By Matt Smith
DUBAI (Reuters) - Saudi Arabia's Mobily will start leasing its mobile phone network to a new operator to launch a rival service in the first quarter, an executive said, kicking off the biggest shake-up in the kingdom's telecommunications market in six years.
The Saudi telecom regulator, in a move to increase competition, has required the three mobile operators - second-biggest Mobily, leader Saudi Telecom Co (STC) and Zain Saudi - to provide wholesale capacity to new operators that have no networks of their own.
The winning bidders, announced last June, have yet to receive their licences. The Communications and Information Technology Commission (CITC), which has offered no more details, declined to comment.
But Karl Michael Henneking, Mobily's chief corporate strategy and marketing officer, told Reuters that service would start soon from its partner, London's Lebara Group.
"We expect Lebara to launch services in the first quarter of 2014. The CITC is supposed to issue the licences at the end of January," he said.
Lebara will help Mobily "gain market share in a segment we're not so strong in", Henneking added, declining to say which social or ethnic group Lebara would target. He hinted that it would include expatriate residents, who account for around a fifth of Saudi's estimated 27 million people.
Newcomers such as Lebara, known as mobile virtual network operators (MVNOs), usually pay the host firm a percentage of their revenues plus fees.
Mobily also sees a business opportunity from having developed an Internet-based platform to run Lebara's billing, operations and technology. It is now in talks to sell this system to other potential virtual newcomers to the Middle East, Henneking said. Such a system allows them to focus on marketing and customer service.
MVNOs are widespread in Europe, but Gulf regulators have been reluctant to allow them, because most of the region's 15 mobile operators are ultimately government-controlled and a major source of state revenue.
LEADING THE WAY
Oman is the only Gulf state to launch MVNOs, with former monopoly Omantel hosting two on its network. Should MVNOs succeed in Saudi, which is by far the largest Gulf market, and help boost the revenues of its existing mobile companies, then neighbouring nations may follow suit.
"In more developed markets, the entry of MVNOs sparked a price war, but if we take Oman as an example from this region, ARPU (average revenue per user) stabilised within two years of MVNOs' entry," said Karim Yaici, a telecoms lead analyst at Analysys Mason. "We can expect a similar scenario in Saudi."