telecom: Analysis of the Saudi Telecom Sector and Stock Review 7010

The structural framework of the telecom sector in Saudi Arabia is characterized by integration and diversity, featuring a range of companies that provide a comprehensive package of services for individuals and institutions. At the beginning of the millennium, the sector was monopolized by a single company (Saudi Telecom Company - STC), and with the implementation of privatization and openness policies in 2001, competing companies such as Etihad Etisalat (Mobily) and Zain Saudi Arabia began to emerge. This transformation contributed to enhancing service quality and expanding options for consumers, as well as stimulating technological innovation. The sector is overseen by a central regulatory body, the Communications and Information Technology Commission (CITC), which regulates the market, grants licenses, and sets the necessary policies and frequencies for operating modern networks. The structural framework also includes virtual telecom operators (MVNOs) such as GO and Orange, which provide tailored services for specific customer segments. Additionally, there are supporting companies specializing in infrastructure, such as fiber optic networks and telecom towers. The sector's structural framework is characterized by high concentration, with the three major companies (STC, Mobily, Zain Saudi Arabia) holding over 90% of the market share, while virtual companies and supporting service providers remain limited but growing in influence. The sector also plays a central role in implementing major government projects, such as smart cities and e-government initiatives, by providing the necessary digital infrastructure. This cohesive structural framework supports the sector's ability to respond quickly to technological changes and meet the increasing needs of the Saudi community and economy.

The Communications and Information Technology Commission (CITC) plays a pivotal role in shaping the Saudi telecom sector and guiding its path towards sustainable development. Established at the beginning of the millennium, the CITC is the regulatory authority responsible for regulating the market, granting licenses, and developing policies that ensure fair competition among companies and protect consumer rights. Through its policies, the CITC has opened the door to competition by granting licenses to new companies and introducing advanced services such as 3G, 4G, and 5G networks. Additionally, the CITC monitors the quality of services provided, ensures compliance with transparency standards, and fairly prices services for consumers. The commission manages frequency auctions and effectively allocates electromagnetic resources to support network expansion, while also overseeing the implementation of national policies related to cybersecurity and data protection. In recent years, the CITC has launched several initiatives to accelerate digital transformation, such as supporting the deployment of fiber optics and developing standards for the use of artificial intelligence in networks. The CITC has also issued policies to support e-government and expand smart city projects, enhancing the Kingdom's position as a leading destination for telecom in the region. The CITC plays an active role in coordinating with government entities and private companies to ensure the integration of efforts towards achieving Vision 2030. As a result of these regulatory efforts, the Saudi telecom sector has become a model of good governance and continuous development, enhancing the confidence of both investors and consumers.

The Saudi telecom sector has undergone radical transformations over the past two decades, transitioning from reliance on fixed-line services and traditional voice calls to adopting the latest advanced communication technologies. With the introduction of 3G and 4G networks, the subscriber base expanded significantly, and the demand for high-speed internet services surged. In recent years, the market has been characterized by the launch of 5G networks, which provide ultra-fast connection speeds and low latency, paving the way for the adoption of advanced applications such as virtual reality, connected cars, and the Internet of Things (IoT). These developments have reflected on subscriber growth, with mobile subscribers exceeding 50 million by the end of 2024, achieving a penetration rate of over 150% of the population. Fixed internet services (ADSL/FTTx) have also seen significant growth, surpassing 10 million subscribers. These technological leaps have stimulated innovation in digital services, such as cloud computing, big data, and cybersecurity services. Companies have also expanded their investments in building massive data centers and entered into partnerships with global technology providers to enhance their technical capabilities. These developments have supported major national projects, such as smart cities, and provided a digital infrastructure that supports digital transformation across various sectors, including health, education, and government services. All these transformations have solidified the telecom sector's position as one of the most dynamic and advanced sectors in the Saudi economy.

