MTN bids for R23bn Saudi licence

By Damaria Senne, ITWeb senior journalist

Johannesburg, 27 Feb 2007

MTN is bidding for a stake in the third mobile licence in Saudi Arabia, the Gulf's largest telecommunications market.

Yesterday, Reuters said consortiums led by Egypt's Orascom Telecom, SA's MTN and Kuwait's Mobile Telecommunications were bidding for the licence, which could be worth up to R23 billion.

This morning, MTN confirmed it is involved in discussions, saying the bid is "in line with its vision to be the leader in telecommunications in emerging markets and to consolidate its position in the Middle East". The company, currently in a closed period after its financial year ended in December, would not be drawn on any other aspects of the bid.

Saudi Arabia has put the licence up for grabs in order to end the fixed-line monopoly enjoyed by Saudi Telecom and liberalise its market.

Costly bid

While there was no clarity on the value of bids received, it is likely bids could exceed the 12.21 billion riyals previously paid by a consortium led by Etilsat for Mobiliy.

BMI-TechKnowledge senior analyst Richard Hurst adds there is a distinct possibility MTN could pay a premium for the licence. "The trend [to overpay for licences] will only continue if operators are able to effectively justify the opportunity against the cost."

He notes Saudi Arabia has a mobile penetration of 66%, with a population of 25 million people and a mobile subscriber base of 16.5 million users.

Managed risks

Hurst says the Middle East offers a wide range of telecoms opportunities for MTN, as many states such as Yemen, Syria and Iran are on the lower end of the maturity curve. These states tend to have large populations and low teledensities, he says.

Saudi Arabia, in particular, is the hub of the world's oil resources, and as such, the economy is awash with petro-dollars, he says. 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, he says.

"This gives just under 10 million new subscribers expected to enter the Saudi mobile market in the next five years."

However, if MTN won the bid for Saudi Arabia's third mobile licence, it would not make sense for MTN to attempt to geographically consolidate its holdings by also bidding for the smaller Gulf States between Iran, where it already has its Investcom holdings.

The smaller Gulf States between Saudi Arabia and Iran tend to be the more saturated of the region's mobile markets, which may make it difficult for the operator to gain a foothold in these markets, he says. In many instances, these states are reaching a mobile penetration of over 90% with three or more operators.

The regulator is expected to evaluate applications in the next few weeks.