The Delta Perspective

September 2010

The rise of Saudi Arabian telecoms:

Unrivalled promise and opportunity
in a vibrant market
Authors Josep Que - Partner
Victor Hurtado - Principal
Gunish Chawla - Manager
Rui Ferreira - Associate
Delta Partners Intelligence Unit

Key highlights

• Saudi Arabia is the largest telecom market in the GCC sized at USD 11.6 bln in
2010, with the growth in telecom revenues expected to be about USD 1 bln from
2009 to 2010. Saudi Arabia alone will grow, in absolute terms, more than the rest
of the GCC telecom markets put together

• Riding the wave of the phenomenal telecom growth that began in 2005 with the
liberalisation of the telecom sector, the Saudi Arabian telecom market has now
reached an exciting phase in its evolution – well-established with voice and basic
data services, Saudi Arabia is strongly positioned to benefit from the next wave of
growth opportunities

• Six key promise pillars are shaping the next wave of growth opportunities:

• In the driver’s seat: A youth-centric and expatriate consumer generation

bolstering demand

• The internet and broadband surge: Unleashing the growth

• The smart device: An integral lifestyle choice

• Beyond the basic: Innovation in telecom applications and services

• Mobile financial services: Banking at your fingertips

• The connected corporation: Need for sophisticated ICT services

• Each of the promise pillars has strong implications for the industry stakeholders
and they need to act now to seize the relevant opportunities that lie within this
market
 Introduction
Saudi Arabia is the largest telecom market in the GCC
sized at USD 11.6 bln in 2010, with the growth in telecom
revenues expected to be about USD 1 bln from 2009 to
2010. Saudi Arabia alone will grow, in absolute terms, more
than the rest of the GCC telecom markets put together.

The story of Saudi Arabia’s phenomenal telecom growth began in 2005 with the liberalisation
of the sector. The opening of the telecom market helped the economy at large, by not
only acting as a key enabler of the economic growth but also attracting relevant foreign
investment. The overall impact has been outstanding both from a customer and business
perspective – an ever increasing customer base has enjoyed a wide array of innovative
products and services, while at the same time telecom players have posted solid financial
results benefiting their large Saudi Arabian shareholder base as well.

This white paper provides the Delta Partners perspective about the underlying forces and
opportunities that are shaping the next wave of growth in the Saudi Arabian telecom
market, and how relevant stakeholders (such as companies, government, regulatory bodies,
etc.) can act as enablers and benefit from the opportunities.

Fulfilling the promise of Saudi

Arabia: Opportunities and
implications
Saudi Arabia, with six key promise pillars shaping the next wave of growth opportunities
(refer Exhibit 1), is uniquely positioned in the GCC.

EXHIBIT 1: PROMISE PILLARS

Source: Delta Partners analysis

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1. In the driver’s seat: A youth-centric and expatriate
consumer generation bolstering demand

Saudi Arabia’s population, with around 27 mln people, is the largest in the GCC. The youth
and expatriate segments are an influential part of the consumer dynamics, representing a
large portion of this base. The youth segment (15-24 years) stands at around 5 mln of the
total population, and the expatriate segment is estimated at around 8 mln people (refer
Exhibit 2); both segments are by far the largest in size in the GCC.

These segments are crucial drivers for telecom products and services. The youth segment is
tech-savvy, adopts new products and services, possesses significant purchasing power and
could represent high customer lifetime value for telecom players. The expatriate segment
will continue to be an important contributor to the economic growth in Saudi Arabia in
the coming years and, as such, possesses relevant disposable income to spend. Telecom
products and services that enable contact with families and friends abroad form a large
part of the expatriate segment’s demand and represent a significant share of revenue for
telecom players.

