PYRAMID RESEARCH Africa/Middle East Perspective
The recent appointment of Khalid Bin Abdullah Al- Melhem as president of the Saudi Telecommunications Company (STC) comes at a time of mounting posed to the company by the government and the private sector.
New challenges initiatives backed by the royal family to promote e- commerce in the Kingdom raise hopes that STC will hasten to improve the country's Internet Legislation ratified this month by the Consultative Council seeks infrastructure, to encourage locals to invest in the telecoms sector, a move that may impel STC to streamline its financials for public exhibition.
A constellation of interests seek to pressure the company's leadership on issues ranging from vendor to the employment of Saudi nationals, forcing the company's hand lobbying in its planned transformation from a semi- state actor to a full- fledged corporation.
Meanwhile, mobile penetration continues to grow rapidly in the Kingdom, and the company is pressing ahead with its plans to award $600m in by the end of June to expand the GSM network by 1m lines. It contracts is expected that Ericsson will win 60% of the contract and Lucent will take the remaining 40%. STC has also issued tenders – for which the bids are due on July 1st – to upgrade and modify some of its circuit- switching and data transmission facilities. A series of additional tenders valued at more than $10m and spanning various departments of the company are anticipated over the next three months.
THE PYRAMID PERSPECTIVE
Mobile cash cow piques local investors' interest
• A populist stream among government officials and local investors lies behind recent legislation introduced to encourage Saudi nationals to invest in STC before the sector legally opens to direct foreign in 2004. Most private Saudi investment capital is committed investment to foreign ventures, of which many high- tech and Internet businesses
Business lost money over the past year. STC's mobile division, which Pyramid believes will spin off into a separate strategic business unit by Q2 2003, is viewed by locals as an attractive investment opportunity.
• The latest mobile penetration data confirm Pyramid's April 9th, 2001, forecast of accelerated adoption rates in Saudi Arabia as customer services improve, particularly in Jeddah. Nearly 150,000 new were added over the past two months, with one- off subscribers fees in May alone totaling 81.2m Saudi Riyals ($ 21.6m). installation The contract to install an additional million GSM lines is part of a plan by STC to install 1m lines annually through 2004, expanding broader the total network to 12m mobile and fixed lines.
Saudi e- commerce buzz throws spotlight on vendor lobbying
• In light of recently publicised initiatives to boost Internet and e- commerce in the country, Saudi business elites envision STC as more an e- commerce facilitator through improved Internet and bandwidth provision, and less a driver of services infra-structure and content. A reordering of priorities along these lines may find Saudinet, the company's fledgling ISP, short of some of the funding its executives have been planning for.
• STC's steering committee is meanwhile focussd on the provision of fibre optic Internet backbone connectivity to the 35 or so Saudi that form the second tier of the Kingdom's business companies after the two first- tier giants Saudi Arabian Oil Company community, and Saudi Basic Industries Corporation (SABIC). The 35- (ARAM-CO), odd companies singled out for attention include some of STC's principle vendors. Although the provision of fibre lines, among other recent projects, is being managed by an STC- controlled program office that functions as a buffer between vendors and top executives, other projects appear to have come about as a result of direct company of executives by vendors. Efforts are underway to create buffer lobbying zones in several departments, to prevent vendors from exercising undue influence.
A new chief and the fate of human resources
• The appointment of a vice president of finance to head STC reflects a desire to focus on budgetary issues as pressure mounts to disclose sheets and earnings data to potential local investors. Intimately balance tied to the question of trimming the budget is the problem of human resources. High- level talks broke down with the American- based telco SBC over a strategic stake in the Saudi company, due partly to the former's belief that STC's workforce of 23,000 was bottom- heavy and should be cut. It remains unlikely that this question will be reconsidered in the short term, in view of political pressure seriously to keep Saudi nationals employed. Concern about large- scale layoffs of support staff permeates the telecoms sector. For example, call cabin operators employ 12,000 Saudi nationals but are threatened by the advent of prepaid phone cards and "smart" cards.
• In his first few weeks, the new president has moved swiftly to the mid- and top levels of STC's workforce through a human ener-ize resources transformation designed to attract both Saudi and foreign talent. A law passed last week allows STC employees who hold Saudi citizenship to do business on the side, provided there is no conflict of interest with their work. The new chairman retains his position as senior consultant to ArabSat, which specialises in Satellite design. It is hoped that the law will facilitate the recruitment of the country's more entrepreneurial citizens, who would otherwise be discouraged by the legal constraints of employment at STC. The law will be reevaluated in six months. Meanwhile, human resources initiatives geared to the special needs of non- Saudis are in the works.
Joseph Braude, Pyramid Research Analyst
© 2001 Mena Report (www.menareport.com)