The competition among major companies in the Saudi telecom sector is one of the most prominent features of the market, with three main companies - Saudi Telecom Company (STC), Etihad Etisalat (Mobily), and Zain Saudi Arabia - controlling over 90% of the market share. STC, which trades under the ticker 7010, holds the largest and most diverse share of services, especially in the government and institutional sectors, contributing nearly 40% of its revenues, in addition to partially controlling fiber and satellite networks. Mobily focuses on innovation in fixed internet services, 5G, and expanding its offerings for businesses and individuals, relying on strategic partnerships and expansion financing from local banks. Zain Saudi Arabia, despite its smaller share, has concentrated on developing its 5G infrastructure and marketing internet packages aimed at youth. The competition in the sector is primarily characterized by network quality, coverage of 4G and 5G services, and the diversity of pricing packages. Companies also strive to offer accompanying services such as digital content, applications, and cybersecurity, entering into partnerships with global technology firms to enhance their capabilities. This competition has positively reflected on service quality and reduced prices, prompting companies to continuously invest in network and infrastructure development, thereby enhancing the Saudi sector's regional and global standing. With the ongoing expansion of smart city projects and digital services, competition is expected to increase, and opportunities for innovation in technical services are likely to expand in the coming years.

The Saudi telecom sector is characterized by strong financial indicators and relative stability compared to many other sectors in the Saudi financial market. According to recent data for 2024, the total revenues of major companies in the sector ranged between SAR 150 billion to SAR 180 billion, achieving an annual growth rate of 3% to 6%. This growth is primarily linked to the increasing demand for data and internet services and rising revenues from business-to-business (B2B) operations, while revenues from traditional voice calls have seen a relative decline with digital transformation. Operationally, major companies achieve high operating profit margins, with Saudi Telecom Company (STC) recording margins of around 30% to 35%, which is among the highest in industrial and service sectors in the Kingdom. Additionally, the return on equity (ROE) rates range between 20% to 25%, reflecting strong financial management and operational efficiency. Furthermore, the sector maintains regular cash dividend distributions, with major companies distributing annual dividends ranging between 5% and 6% of the share value, attracting a wide range of investors seeking stable income. Despite the ongoing need for substantial capital investments to develop networks and infrastructure, free cash flows remain strong, enhancing companies' ability to expand and withstand economic shocks. All these indicators affirm the telecom sector's position as a preferred destination for investors looking to benefit from stability and sustainable growth in the Saudi market.

Vision 2030 forms the strategic framework that drives comprehensive transformation in the Saudi economy, with the telecom sector playing a pivotal role in achieving the ambitious goals of this vision. Vision 2030 aims to build an advanced knowledge-based economy reliant on digitization and modern technologies, with numerous initiatives and programs dedicated to enhancing digital transformation and developing technological infrastructure. In this context, telecom companies are investing heavily in 5G networks, cloud computing, and artificial intelligence, contributing to supporting other economic sectors such as health, education, and industry. The vision also encourages the development of smart cities and expanding high-speed internet services to cover both urban and rural areas. On the other hand, Vision 2030 supports innovation and scientific research, with telecom companies entering into partnerships with local and global universities and research centers to develop innovative digital solutions. Government initiatives have included implementing major projects such as NEOM and Qiddiya, which require highly advanced communication infrastructure. The vision places significant emphasis on training national cadres in information and communication technology fields to empower the new generation to lead the digital transformation phase. All these efforts have made the sector a key element in executing Vision 2030, contributing to raising the Kingdom's global ranking in digitization and innovation, and enhancing the attractiveness of the Saudi market for local and international investments in the telecom sector.