EXHIBIT 2: POPULATION BENCHMARK (2010 Est., Mln)

Source: Saudi Arabia census April 2010, IMF, US Census, CIA Fact book

Saudi Arabian telecom players are well-positioned to benefit from this demographic trend,
with the youth and expatriate consumer segments fuelling demand for innovative services.
This demand is backed up by growing GDP per capita, which is expected to continue to
grow at a healthy pace (refer Exhibit 3). Saudi Arabia as a country still spends less on telecom
services than several other countries in the region, however, this is expected to change as
the telecom market matures – showcasing the Saudi Arabian telecom market potential as
compared to other markets. An increase of 0.6pp in telecom revenues contribution to GDP
(parity with the average benchmark) would lead to an increase of 2.8 bln dollars in annual
telecom revenues in Saudi Arabia (refer Exhibit 3).

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 EXHIBIT 3

Source: IMF, World Economic Outlook Database, April 2010 Source: ITU, IMF, Delta Partners analysis

Implications for stakeholders

Given the vast size and potential of the Saudi Arabian telecom market, and in particular
the relevance of the ‘youth’ and ‘expatriate’ segments, industry players need to specifically
target these segments. This does not mean creating products or services in isolation, but
rather creating a holistic value proposition that fulfils in a unique way their needs. This value
proposition should be based on analysis of customer usage and behavioural insights, and
should cover varied elements such as what to offer (products and services), where to offer
(sales and distribution), at what price (product pricing), which enablers to leverage (devices
and content/applications) and how to communicate (branding and communication).

Several mobile operators around the world have introduced specific product offerings or
MVNOs targeting the ‘youth’ and ‘expatriate’ segments. These specific offerings are widely
present in the GCC, developed countries and emerging markets. In the GCC, Orange Jordan
has a ‘youth’ package specifically targeting the youth segment with tailored offers such
as ‘free talk at university’, ‘mobile internet bundles’ and ‘free SMS’ lines. Oman currently
hosts 5 MVNOs offering services for varied segments – for example, Halafoni, an MVNO
launched in 2009, targets the youth segment. In developed countries such as the UK, Virgin
Mobile offers specific mobile offers for students offering discounts across voice and mobile
broadband tariffs. Telecoms group Econet Wireless has taken over the UK MVNO operation
of IDT Mobile to launch its own services to African communities. In Germany, E-plus has
launched a Turkish focused MVNO targeting the Turkish expatriates by offering them lower
international call rates and a call centre in the Turkish language. In emerging markets such
as Pakistan, Ufone, has introduced the ‘Uth Package’ specifically for the Pakistani Youth,
offering low SMS rates, preferential F&F and off-peak rates, and targeted content services.

Content players have a prominent role to play in developing the ‘youth’ and ‘expatriate’
offers. Youth-specific content around social networking, sports, education, celebrity news,
etc. need to be relevant to Saudi Arabia and the Middle East region. Expatriate content
needs to focus on the main international communities in the country, in particular the Asian
and Arab countries.

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Device players such as Nokia, Samsung, Apple, HTC, etc. need to launch handsets in the
market that are aligned with the needs of these segments. Expatriates in Saudi Arabia are at
both ends of the spectrum, from the ‘smart phone’ savvy users to ‘low cost handset’ users.
Similarly, the youth in Saudi Arabia lean towards the more brand and fashion conscious
offers, and therefore, the device players need their products to cater to this need. Device
players need to proactively pursue opportunities for partnering with mobile operators and
thereby push uptake of newer and more relevant devices into the market.

2. The internet and broadband surge: Unleashing

the growth
In Saudi Arabia, there has been a rapid boom in the number of internet and broadband
users over the last five years. From 2005 until 2009, the internet user base has almost tripled
from 3.9 mln to 10.2 mln users, with the broadband base increasing almost ten-fold from
0.25 mln to 2.3 mln users. The rising trend in the number of internet and broadband users
in Saudi Arabia is expected to continue over the next five years with around 4 mln new
internet users and 2.7 mln new broadband users expected by 2014 (refer Exhibit 4). The
growth in these users can be credited to wider internet access and growth in availability of
broadband services, better public awareness and cheaper personal computers.

