Zain Saudi Weighing Fiber-Internet Service After License Change

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By Vivian Nereim viviannereim

Mobile Telecommunication Co. is considering introducing new services such as fiber-optic internet access in Saudi Arabia after winning an upgrade to its license, a move that would bring the scope of its offerings nearer to larger Saudi Telecom Co.

Saudi Arabia’s third-largest phone operator “has the most to gain” from a licensing change by the government because it was only able to provide mobile services before, said Andrew White, its chief strategy and business development officer. The company, known as Zain Saudi, can start landline voice and data services after the government said it would upgrade telecommunications carriers’ licenses.

“We are currently studying exactly what it makes sense for us to do,” White said in an interview in Riyadh.

Zain Saudi is getting a so-called unified telecommunications license and a 15-year extension to its permit after a high order by the kingdom last month. The government granted the same terms to other telecommunications companies, including Saudi Telecom and Etihad Etisalat Co. Previously only Saudi Telecom, majority owned by the government, had been able to provide a full array of services.

Fiber Coverage

Shares of Zain Saudi, a unit of Kuwait’s Zain, have risen 8 percent since the order was announced, compared with a 6.4 percent gain by the Tadawul All Share Telecommunications Index.

The carrier is looking at how it can partner with “existing players” to offer fiber-optic internet access, White said. The company doesn’t see sense in spending billions of riyals on new infrastructure when the kingdom already has several networks in place, he said.

Zain Saudi may work with multiple partners, White said. The carrier recently announced an agreement with Saudi Electricity Co. that could allow them to jointly use existing infrastructure such as the power company’s ducts into residential properties, he said.

“There’s a great opportunity for us to selectively identify areas where there is a sensible demographic, economic capacity and demand for fiber coverage, and where others haven’t rolled out yet,” White said.

Rivals including Etihad Etisalat, known as Mobily, will also benefit from the unified license.

“They will have the ability to provide fixed voice services which they weren’t able to provide previously,” White said. “We simply were not able to offer fixed services at all.”

License Extension

The license extension will have a significant impact on the company’s profit, White said.

Zain Saudi originally paid 23 billion riyals ($6.1 billion) for its license, which was scheduled to expire in 2032. Now it will be valid until 2047, meaning that the company can amortize the license cost over a longer period, decreasing the expense each year by more than 400 million riyals. The company reported a loss of 972 million riyals last year.

“Clearly the current financial situation of the company is not sustainable,” making the license extension vital, White said.

In exchange for the extension, the companies will pay the government 5 percent of their net income, the Capital Market Authority said last month.

That charge won’t apply until the extension begins in 2032, White said.

Tower Portfolio

Zain Saudi is “still considering all options” for its portfolio of about 7,500 telecommunications towers, White added.

Hassan Kabbani, head of Zain Saudi, said in March that the company was considering selling the towers for cash and leasing them back, or working with competitors to create one company to manage them, among other choices.

Saudi Telecom and Mobily are in talks over options for their tower portfolios.

“We welcome all interest, and we’re willing to cooperate and play our part in the formation of a tower industry if it happens,” White said. “But there’s no material developments at this moment in time.”

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