Leader of the Pack

By Julian Rogers, Deputy Editor

There are challenging times ahead for Telecoms titan Saudi Telecom Company (STC) as it battles to defend its position as the industry leader in Middle East and spreads its tentacles into lucrative overseas markets. STC President Saud Al Daweesh tells Julian Rogers he is confident that his business is equipped to succeed and emerge victorious from the telecoms war that is heating up in the region.

“Since STC is a cash-rich company we have the resources to both protect and maintain our home market position”
-STC President Saud Al Daweesh

Saudi Arabia may have been slow to join the mobile communications revolution, but thanks to the effors of STC it is catching up fast. “Over the past decade, telecommunications has been – and still is – one of the fastest growing industries worldwide,” STC President Saud Al Daweesh announces proudly from his office in the heart of the Saudi capital Riyadh. Indeed, STC itself was formed 10 years ago and has strengthened its position as the number one player in the Kingdom and the largest telecoms operator in the Arab world. The explosion in mobile phone usage has been the catalyst for STC’s rapid growth. The boss says catering to customer needs has always been its forte. “Our first requirement was to get up to speed and then stay up to date with the newest technological developments, the latest marketing trends and, above all else, the current needs of our customers.”

STC, which boasts over 22 million domestic customers, is experiencing strong growth for its fixed lines at the moment. In fact, Al Daweesh sees this arm of the business as having great potential, especially for rural areas of the Kingdom. “Mobiles are the future of communications and they will continue to dominate the market compared to handsets, but the great majority of households still require a landline phone and we will continue to increase our customer base by network expansion and outreach to rural communities,” he explains.

Top of the tree

Within the Middle East mobile communications market STC is engaged in a heated battle with Kuwait’s Zain and the UAE’s Emirates Telecommunications (Etisalat/Mobily). Although STC previously held a monopoly as the sole telecoms operator in its homeland, in 2003 the market was liberalised. The same is true for the fixed line sector when three consortia were awarded licences in the Kingdom last year. Al Daweesh puts a positive spin on the increased competition. “Yes, the regional market is becoming increasingly competitive but at the same time it is big enough for all newcomers. We welcome competition because it means that we must continue to be innovative in launching new products.”

Nevertheless, there are industry experts who accuse Saudi Arabia of becoming a saturated market with the telecoms rivals jostling for business. Although the sector still shows real promises seeing as around one third of the population is aged between 10 and 24, STC has been looking abroad to re-enforce its position with the telecoms leader shelling out in excess of US$6 billion on domestic and foreign expansion in the past 15 months alone. This included US$3 billion for a 25% share in Malaysia’s Maxis Communications, which gave it an 18% share in India’s fourth largest mobile operator – Aircel – as well as access to the Indonesian market. A 35% stake was also secured in Oger Telecom for US$2.6 billion earlier this year. This gave STC a strong foothold in the Turkish telecoms market. The firm also won the third mobile licence in Kuwait last year in a deal worth US$900 million, while untapped markets in North Africa are on the company’s radar. This includes getting a share of the delayed privatisation of Algeria Telecom. However, a bid to buy French media group Vivendi’s stake in Morocco’s Moroc Telecom was recently rejected.

When quizzed on the expansion, an enthused Al Daweesh is quick to point out the upsides. “The benefits of partnerships with companies abroad are many and varied, including sharing technologies and network resources. In terms of financial gains, STC’s objective is to achieve 10% of its total revenues from investments outside the Kingdom by the end of 2008.”

He says the company’s financial muscle pays dividends as it expands. “Diversification is sound business policy and since STC is a cash-rich company we have the resources to both protect and maintain our home market position while expanding our interests to other markets that offer great opportunities.” But with these telecoms firms scrapping over the same business surely consolidation is inevitable? “Simply, the answer is economics. With the costs of labour and raw materials continuously rising, a high degree of consolidation is inevitable to minimise the impact and better serve our customers,” says Daweesh.