In Saudi Arabia, growth of the broadband market will further boost telecom revenues,
making data revenues the main growth driver. This follows the trend of developed markets
such as Western Europe, where data has been driving the growth of telecom revenues
with voice revenues showing slow or declining growth. In Western Europe, data revenues
represented 12% of total telecom revenues in 2008, with this figure expected to rise to
21% by 2014. In comparison, in the Middle East region, data revenues only represented 6%
of total telecom revenues in 2008, with this figure expected to rise to 13% by 2014.

EXHIBIT 4: SAUDI ARABIA INTERNET AND BROADBAND USERS (No. of users, Mln)

Source: BMI Q2 2010, Delta Partners analysis

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 Furthermore, lower broadband penetration rates when compared to advanced broadband
user peer countries such as Bahrain highlight the potential for growth in the Saudi Arabian
broadband market (refer Exhibit 5). In Saudi Arabia, in the past the broadband penetration
has not been able to grow as expected due to lack of reliable infrastructure. However, the
launch of mobile broadband has been the main enabler to increase penetration across the
country, in particular in 2009/2010. The arrival of faster mobile-based (HSPA+) broadband,
supported by cutting-edge infrastructure in the country with speeds of 21 Mbps for HSPA+
(trials for 42 Mbps completed), will enable faster broadband growth. Furthermore, increased
fixed broadband speeds of 21 Mbps for ADSL service will also boost broadband growth.

EXHIBIT 5: BROADBAND PENETRATION BENCHMARK (2009, %)

Source: ITU Source: WCDM, WCIS

Implications for stakeholders

Each of the relevant industry stakeholders needs to play a critical role in pushing the
broadband penetration and increasing uptake of services to fully realize the potential of
broadband in Saudi Arabia.

In order to capture the data growth, mobile and fixed operators require heavy investment
in advanced data networks. Given the limited infrastructure in fixed networks, mobile
operators have taken the initiative in Saudi Arabia to expand mobile broadband networks.
One of the key focus areas for mobile operators is to understand the required level of
network investment to ensure the ‘equivalent’ fixed broadband customer experience. Speed
and capacity are the two key potential issues that mobile operators may face in the future, in
particular, with the trend of increasing data usage in Saudi Arabia, especially with offers of
unlimited data packages. Another effect of the increasing data usage trend is the additional
pressure on returns. Operators need to protect their margins, as unlimited packages,
combined with increased surfing speeds and content availability, would lead to a gradual
decrease in profit per unit of data consumed that may eventually lower operators’ margins.

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Fixed operators have the obvious advantage of capacity and speed on their networks when
compared to mobile operators. As content and applications that require heavy bandwidth
(e.g. IPTV) become more popular, fixed broadband networks will be better positioned. To
capitalize on this, fixed operators need to drive the use of their networks as the standard for
bandwidth hungry content/applications. A key area of focus for fixed operators is coverage
– fixed operators cannot deploy at the same speed as mobile operators, and therefore need
to make smart choices in terms of coverage deployment.

Equipment vendors/manufacturers also have an important role to play in the current

broadband environment. The role of PC manufacturers is critical in providing a boost
to broadband growth in Saudi Arabia. An increase in penetration of both desktops and
laptops within the Saudi population will contribute to an increase of broadband users. PC
manufacturers need to ensure a wide range of choices of PCs and easy access through a
vast distribution network. In addition, network equipment manufacturers need to partner
closely with the telecom operators in Saudi Arabia on topics such as technology selection
(LTE, WIMAX, etc), coverage deployment (urban/rural) and network optimization. Network
equipment manufacturers need to proactively suggest to telecom operators the latest
technologies and innovations that can be brought to Saudi Arabia.

