The local market has welcomed news that cellular operator MTN lost the bid for the third GSM licence in Saudi Arabia.
MTC Kuwait headed up the consortium that submitted the winning bid of $6.1 billion - or R44.1 billion - for Saudi Arabia's third mobile licence. Local financial analysts say the winning offer would have been too costly for the South African cellular operator.
In a statement, the Saudi Arabian telecommunications regulator, the Communications and Information Technology Commission, says the Saudi telecoms sector is poised to enter a second phase of rapid expansion with MTC activating the third licence.
MTN confirmed its bid was unsuccessful, but would not comment further this morning.
Sigh of relief
One financial analyst - speaking on condition of anonymity - says the bid was akin to MTN "paying $6.1 billion for Cell C". He says MTN would have been "crazy" to pay that amount in a country that already has a significant penetration rate of 75%.
"MTN shareholders will breathe a collective sigh of relief." The analyst says the country, with a population of about 27 million, does have a high gross domestic product per capita ratio, but its relative wealth would not justify such a high price.
MTN's shares opened 2.07% up in early morning trade to reach a 12-month high of R99.01. By 10.16am, shares changed hands at R99 after closing at R96.99 on Friday. MTN's previous 12-month high was R98.35, while its 12-month low is R48.30.
The analyst points out MTN last year paid $5.5 billion for Investcom, which has a presence in 11 countries in the Middle East and Africa. "I think the market has gone a bit crazy. Cellular operators have lost touch with reality."
The analyst says the licence would not have placed MTN in a more competitive position to expand geographically in the Middle East. Another analyst says MTN's entire Middle Eastern expansion plan is "risky".
MTN would have been over-indebted had it succeeded in winning the bid, says the analyst. Another analyst says the licence is only worth at most about $4 billion, or R28.9 billion.
BMI-TechKnowledge senior analyst Richard Hurst previously said the winning bid could be a premium on the licence's worth.
Hurst said the mobile subscriber base in the oil-rich country is expected to grow to 26 million by 2011, while the population should grow to 27 million by 2010. "This gives just under 10 million new subscribers expected to enter the Saudi mobile market in the next five years."
Poised to grow
Thomas Kuruvilla, MD of consulting firm Arthur D Little, which has been aiding the Saudi Arabian telecoms regulator, argues the sector is poised for growth.
"The new licences will encourage additional investment in the fixed local access infrastructure, catalyse the mobile market growth, and accommodate future trends in convergence. Consequently, the Saudi telecom market, in our view, will soon surpass that of many developed countries," says Kuruvilla.
Saudi Arabia is located in southwest Asia and is bordered in the north by Jordan, Iraq and Kuwait, on the south, by Yemen and Oman, and on the east by the United Arab Emirates, Qatar and Bahrain. MTN already has operations in Iran, Afghanistan, Cyprus, Sudan, Syria and Yemen.
Total telecoms revenue reached $9.1 billion in 2005 and forecasts indicate the number of mobile phone and Internet subscribers will double over the next five years. Broadband subscribers will increase more than six-fold from an estimated 90 000 in 2006, to 575 000 in 2011.
Related story:
MTN bids for R23bn Saudi licence
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