Click online

Al Daweesh is keen to discuss the subject of his company’s online services. Broadband subscriptions have increased three-fold year-on-year and are expected to hit one million by the end of the year, while business subscriptions have risen by 12% on average every year. It’s impressive growth but there has been criticism in the Kingdom over the coverage, poor speed and reliability, especially regarding broadband. Broadband in Saudi Arabia is also a great deal costlier than that of neighbouring countries. Nevertheless, Al Daweesh is buoyant about the market in the Kingdom. “Our vision for the Internet is to provide a world class service and in this respect we have recently signed a Memorandum of Understanding with several leading international companies to construct a high-speed submarine cable system.

“It also addresses regional bandwidth requirements,” he notes, “and recently we activated the largest international Internet connection in the region with a speed of 10G per second as an additional track for connecting STC’s Internet gate with the universal net that includes the major Internet services providers around the world.” Al Daweesh says this will aid with business continuity efforts. “This will help avoiding visible and invisible risks, such as what happened during the disconnection of the sub-marine Internet cable last February which the Kingdom was not affected by due to STC’s investments in providing alternative solutions that contributed to the continuation of Internet connectivity for its customers.” The Internet is still relatively nascent in Saudi Arabia but sources suggest penetration could hit 30% by 2012.

Image is everything

Of course, any major company is constantly striving to raise its international profile, and STC is no different in that respect. However, today brand-building is not just about bombarding potential customers with adverts of the latest deals or products; exclusive deals with superbrands are becoming all the rage in the corporate world. This summer STC bosses put pen to paper with European football giants Manchester United on a deal that will allow the club’s logo and imagery for STC’s marketing purposes in its retail stores. The firm will offer customers video clips of match highlights as part of the mammoth US$18.6 million deal, one of the largest non-shirt sponsorships in British football. As a lead sponsor, STC will have a presence inside MUFC’s 76,000 capacity Old Trafford stadium and will be featured on the club’s website, which is the most visited sports website in the world. Furthermore, each year 70 Saudi students will be sent to train at the Manchester United Academy, one of the world’s most prestigious football training centres.

As you would expect, Al Daweesh is delighted with the move and his face lights up when discussing the matter. So is he a fan of the team? “Manchester United is a brilliantly successful global brand and was the obvious choice for STC because the club has a huge following of supporters in Saudi Arabia, as evidenced by the attendance figures at Manchester United’s match in Riyadh.” I’ll take that as a yes. Back in January Manchester United took the unusual step of making a 6000-mile round-trip to Saudi Arabia to play in a testimonial match. The club was paid US$2 million and it was here that the deal with STC was believed to have been brokered.

Manchester United has a huge fan base in country, as well as the Middle East as a whole. STC believes that it can acquire new customers through its affiliation with the current European champions. Al Daweesh is reluctant to put a figure on projected revenues from the deal but it will need to be more than a tidy sum to recoup its hefty investment. “There are many factors that will contribute to recouping our investment in this prestigious partnership, not the least in terms of goodwill among the many Manchester United supporters in Saudi Arabia.” Sport, and especially football, is extremely popular in Saudi Arabia, something that has not gone unnoticed by STC. In fact, the company is in the Guinness Book of World Records as the first and only company to sponsor 12 clubs in the same league at the same time. This record has never been broken.

With the exposure of the Manchester United deal and the move into new markets, Saudi Telecom is certainly on an international charge. Indeed, second-quarter profits rose 24% as income from foreign ventures starts rolling in. But it’s not all good news; as Business Management went to print reports surfaced that the company could axe 14% of its home market workforce in order to focus on expanding into North Africa – a move that could affect 3000 employees. Al Daweesh says his targets are clear in order to strengthen the company’s position and stay ahead of the pack. “Our goals over the next eighteen months are to consolidate the gains made in recent years, strengthen STC’s leading position in the home market and maximise the advantages of our expansion into markets abroad. We have every confidence in our ability to stay ahead of the competition due to STC’s technical expertise, innovative content, and marketing know-how that is based on our understanding of what our customers want and giving it to them at the right price.”