The government of Saudi Arabia launched the National Communications and Information
Technology Plan (NCITP) in order to boost economic development and growth. According to a
2009 World Bank report, for every ten percentage points increase in broadband penetration,
the GDP growth in developing countries can be expected to increase by 1.38 percentage
points. Under the umbrella of the NCITP, the government of Saudi Arabia has launched several
projects with the aim of facilitating access to the internet and improving its performance. The
role that the government of Saudi Arabia has played so far in increasing broadband penetration
has been very encouraging; however, there is scope to play an even more prominent role. In
other international markets such as the Republic of Korea and the UK, governments have
played a very active role in promoting broadband development. The result has been that
the broadband take-up has been much faster than at other leading broadband economies,
therefore helping to reduce the digital divide. Complementing the role of the government in
Saudi Arabia, it is essential that the regulator also promotes technology neutrality and fair
competition within the telecom market. An important part of the regulatory framework is
granting operators unbundled access. Local loop unbundling will increase competition and
technical innovation through provision of additional operator services.

Internet players such as Google can also contribute significantly to the broadband
development across the Middle East region. In developed countries such as the United
States, Google has launched the ‘Google Fiber for Communities’ project with the aim to
build experimental ultra high-speed broadband networks. This project aims to improve
internet access and experience by delivering faster internet speeds, facilitating deployment
of next generation apps and offering an open access network. Similarly, Google has joined
a consortium that will offer internet access to several billion consumers across emerging
markets. The project, named O3b Networks, aims to create a gobal internet backbone and
is targeting those people for whom internet access is not commercially viable. Projects such
as these are mutually beneficial for internet players and consumers. Consumers benefit from
access to their content of choice. Internet players benefit from more eye balls on the web
leading to additional revenue generation.

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 3. The smart device: An integral lifestyle choice
For a typical Saudi customer, a consumer product is an extension of the person, and the
smart device is no exception to this. Since the arrival of Apple iPhones in Saudi Arabia,
the market now has devices such as the Apple iPad and eReaders that are expanding the
range of ‘smart’ devices. With enhanced user experience, superior technical capabilities
and support for numerous mobile applications and services, smart devices, and in particular
smart phones, form a very attractive proposition for customers in Saudi Arabia. Smart
phones are an important part of the social fabric in Saudi Arabia, and lend to status and
recognition. This characteristic makes smart phones a significant part of the opportunity pie
within the telecom arena.

The smart phones segment has seen solid growth in sales in 2009 globally, despite the
overall decline in global handset sales. The sale of smart phones to end users in Saudi
Arabia is expected to jump from 3 Mln units in 2009 to 7 Mln units in 2013. With increasing
demand for data services from consumers and increased smart device penetration in Saudi
Arabia, data revenues are expected to increase significantly in the coming years.

Since the launch of the first Blackberry in Saudi Arabia in 2006 by Mobily, several new models
from Research In Motion have made an appearance in the market. 2009 was the year of the
first appearance of Apple’s iPhone 3G, again launched by Mobily. Google Android smart
phones, currently led by Samsung and HTC products, have also entered the Saudi Arabian
market in recent months, stiffening competition to Apple and Research In Motion smart
phones. STC, in particular, has launched in the market with HTC magic.

Implications for stakeholders

Consumers are currently paying much more attention to the device as a whole rather than
to the network operator (look and feel, content and applications, interface and the brand
of the device being the most relevant elements). Due to the shift in the customer’s purchase
decision patterns where network loses relevance versus devices and supporting content,
device players, mobile operators and software solution providers will need to adapt their
strategies to be the preferred choice for customers.

Device players have a strategic decision to make in Saudi Arabia: remain hardware-
focused or expand into the services market by linking devices to services. Recent global
industry trends show a number of device vendors and operating system providers, such as
Apple, RIM, Nokia, Palm, Android and Microsoft, creating an ecosystem around devices
and services. For the Saudi Arabian telecom market, linking devices to services requires
device players to have a clear plan to address potential challenges such as how to manage
interaction with customers for services and applications (selection and de-selection of
products and services, billing, etc), how to support a strong developer community around
the ‘services’ aspect, and what partners to collaborate with (e.g. mobile operators, software
solution providers, etc).

