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Saudi Telecom likely to refocus

A dearth of big ticket acquisition targets makes overseas expansion difficult

Image Credit: Reuters
A Saudi man checks a BlackBerry phone at a store in Riyadh
Gulf News

Dubai: The imminent departure of Saudi Telecom Co’s head of international operations may herald a change in focus back to the Riyadh-based telco’s domestic market, as a dearth of big ticket acquisition targets, forex fluctuations and stifling offshore regulation makes expansion overseas all the more difficult, say analysts.

On Monday, Saudi Telecom, or STC, said Gassan Hasbani, the chief executive of international operations, will leave the company at the end of October. Until a new structure is identified, the international division will come under the supervision of group chief financial officer Krishnan Ravi Kumar.

Analysts said Hasbani’s departure, on top of group chief executive Saud Al Daweesh leaving earlier this year, could signal a change in strategy for the majority government-owned owned telco.

“I don’t think anything major will change in the short-term, but in the longer term we would see a change in strategy regarding domestic and international focus,” said Farouk Miah, head of research at NCB Capital.

According to STC’s website, it currently has a presence in Kuwait, India, Indonesia, Malaysia, Turkey and South Africa. But a greater focus on its domestic operations, say analysts, makes a lot of sense. While international operations have grown to account for about one third of STC group’s total revenue, its local division has witnessed significant growth over the past couple of quarters.

Asim Bukhtiar, vice president and head of research at Riyad Capital, said the main impetus for STC’s international expansion was to diversify away from domestic dependence and counter declining market share in the kingdom where it competes with Etihad Etisalat and Zain KSA. But since 2011, STC has turned around its local performance, maintaining, if not gaining market share.

In July, STC said mobile postpaid customers increased by three per cent in the second quarter of the year, compared with the first quarter, while wireless broadband revenues soared by 88 per cent during the second quarter, compared with the year ago period.

Underlining its commitment to the Saudi market, STC plans to spend around $2.5 billion (Dh9.18 billion) a year until 2015, rolling out 4G technology. The company’s KSA chief executive told Zawya Dow Jones in May that the telco will invest tens of billions of Saudi riyals over the coming decade to connect Saudi homes with high speed internet.

While STC’s domestic business is enjoying a renaissance or sorts, internationally it has faced a number of issues that may deter it from expanding further afield, at least in the near term.

The telco’s time in Turkey, while generating healthy revenue, has also exposed it to foreign exchange fluctuations that have proved tricky to hedge against. STC owns 35 per cent of Oger Telecom, which in turn controls about 56 per cent stake in Turk Telecom.

Forex aside, regulatory hurdles have also clipped the ambitions of some of the region’s leading telco firms. The larger the international footprint the greater exposure there is to changing regulations which can become a cost burden, analysts say.

Earlier this year, a spectrum scandal in India embroiled the UAE’s Emirates Telecommunications, or Etislaat, and Bahrain’s Batelco, resulting in some hefty fines and both firms deciding on a complete exit of the Indian market. Meanwhile the telecoms regulator in Bahrain, where STC operates through its Viva brand, put incumbent Batelco and Viva on notice, saying their pricing of certain international mobile phone calls was anticompetitive and not in the interest of consumers.

“This possibly led to a rethink on international strategy especially when weighing foreign regulations, FX fluctuations, shifting market dynamics and lower ARPUs [average revenue per user],” said Mr. Bukhtiar at Riyad Capital.

While STC appears in no rush to bulk up its international presence, analysts say they could add to existing investments, or wait for other opportunities to present themselves in the months ahead.

“STC is definitely not in a rush to expand overseas, especially given the good performance in its domestic market,” said one Dubai analyst who asked not to be named. “Although I rather think they will continue to build a war chest for future acquisitions that will come through eventually.”