Digital transformation and innovation in services represent the core of the strategy for the Saudi telecom sector, as companies strive to keep pace with the digital revolution and meet the increasing needs of society and the economy. In recent years, there has been significant expansion in providing value-added services such as cloud computing, the Internet of Things (IoT), artificial intelligence, and big data analytics. Companies like STC have launched advanced cloud computing platforms targeting national institutions, providing local data storage and processing solutions supported by the latest cybersecurity technologies. Companies have also partnered with global technology providers like Oracle and Amazon AWS to enhance their cloud capabilities and position the Kingdom as a regional hub for digital services. Additionally, companies have expanded their development of applications and services based on artificial intelligence to improve customer experience, such as chatbots and smart network management. In terms of innovation, companies are investing in developing smart city solutions, smart agriculture, and smart manufacturing, leveraging the capabilities of 5G networks. The market has also seen the launch of new business-oriented services, such as cybersecurity for the private sector and communication services tailored for industrial facilities. This ongoing digital transformation supports the goals of Vision 2030 and enhances the Kingdom's competitiveness on both regional and global levels, creating new opportunities for growth and innovation in the sector.

5G networks have revolutionized the Saudi telecom sector, representing one of the most significant factors of technological and economic change in recent years. Major companies like STC, Mobily, and Zain Saudi Arabia began launching 5G services several years ago, and by the end of 2024, 5G coverage became available to over 90% of the population in urban areas. These networks provide extremely high connection speeds and low latency, enabling advanced applications in virtual reality, connected vehicles, and remote control of industrial and medical devices. The rollout of 5G has stimulated innovation in other sectors, such as health (telehealth), education (virtual classrooms), and industry (smart factories). It has also led to increased demand for data services and a rise in daily internet usage, positively impacting companies' revenues. From an investment perspective, companies have partnered with global technology providers such as Huawei, Ericsson, and Nokia to develop and expand network capabilities. Additionally, 5G networks enhance the Kingdom's ability to attract foreign investments in technology sectors and support smart city initiatives like the NEOM project. Financially, 5G has helped diversify income sources by offering specialized packages for businesses and institutions, and despite the high costs of infrastructure investment, the expected long-term returns enhance the viability of these projects, making the telecom sector a key driver of economic growth in the Kingdom.

Cloud computing and data centers are fundamental pillars for the development of the Saudi telecom sector, enabling digital transformation and supporting innovation in services. In recent years, numerous large data centers have been opened in the Kingdom, in partnership with global technology companies such as Oracle and Amazon AWS, making Saudi Arabia a regional hub for data storage and processing. These centers play a pivotal role in supporting cloud services, which have become essential for government and private institutions, providing a secure and flexible environment for data storage and running critical applications. Data centers also support cybersecurity initiatives by ensuring the protection of national data and reducing reliance on external data centers. In terms of cloud computing, companies have expanded their offerings of advanced solutions such as Infrastructure as a Service (IaaS), Software as a Service (SaaS), and platforms for artificial intelligence and big data analytics. These services have improved business efficiency, reduced operational costs, and accelerated innovation across various sectors. In support of Vision 2030, the Kingdom aims to make local cloud services a regional hub, targeting the attraction of global companies and enhancing the national digital economy. The spread of data centers and cloud computing also supports e-government projects and smart cities, forming the foundation for the advanced digital infrastructure that the Kingdom aspires to achieve in the near future.

The Saudi telecom sector represents a fertile environment for investment opportunities and technological innovation, but it also faces a range of structural and operational challenges. Among the most prominent opportunities are smart city projects, digital transformation in government and private sectors, and the expansion of high-speed internet services to include rural areas. Vision 2030 opens wide horizons for developing digital services, distance education, and e-commerce, enhancing the demand for advanced telecom services. Additionally, cloud computing and the Internet of Things present significant growth opportunities, especially as companies expand their offerings of innovative solutions for businesses and institutions. However, the sector faces significant challenges such as the high costs of capital investments needed to develop infrastructure, pricing pressures that may affect profit margins, and increasing cybersecurity requirements and changing regulatory policies that demand rapid adaptation from companies. Furthermore, the sector faces the challenge of market saturation, with mobile penetration rates exceeding 150%, meaning that future growth will increasingly depend on diversifying services and improving operational efficiency. Despite these challenges, the sector remains one of the most stable and attractive for investments, supported by the ongoing demand for digital services and continuous government support for digital transformation programs.