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 On the hardware side, device players need to be equally proactive in developing and
launching new handset models in Saudi Arabia. Mass-market phones are no longer
adequate on their own. With certain segments such as the youth segment exhibiting high
social networking usage behaviour, specific feature phones that are Facebook or Twitter
friendly could be very relevant in the current context. Additionally, given the relevant size of
the Saudi Arabian market, device players could use this market as the main hub for Middle
East device launches across multiple segments such as enterprise, SME and low-end (refer
Exhibit 6 for range of potential devices).

While in developed markets leading mobile operators are considering devices as a core
element of the value proposition to drive business goals, in emerging markets operators
are starting to evolve from a “do nothing” perspective to considering devices as a relevant
strategic element. In Saudi Arabia, mobile operators need a clear device strategy that includes
the selection of preferred devices, supporting content and applications, and logistics.

With consumer demand for smart phones increasing in Saudi Arabia, mobile operators need
to take strategic decisions on their relevant choice of device vendors. Apple and Android-
based phones offer two diverse ecosystems in terms of devices and supporting content
and applications. Additional players such as Nokia and Microsoft are likely to offer their
own ecosystems. Mobile operators need to assess their role and involvement, and adapt
their strategies accordingly as the handset becomes a key facilitator of services. Additional
decision points for mobile operators include understanding their role in offering device
subsidies to increase adoption rates and ensuring an efficient supply chain in delivering
these handsets to the end-consumer.

EXHIBIT 6: DEVICE MAP

Source: Delta Partners analysis

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 4. Beyond the basic: Innovation in telecom applications
and services
In recent years, competition within the telecom application market has heated up. From
its early origins, where it was mostly the domain of operators with the early portals, it has
undergone a notable change with the entry of handset vendors and internet players such
as Apple and Google. Consumers now have the benefit of user-friendly devices such the
iPhone, fast and reliable 3G connections, and highly relevant content, all of which have
contributed to a rise in user activity and acceptance of telecom application and services.
There are clear signs of a fundamental shift, with consumers using their mobile phone as a
social networking and multi-media device. The outlook for mobile social networking users
remains optimistic, with the number of mobile social networking users worldwide expected
to reach around 700 mln in 2013 from 140 mln in 2009. This should help drive data and
value-added services revenues upwards.

Saudi Arabia has been no exception to this trend. There has been significant growth in the
number of users of value-added services and the contribution of value-added services to
data revenues is estimated to significantly increase reaching 38% in 2014 from 25% in 2010
(refer Exhibit 7).

EXHIBIT 7

Source: Delta Partners analysis

With the forecasted growth of broadband and the increasing proliferation of smart
devices, there is an opportunity for players across the telecom value chain to fill the gap
with products and services that meet the Saudi customer’s needs. In Saudi Arabia, the
relatively small-sized data market is still dominated broadly by messaging services such
as SMS. With a highly competitive voice market, telecom players are looking to expand
their offerings of value-added services in order to maintain a steady revenue growth and
healthy operating margins. There is room in the market for Middle-East focused Apple-style
stores that provide customized content and applications catering to the specific needs of
the Middle East customers. Location based services and social networking are expected
to post the strongest growth among VAS services in the region, the latter fuelled by the
new social networking habits of internet users being moved from fixed to mobile devices.
However, entertainment (e.g. music download and streaming) and games (both download
and online playing) are expected to remain as the largest slices of the Saudi VAS market in
the following years, with Islamic services also showing good potential in Saudi Arabia.

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Implications for stakeholders

Players such as Apple and Google have advanced from their more conventional roles into
developing a network that brings together hardware, software and content, in particular
using content and application stores as the vehicle to link devices to services. The ability
of content and application stores to generate sufficient revenues and to be technically
compatible across different platforms and devices still needs to be fully demonstrated.
However, with the need for industry players to increase differentiation, enhance brand
equity and promote customer loyalty, the option to consider content and application stores
as part of their strategy either on their own or through collaboration is unavoidable.

