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Telecommunications upgrade answers the call for a new Saudi economy
By: Kevin M. Baerson In the cradle of Islam, an insatiable demand for multimedia telecommunications service has dubbed Saudi Arabia one of the world’s most advanced, fast-emerging telecommunications markets. Acutely aware of a changing world economy, the Saudi government is harnessing this demand, laying the technical and regulatory framework for Saudi Arabia to become the Middle East’s premier telecommunications hub and undisputed center for global E-commerce.
“The demand for Internet in the Kingdom came very suddenly-and now it is almost scary,” said acting Minister of Posts, Telegraphs and Telephones (PTT) Dr. Khaled bin Muhammad Al-Qusaibi, who also serves as chairman of the board for the state-owned giant Saudi Telecommunications Company (STC). “But we have been making a big financial investment to stay ahead of the demand. Advanced telecommunications is a pillar of the government’s strategy for economic expansion and diversification”
By any country’s standard, the Saudi government’s investment in telecommunications infrastructure has been both massive and prudent. In 1994, the Saudi Government awarded AT&T the largest contract in telecommunications history outside of the United States-a $4 billion project to install a nationwide, fully digital telecommunications network.
What is happening now with Saudi Arabia’s telecommunications network is very similar to the expansion of its land transportation system in the 1970s. Enjoying strong oil revenues, the country enabled economic expansion by creating an extensive highway and railway system that could link underdeveloped regions to developed ones. The initiative increased commerce within the Kingdom, as well as its ability to export its domestic products.
This year Saudi Arabia’s telecommunications network is still briskly expanding. While the telecommunications system developed in the 1970s was consistent with the Kingdom’s overall development, the new expansion has to accommodate the exploding demand for data communications as well as land and wireless telephone connections.
“Today, basic communications services are not enough,” Al-Qusaibi said. “There is an increasing sophistication among business and residential users. So our challenge is not just one of meeting this new demand-it is to provide quality as well. We are not taking people for granted. We want them to be connected.”
Since the 1994 network expansion, the work has continued on all telecommunications fronts. In 1998, the Saudi government awarded Lucent Technologies contracts totaling $810 million to add 575,000 new Global System for Mobile (GSM) communications lines, and to upgrade a telephone switching network that covers more than 900,000 land lines. The contract enabled GSM service in regions of the Kingdom that previously were uncovered.
GSM expansion is much easier. The Ministry of PTT projects that 2.7 million GSM lines will be in place by 2001, and 4 million by mid-2003. Last March, the government signed a letter of intent with Ericcson to expand Saudi Arabia’s GSM network. As part of the expansion, STC has established a new, private-sector affiliate to handle mobile telecom services.
“It’s not a question of demand,” Al-Qusaibi said, “it’s the ability to put these lines in place.” With the new lines in place, STC will market itself as a regional telecommunications hub, leasing lines to other countries as a gateway to the rest of the world.
The other great demand facing the Ministry of PTT is the Saudi hunger not only for more Internet connections, but for faster ones too. With the highest PC penetration per household in the Gulf Countries-estimated by the Saudi government at 25 percent, the need for greater Internet capabilities will only increase.
The Ministry of PTT and the Ministry of Education recently signed an agreement to connect 25,000 Saudi schools to the Internet. The number of Internet users in the Kingdom, now totaling 200,000 according to government estimates, is expected to double every six months. To meet their demand for speed, the Kingdom has successfully operated a digital network with data transfer rates of 155 kilobits per second. The Ministry of PTT plans to expand this capacity again in the coming months.
By speeding up the Internet, and expanding its reach inside the Kingdom, the Saudi government hopes to reap economic dividends as it reforms and diversifies its oil-based economy.
According to the research firm GartnerGroup, business-to-business E-commerce is expected to hit $7.29 trillion worldwide by 2004, or 7 percent of the forecasted $105 trillion total of global sales transactions. The Saudi government plans to be part of the E-commerce rush.
“Given the size of our economy and the sophistication of our businesses, our plan is to make Saudi Arabia a regional leader in E-commerce,” Al-Qusaibi said. “We don’t want to frustrate our business customers while we work toward that goal. We want to provide them the service they need to succeed in the new economy.”
With so much technological change underway, the burden clearly lies with STC. But STC is undergoing change itself.
Now under a semi-regulated control of the Ministry of PTT, STC has enjoyed a monopoly since its inception. But a privatization decree issued by the Saudi government in 1998 will see STC transferred largely to the private sector. How this privatization process works could have ramifications beyond Saudi Arabia’s telecommunications industry.
“The successful privatization of Saudi Telecom-one that is conducted in a fair and transparent manner-would serve as an important model for future privatization, both in Saudi Arabia and the entire region,” said U.S. Treasury Secretary Lawrence Summer, speaking last year before the U.S.-Saudi Arabian Business Council.
“Ideally, this would create momentum for transferring ownership of the power and transportation sectors into private hands as well. Reform in these sectors would not only help improve the efficiency and provision of critical services, but would also support the government’s fiscal consolidation efforts,” Summers said.
Five years from now, Al-Qusaibi says, the world will see STC offering world-class services, driven not only by multimedia telecommunications demand, but also by competition.
“What you will see then is an advanced Saudi telecommunications industry mostly in private-sector hands, fully liberalized, with E-commerce thriving,” he says. “And there could even be many telecom providers. Competition is good for the industry and the economy, and it is good for customers.”
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Table of Contents Crown Prince Abdullah: A leader with a global vision |
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IIn one of the innumerable Internet cafes dotting the Kingdom of Saudi Arabia, a young Saudi is surfing the Web. His GSM phone rings. It’s an overseas call. He simultaneously surfs and he talks, conducting business and pleasure over advanced digital connections. Elsewhere in the Kingdom, people of all ages are typing and talking too.
According to the Ministry of PTT, there are now approximately 3 million landlines in the Kingdom and 1.2 million GSM lines. The government will add between 600,000 to 700,000 new landlines each year, with the hope of having a landline in every Kingdom household by 2005. The expansion is logistically difficult, as the Kingdom’s rugged desert terrain encompasses huge mountains and caverns that must be traversed.