Saudi Telecom Company: Rapid International Investments and Divestments

Saudi Telecom Company (STC) entered the Asian markets as part of a strategy to strengthen its global presence. This goal has been accomplished through rapid widening and geographic reach in populous high growth markets via targeted acquisitions, described by some scholars as accelerated internationalization. However, in recent years, the soundness of this strategy has begun to be questioned, especially in the Asian region, and has imposed a number of convergent and evaluative questions that need to be discussed.TELECOM INDUSTRY IN SAUDI ARABIABrief Insights on the Telecom SectorEng. Abdullah Al Darrab, Governor of the Communications and Information Technology Commission (CITC) has stated:"The information and communication technology sector is one of the most important and dynamic sectors because it contributes to sustainable development in all scientific, cultural and social areas. " (Communications and Information Technology Commission, 2012)The Saudi telecom sector, a core component of the information and communications sector, has experienced a rapid growth in the past decade, actively moving from a slow, governmentowned monopoly to a strong competitive market (Al Jazira Capital, 2012). In fact, the Saudi telecom sector is the largest in the Middle East, with over 50 million mobile subscribers and over SR 77 billion in consolidated revenues. According to the CITC, there were approximately 53 million mobile subscriptions, 4.8 million fixed telephone lines, 2.54 million fixed broadband subscriptions, and 12.28 million mobile broadband subscriptions by the end of 2012. This tremendous increase has been fueled by many factors. Among those are the telecom industry's emerging growth worldwide, Saudi Arabia's young and tech-centric population, and the growing popularity of smart devices. The Saudi government's shift to an online presence, offering online services to its citizens, is another major factor.Industry MembersSince the liberalization of the Saudi telecom sector in 2004, competitors have joined the industry to break the monopoly. These new players have strived to capture a market share and have divided the Saudi telecom market among three telecom companies: STC, Mobily, and Zain. STC continues to lead; in 2012 its market share was 45% (of total subscriber base), Mobily followed with a market share of 38.3%, and Zain, at 16.7% had the lowest market share. (A1 Jazira Capital, 2012). See Figure (1). By the end of 2013, STC's market share, by number of subscribers in Saudi Arabia reached 51%.Market SegmentsSince the traditional voice market is maturing fast, other segments have begun to emerge in the Saudi telecom market. These segments include the Data Segment, expected to emerge as a new area of growth for Saudi telecom operators, and the Enterprise Segment. The latter segment is currently highly underserved compared to some European and developed countries.The operating segments of the STC Group are:* GSM, in which the main services are: mobile, third and fourth-generation services, prepaid cards, international roaming, and messages.* PSTN provides fixed line, card telephones, interconnect, and international calls services.* DATA comprises leased data transmission circuits, DSL, and Internet services.* Unallocated, comprising items not included in the main operating segments of the Group.STC COMPANY OVERVIEWHistorical BackgroundThe Saudi Telecom Company was established as a Saudi Joint Stock Company in April 1998. At that time the company was completely owned by the Saudi Arabian government and was the sole provider of telecommunications services in the Kingdom. In September 2002, the government sold 30% of its shares. From 2000 to the end of 2012 STC has contributed more than SR 112 billion to the national income in the form of fees paid and the government's share in annual profits.Strategic OrientationSTC launched a new strategy entitled "LEAD Strategy" on 2010. …