In an effort to compete with players such as Apple that have built critical mass in the
provision of telecom application and services, mobile operators need to be bold and
decisive. Traditionally, mobile operators have offered content and applications to subscribers
within their own network. Mobile operators increasingly need to consider opportunities
enabling them to go to market with applications and content services that are accessible
by other operators’ subscribers not just their own network subscribers. This increases the
size of the revenue pie for both operators and content players. An example of this strategy
comes from the UK, where Vodafone UK has test launched an iPhone web application,
which essentially contains a link to a website for iPhone users to download the Vodafone
app to their devices, and through which they can then access the Vodafone portal. Once
on the Vodafone portal, users can access content from other content providers aggregated
by Vodafone, for example, BBC News and CNN. This is an interesting move for Vodafone
that has given access to iPhone subscribers across all networks, removing the traditional
barrier imposed by an operator’s own network, increasing the intrinsic value of the portal
for application / content providers and hence, its own customers.

In the world of telecom applications and services, fixed operators hold the edge over
mobile operators when it comes to capacity and speed. This becomes relevant for bandwidth
hungry applications such as IPTV and data heavy web content. Fixed operators will need to
consider investing in such applications and services, and invest in infrastructure required to
support these.

Recently, there have been some initiatives in the region to make Arabic content available,
for example, Rotana as the local TV distributor in Saudi Arabia providing more than 2,000
Arabic movies. However, of the top 20 websites viewed in Saudi Arabia, only 30% are in
Arabic with the remaining in English. Saudi Arabia still does not possess the full breadth
and depth of Arabic online content, and this provides an ideal opportunity for content
players to make a play through provision of specific Arabic content, leveraging on online
partnerships where possible.

Both the government and regulator can also play an important role in developing the
market for telecom applications and services in Saudi Arabia by establishing an enabling
environment. This needs to include an appropriate legal framework, e.g. content rights, and
foster innovation of applications including local content possibly through the creation of
incubators and incentive programs. Additionally, the government can promote Saudi Arabia
as the main hub for content and application development within the Middle East, serving as
an additional mechanism to generate GDP.

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 5. Mobile financial services: Banking at your fingertips
Mobile Financial Services (MFS) are getting more and more popular in emerging as well
as developed markets around the world. In developed markets, MFS are more prominent
as a means to enhance cashless transactions, for example, online shopping and balance
enquiries. In Japan, mobile operators such as NTT Docomo offer subscribers a portfolio
of mobile financial services such as online shopping, ticketing and finance. Similarly, in
the Netherlands, Rabobank delivers to its customers m-banking services such as balance
enquiry, loan enquiry, stock price enquiry, electronic transfers, bill payments, arranging
overdrafts and automated alerts. In emerging markets, MFS are used more to access
financial services previously unavailable, for example, money transfers. Kenya’s Safaricom
MFS initiative, M-Pesa, has attracted 11.9 mln users since its launch in 2007. M-Pesa includes
functionalities such as person-to-person money transfers, airtime top-up, bill payments,
ATM withdrawals and balance enquiries.

Saudi Arabia has the opportunity to meet both needs:

• For the mid-high end society, develop solutions similar to the developed markets for the
banked people
• For the low end segments of the population, develop solutions for unbanked people
• For both, create an ecosystem of services to foster cashless transactions and other
advanced services

The banked majority of Saudi Arabia’s population profile lends itself to MFS uptake given
its degree of sophistication and technological knowledge. Saudi Arabia’s unbanked market
exhibits characteristics that are similar to other markets with successful implementations:
large expatriate population of Asians of whom the majority are un-banked (as well as a
significant percentage of locals). The high Expatriate population is reflected in the value
of annual remittance outflows from Saudi Arabia, worth over USD 16 bln in 2007, most of
which are being sent to Asia.

