MVNOs launch in Saudi Arabia

The regulatory framework for MVNOs in Saudi Arabia, favors incumbent mobile operators. Will MVNOs bring change?
Mobily, the second largest, data-driven mobile operator in the Kingdom of Saudi Arabia (KSA) has announced that London-based Lebara group will launch an MVNO on its network in the first quarter of 2014. MVNOs are a common way to increase competition and create diversity in the telecoms market, catering better to specific subscriber segments. There are over one thousand MVNOs worldwide. Saudi Arabia decided to allow MVNOs by matchmaking each of its three mobile operators (STC, Mobily and Zain KSA) with a single MVNO.
In January 2012, the Communication and Information Technology Commission (CITC) published a public consultation document on licensing MVNOs. CITC argued that the Saudi market has only three operators, and it is lacking quality of customer care and lower pricing for mobile broadband. The framework that resulted from the consultation, though, proved to be friendly to the incumbent mobile operators (MNOs) rather than to the new entrant MVNOs.
Strict requirements (having foreign partners with at least two country markets, $67 million in capital, and 250,000 subscribers) to qualify for application were set for applications. Only about 15 MVNOs in the world could potentially comply with those rules. Five actually applied. CITC limited the number of MVNOs to three—each in exclusive partnership with one of the three incumbent mobile operators (MNOs).
The process was completed last year. Lebara will partner with Mobily, Virgin will partner with STC, and Axiom will partner with Zain KSA. The three chosen companies have very different characteristics, and they will probably try different approaches to the market. Lebara has extensive experience catering to specific ethnic groups in European countries; Virgin has well-known expertise in creating content and OTT applications; Axiom is an Emirati smartphone retailer specialized in selling smartphones for high-speed mobile broadband networks.
The three new entrants will not find themselves in an easy market: The Saudi mobile market is a mature one with an impressive mobile penetration rate exceeding 200%. Mobile broadband represents today 55% of total connections, making Saudi Arabia one of the most vibrant mobile broadband markets in the world.
MVNOs have been successful elsewhere in the Middle East. In Oman, also a mature market, the five licensed MVNOs gained the equivalent of 10% of the total subscriber base in five years.
The current evidence points to MVNOs playing a complementary role to incumbent MNOs in Saudi Arabia. The regulatory framework is favorable to the incumbent mobile operators who have the upper hand in negotiating termination rates for international calls, an important aspect of MVNOs' business model. In the next five years, MVNOs in Saudi Arabia are likely to have less than 10% of market share, underperforming their Omani peers.