.02mn for fixed line). It is worth noting that CITC changed its calculation methodology andadopted a new method of calculating the broadband subscriptions. The total subscriptionsnow include dedicated data sims, voice sims (which have data services), modems anddongles. As a result, the increase in subscriptions has been substantially higher than thosereported in the earlier quarters. The number of subscriptions at the end of 2010 were 4.4mn(including around 1.46mn fixed (DSL) broadband). These figures certainly suggest that themobile broadband market growth is still intact.Figure 3.Saudi broadband accounts (CITC figures,mn)12.0010.007.368.006.004.002.000.003.352.943.641.651.85 1.991.33 1.35 1.38 1.46 1.53Q110 Q210 Q310 Q410 Q111 Q211Fixed-line DSLMobileSource: CITC, Al Rajhi CapitalMobily is still ahead in terms ofmobile broadband......but STC is catching up.It is virtually impossible to reconcile this number with the claims made by operators. Theoperators have not published data on broadband subscriptions in Q3. Moreover, there is nobreakdown of the data provided by CITC in Q3. Hence, we have maintained the oldmethodology and used our judgement to compute the broadband accounts of the telecomoperators. We believe Mobily is ahead of STC in terms of mobile broadband accounts whileSTC is catching up slowly with the help of launching attractive packages and bundling themwith fixed line, smart-phones sales etc. The third operator Zain seems to be far behind itsrivals, largely due to the financial uncertainties surrounding the company and slowness inintroducing competitive offers to the market. We estimate that Mobily has around 2.3mnmobile broadband customers, while STC has 1.9mn, and Zain around 2, 00,000 broadbandaccounts. These figures totalled at 4.4mn at the end of Q3 2011, a 42% growth from 3.1mnaccounts in 2010. Thus, it is clear that mobile broadband is growing substantially faster thanfixed line broadband (10% y-o-y growth)With CITC reporting a mobile penetration rate of 195%, we think the competition amongoperators will continue to intensify. Going ahead, service providers will need to increase theirmarketing expenses and lower tariffs in a bid to maintain revenue growth. Recently, thesecompanies have shifted their focus on smart phones and tablet sales which rely on variousonline applications and require constant internet connectivity.Disclosures Please refer to the important disclosures at the back of this report. 3
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Saudi Telecoms Sector: Mobily still ahead

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