Implications for stakeholders

Saudi Arabia is well positioned to implement and capture greater potential from the MFS
opportunity compared to other markets. It has a solid foundation with established common
electronic platforms (e.g. SADAD payment system). In addition, the market exhibits traits that
would facilitate adoption, across both banked and unbanked populations. From the markets
that have successfully implemented MFS, a common characteristic emerges – the presence
of a strong stakeholder. In the case of Saudi Arabia, there is a strong regulatory body that
can act as the driver for the creation of a large enough and standardized ecosystem that is
attractive enough for all players. There is a clear opportunity here for the regulator to play
the leading role in shaping the MFS industry and supporting frameworks in Saudi Arabia,
and the widespread use of MFS, if implemented properly, can bring important benefits to
all stakeholders (refer Exhibit 8).

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 EXHIBIT 8: MFS BENEFITS TO STAKEHOLDERS

Source: Delta Partners analysis

From the perspective of the government, MFS can present very strong benefits through
the stimulation of economic and technological development. According to Global Insight,
e-payment networks create cost savings of 1% of GDP annually over paper-based systems.
Furthermore, increasing share of e-payments by a margin of 10% generates an increase of
0.5% in consumer spending.

In a competitive mobile market such as Saudi Arabia, with a large percentage of multiple
SIM users, mobile operators are looking to complement and expand current offerings with
novel services to differentiate themselves, and mobile banking could play an important role
in this differentiation. In the short term, MFS are more likely to be a customer acquisition
and retention tool rather than a driver of new operator revenue streams.

For banks, MFS could represent several benefits in Saudi Arabia such as access to a larger
share of remittance transactions, increased customer base, enhanced market reach with
cost efficiency and increased float. The overall MFS proposition could become significantly
attractive for banks, especially those with limited reach and smaller subscriber bases.

6. The connected corporation: Need for sophisticated

ICT services
According to the IMF, the outlook for Saudi Arabia’s economy is positive as it confronted the
global financial crisis handily, with non-oil GDP expected to grow by 4.5% in 2010. A large
contributor to this growth has been the business segment, of which Saudi Arabia’s listed
companies have a 47% growth rate in their half yearly net income in the first half of 2010,
reflecting encouraging prospects for the business environment.

As the economy diversifies from a more traditional ‘oil’ based economy to a ‘services’ oriented
economy, the business segment will increasingly become more sophisticated in their need
for infrastructure, and in particular, ICT services. Businesses will need sophisticated ICT
solutions as a driver to improve efficiency and competitiveness.

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 The number of firms in the business segment in Saudi Arabia has increased by 16% over the
last five years. With increased investment levels and strong economic growth, the number of
businesses is expected to increase by another 11% over the next five years (refer Exhibit 9).
The growth is spread across the different sizes of businesses, with SME and Micro enterprises
posting outstanding growth, and larger corporations also experiencing good growth.

EXHIBIT 9: SAUDI ARABIA NUMBER OF BUSINESSES (‘000)

Source: Delta Partners analysis

The business segment’s requirement for ICT services is strongly supported by government
initiatives that have boosted the development of the ICT sector. Under the National
Communications and Information Technology Plan (NCITP), the government has launched a
number of government driven e-projects that require major development of the ICT sector,
which is regarded as a national priority. Examples of other significant projects launched by
the government that will also contribute to the growth of the ICT sector include the King
Abdullah Science Park (KASP), Information & Communications Centre (ITCC) and King Saud
University Science Park (KSSP).

Implications for stakeholders

The high demand for ICT services across multiple areas comes at a time when there is a
need for simplicity and efficiency in managing sophisticated communication needs, and
businesses are looking for ways to outsource non-core areas. Telecom operators need to
provide solutions that meet their varied requirements such as:
• Networking solutions:
• Global area networking – seamless, guaranteed international networking services
ranging from carrier grade voice quality networking to tier-one internet services
• Wide Area Networking – connectivity services across metropolitan, regional, or
national boundaries
• Local Area Networking – management and maintenance of corporate networks.
Associated services include design, implementation, management and security
• Unified communications – providing real-time communication services such as instant
messaging , presence information, IP telephony (including IP telephony) and integrating
them with non-real-time communication services such as e-mail, SMS, fax etc.

