Saudi Arabia may find more competition in call rates in the coming years

Saudi Arabia may cut call-termination rates for telecom operators in 2013, the chief executive of Etihad Etisalat (Mobily) told Reuters, in a move that would spur increased competition in the Kingdom.

Termination rates are fees that one telecom operator charges another for terminating calls on its network. The fees tend to favor more established operators because they terminate a greater portion of calls.

“Next year, I think you will see a reduction in termination fees, unless the regulator foresees a more accelerated termination (reduction) rate to be introduced,” said Khaled Al-Kaf, chief executive of Mobily, an affiliate of the UAE’s Etisalat.

“I want to stay neutral in that area,” added Al-Kaf, when asked whether he would favor a cut in termination rates.

Saudi termination fees have been unchanged for more than four years at 0.25 riyals ($0.07) for mobile-to-mobile and fixed line-to-mobile calls and 0.1 riyals for mobile-to-fixed line calls, effectively setting minimum call prices.

Termination fees only apply on cross-network calls, while consumers pay the same rate regardless, so operators have a higher margin on calls within their own network.

“Termination charges tend to fall as competition increases. Usually, operators pass on part of any cut in termination fees to consumers,” Marc Hammoud, Deutsche Bank telecoms analyst, said.

As the former monopoly, Saudi Telecom Company could have the most to lose from a fee cut, but this would also aid its aggressive push to sell fixed-line bundles.

STC competes with Mobily and third mobile operator Zain Saudi, with STC dominant in fixed-line calls.

“Cutting termination fees would probably benefit Mobily and Zain Saudi to the detriment of STC, but STC would gain wholesale revenues as well seeing inter-connection fees decline,” said Asim Bukhtiar, Riyad Capital head of research.

“Zain Saudi uses Mobily’s network in some areas – it doesn’t have full population coverage – so it could see some benefit from lower termination fees. But this would be a short-term benefit, with Zain Saudi trying to expand its network.”

STC has tried to claw back lost domestic market share by offering aggressively-priced fixed line bundles.

These typically offer unlimited internet access and unlimited domestic phone calls, yet STC remains liable for termination fees to other operators, so lower rates would boost margins and potentially spur it to cut bundle costs further.

The Saudi regulator declined to comment. Analysts said its reluctance to cut termination fees in recent years is in part to prevent operators slashing prices to uncompetitive levels.

“Termination fees in Saudi Arabia are on the high side, but not radically so – when they look out of step with other markets then the pressure on the regulator to act will increase,” said Credit Suisse telecoms analyst Richard Barker.

Saudi operators pay royalties of 15 percent on mobile revenue, 10 percent on fixed line and seven percent on data, analysts said. — Reuters

(C) Saudi Gazette