Sunday, October 31, 2010

S.T.C.’s Interest for Syria’s Third Mobile License

October 31, 2010

Last week state-owned Saudi Telecom Company (S.T.C.), the largest listed telecom operator in the Middle East, showed a great interest in bidding for a mobile license in the Syrian Arab Republic. In September, Syria tendered to sell a third mobile license. The deadline to submit pre-qualification applications will expire on November 14, 2010.

Given a very low rate of mobile penetration (44 users per 100 inhabitants) and promising growth chances, Syria is an attractive market. Out of a population of around 20 million Syrians and 3 million expatriates, Syria has 10.4 million of subscribers, comprising pre-paid cards, reports the Telecom Ministry. These numbers well explain that the market is absolutely not saturated. Currently in Syria there are two mobile operators Syriatel (55 percent of the market) and South Africa’s M.T.N. (45 percent of the market).

In the last four years telecoms deals in the Persian Gulf alone have been worth $33 billion. Once U.A.E.’s Etisalat acquires 46 percent of Zain (one Kuwait operator) for around $11.7 billion, Etisalat will be forced to sell Zain’s 25 percent stake in the subsidiary Zain Saudi Arabia, which is currently competing again Etisalat’s Mobily in the Saudi Arabian telecoms markets with reference to both 2G and 3G services. In fact, the Saudi I.T.C. regulator (Communications and Information Technology Commission, C.I.T.C.) could never accept to have two out of three mobile licenses controlled by the same operator (Etisalat). But apart from the Etisalat’s bid for Zain and the subsequent sale of Zain Saudi Arabia, from now on, according to many bankers and analysts, the telecommunications industry in the Gulf should develop a more designed and structured growth. This trend, which is also a necessity, comes out of scarce acquisition targets and increased competition in all of the Middle Eastern domestic markets, with declining ARPU (average revenue per user).

So, Syria’s license for sale is a very first-class target in a region where presently the only other attracting opportunities (obviously, excluding the Etisalat’s bid for Kuwait’s Zain and the Zain Saudi Arabia’s sale) could be Lebanon’s long-delayed privatization plans. In fact, many other players in the region are government-controlled companies and it is quite possible that at least in the medium term none of these will be sold or will change its proprietary assets.

On October 25, 2010, S.T.C. submitted its expression of interest to bid for the Syrian license through a letter sent to the Syrian Ministry of Communications and Technology (MOCT). S.T.C. is facing a strong and increasing competition in its own domestic market, which  is split among three mobile operators: S.T.C., Mobily (U.A.E.’s Etisalat) and Zain Saudi Arabia (Kuwait’s Zain). According to Ghassan Hasbani, S.T.C.’s chief executive officer (C.E.O.) of international operations, there are important and potential synergies between Saudi Arabia’s telecoms sector and the Syrian one. S.T.C. is an integrated telecom operator and is providing fixed line, mobile and internet services. Aside from Saudi Arabia, S.T.C. has already operations in Bahrain, India, Indonesia, Kuwait, Malaysia, South Africa and Turkey.

Recently this month, S.T.C. declared that its third-quarter net profits had soared 38 percent to a value of almost $900 million, from $640 million in the second quarter of 2010. This result was mainly due to the one-time gain linked to S.T.C.’s boosted earnings in India. In fact, S.T.C. affirmed that this positive boost in its profits was related to a 5 percent increase in its operating income and to a $200 million one-time gain, connected to S.T.C.’s share in the proceeds from Aircel India (S.T.C.’s unit in India), which sold some assets.

With no doubt, Syria’s mobile market is quite appealing and for this reason some interest for this third mobile license has come also from U.A.E.’s Etisalat, Kuwait’s Zain, Qatar’s Qtel, Russia’s M.T.S. and Turkey’s Turkcell. In addition to these companies, also Vodafone and France Telecom could be interested, although they do not possess any competitive edge over the other companies.