Internet demand to drive Saudi telecoms growth

Saudi Arabian telecoms firms STC and Mobily are forecast to achieve years of growth on the back of a projected 33 per cent increase in fixed-broadband subscriptions.

Saudi Arabia's telecommunications sector is on course for at least two years of growth driven by rising demand for broadband internet, analysts say.

Internet use in the kingdom is relatively sparse compared with other Gulf states, with just 35 per cent of households having broadband.

But increasing demand for web connectivity at home and via mobile is forecast to lead to a sustained period of revenue growth for the country's two largest telecoms operators, Saudi Telecom Company (STC) and Mobily. "I think the market in Saudi Arabia still has two to three good years of growth ahead of it," said Simon Simonian, a telecoms analyst at Shuaa Capital.

"When you look at the broadband penetration, it's relatively low compared with Europe and North America," he said.

Demand for broadband services is being driven by the country's young population and the adoption of smartphones, laptops and tablets, Mr Simonian said.

The appetite for internet service was cited as a driver of stronger second-quarter results for the two leading telecoms operators. STC this month reported a rise in second-quarter net income to 2.25 billion riyals (Dh2.2bn), up 9 per cent on the same period last year.

Mobily, the country's second-largest telecoms company, reported net income of 1.16bn riyals in the second quarter, up 29 per cent on the same period last year.

STC and Mobily have "phenomenal" growth potential, said Philip Brazeau, who heads the telecoms practice at the Middle East law firm Al Tamimi & Company.

"Saudi Arabia is going to be one of the key growth areas for telecoms for easily the next two years," said Mr Brazeau.

The current use of internet services in Saudi Arabia is well below that in other Gulf states, said Matthew Reed, an analyst at Informa Telecoms & Media.

"Currently, the fixed broadband household penetration rate in Saudi Arabia is still relatively low, at around 35 per cent at the end of 2010. It's above 90 per cent in the UAE, Bahrain and Qatar," said Mr Reed.

The number of fixed-line broadband subscriptions in Saudi Arabia is projected to increase by 33.4 per cent between this year and 2015, compared with just 13.9 per cent in the UAE, according to Informa.

Greater use of mobile internet is also contributing to higher revenue for STC and Mobily. The smartphone penetration rate in Saudi Arabia was 17.1 per cent last year but should grow to 25 per cent this year and 44.8 per cent in 2015, Informa said.

Competition between the companies is increasing, said Mr Reed.

"Mobily, as the number two operator, has for quite some time been focused on the mobile broadband space. And recently STC has become a lot more active in that area," he said.