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• Cloud services/computing: offering cloud services/computing with the best solutions for
hosting and storage that fit business needs
• Data centre and managed services – hosting scalable data centres with accelerated
application performance and managing IT resources such as network and applications
• Machine to machine (M2M): enabling businesses for whom the machine to machine
environment is highly critical, for example, means of payment (terminal point of sale),
tele-management (management of fleets), tele-medicine (remote doctors), and tele-
maintenance of vending machines

The challenge for telecom operators is to invest in the right set of infrastructure capabilities
and organization competencies to be able to deliver effectively in the ICT space, essentially
a new field for most telecom operators. There is a need for action by the business segment
to adopt new technologies as an enabler for a more efficient and competitive organization, and
for this purpose the business segment needs to demand from telecom operators cutting-edge
ICT solutions.

Additionally, equipment and service vendors within the ICT space in Saudi Arabia need to
focus on establishing presence, pursuing innovative financing mechanisms for infrastructure
investment and partnering with other relevant industry stakeholders to capture market growth.

The government in Saudi Arabia needs to maintain momentum with respect to its agenda
of industry diversification by ensuring new businesses are created through government-
led initiatives such as free zones, funding, incubators, financing mechanisms, public-private
partnerships, promotion of innovation through R&D programs, etc. The government
also needs to provide a regulatory framework to foster competition and the emergence
of ICT service providers. The scale of implementation of the government ICT initiatives
requires exceptional programme management and prioritization of projects by the relevant
government organizations.

Conclusion
The Saudi Arabian telecom market due to its vast size and potential is on the radar of most
industry stakeholders. In the coming period, the focus needs to be on the creation of an
ecosystem that brings together, in a mutually beneficial way, telecom operators, device
players, hardware/equipment vendors, software solution providers and content players. The
real winners in the Saudi Arabian telecom market will be those who can smartly capitalize
on the promise pillars and continuously adapt their chosen strategies to relevant changes
in the economic environment, industry context and competitive dynamics. The government
can play a vital role in ensuring the creation of Saudi Arabia as a hub for telecom industry
innovation and development, both as a mechanism for diversifying the economy and
boosting economic growth.

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 Delta Partners is the leading TMT advisory and investment firm in emerging markets. With more than 160 professionals the

firm operates across 50 markets in the Middle East, Africa, Eastern Europe and Emerging Asia. Delta Partners provides three

synergistic services: management advisory, corporate finance and investments from its offices in the UAE, Bahrain, South Africa,

Spain and Singapore.

Advisory: Delta Partners’ advisory professionals partner with C-Level executives in telecom operators, vendors and other TMT

players to help them address their most challenging strategic issues in a fast-growing and liberalising market environment in over 50

markets.

Investments: As a fund manager, Delta Partners manages a $80M private equity fund, targeting investment opportunities in

the TMT space in high growth markets. The focus is the Middle East, Africa, Eastern Europe and Emerging Asia. Delta Partners

private equity fund leverages the firm’s unique TMT industry expertise to create value for its investors throughout each stage of the

investment cycle, from deal sourcing to supporting portfolio companies in driving value extraction.

Corporate Finance: Delta Partners provides corporate finance services and has been involved in several buy-side and sell-side

telecom transactions in the region. As true industry specialists, the firm offers a differentiated value proposition to investors

and industry players in the region. Delta Partners actively leverages its close link to its private equity arm to access the investor

community as well as top-level financial talent.

Delta Partners delivers tangible results to its clients and investors through its exclusive sector focus on telecom, media and

technology, and a unique approach to services, combining strategic advice and a hands-on pragmatic approach.

For more information about Delta Partners please visit:

www.deltapartnersgroup.com

For a list of all Delta Partners white papers please visit:

http://www.deltapartnersgroup.com/our_insights/whitepapers

Copyright © 2010 Delta Partners FZ-LLC. All rights reserved.

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