The Saudi telecom sector plays a pivotal role in supporting the national economy and stimulating growth across various sectors. The sector contributes significantly to the GDP and is one of the largest revenue-generating sectors in the Saudi financial market. In addition to its financial role, the sector provides thousands of direct and indirect jobs for engineers, technicians, and IT experts, contributing to the development and qualification of national competencies for work in the digital economy. The sector also supports strategic national projects such as smart cities, e-government, and distance education by providing advanced digital infrastructure that enables efficient service delivery. In terms of business, the sector enhances the competitiveness of Saudi institutions by offering integrated digital solutions that support digital transformation and help reduce operational costs. It also contributes to attracting foreign investments by providing a modern digital environment that supports innovation and expansion into regional and international markets. Under Vision 2030, the telecom sector has become a key partner in implementing sustainable development plans by supporting digital transformation, developing national skills, and stimulating scientific research and innovation. All these aspects enhance the sector's position as a fundamental lever for the national economy and affirm its central role in building a prosperous digital future for the Kingdom.

The dynamics of the Saudi telecom sector require substantial capital investments to enhance and develop infrastructure, keeping pace with rapid technological advancements and the needs of the digital economy. These investments focus on building and expanding 5G networks, extending fiber optic networks to cities and rural areas, and establishing massive data centers that support cloud computing and big data services. For instance, major companies like STC, Mobily, and Zain Saudi Arabia have invested billions of riyals in improving network coverage, increasing tower density, and upgrading network equipment to provide higher speeds and better connection quality. Companies have also entered into partnerships with global technology providers such as Huawei, Ericsson, and Nokia to leverage the latest innovations in telecommunications. These investments enhance companies' ability to provide advanced services, such as the Internet of Things, artificial intelligence, and cybersecurity services, and support smart city and e-government projects. Despite the high costs of these investments, they are essential to maintaining the sector's competitiveness and sustaining growth. Financially, companies rely on a mix of self-financing and bank loans, in addition to issuing sukuk and bonds to support expansion plans. These investments are a critical factor in enhancing the Kingdom's position as a regional hub for telecommunications and digital technologies in the Middle East.

The stock of Saudi Telecom Company (Saudi Telecom Co., ticker: 7010) is one of the most significant stocks in the Saudi financial market (Tadawul), reflecting a substantial weight in the main index and operational financial strength. The company's market capitalization typically ranges between SAR 250 billion to SAR 300 billion, with the stock price in 2024 trading between SAR 110 to SAR 120, and a price-to-earnings (P/E) ratio of around 15 to 18, reflecting market confidence in the company's stability and profitability. STC achieves high operating profit margins of up to 35%, and a return on equity of about 25%, which are strong indicators even compared to global standards. In 2024, the company announced annual dividends reaching 5% of the share value, making it attractive to investors seeking stable periodic returns, while maintaining a regular dividend distribution policy over the past years. The company benefits from its market leadership and diversified income sources among individuals, businesses, and government, in addition to its investments in cloud computing, big data, and emerging technologies. STC also leads 5G infrastructure projects and is a key partner in smart city projects and digital government initiatives. Despite increasing competition and capital investment costs, the company continues to maintain its financial strength and achieve sustainable growth in revenues and cash flows. Stock performance and details can be followed on the official stock page on Tadawul: [/stocks/7010/].

Government initiatives and national digital projects play a crucial role in driving the Saudi telecom sector towards innovation and expansion. During 2024 and 2025, the Saudi government implemented a series of projects aimed at enhancing digitization and developing digital infrastructure, including expanding fiber optic networks in major cities and implementing next-generation networks to support smart cities such as the NEOM and Qiddiya projects. The sector has also witnessed strategic partnerships with global technology companies to provide cloud computing services for national institutions, including collaboration with Oracle and Amazon AWS. The government has also launched digital initiatives such as the digital national identity and the 'Tawakkalna' application, which has increased reliance on digital networks and prompted telecom companies to increase network capacities and improve readiness levels. The CITC has organized new frequency auctions to support advanced 5G services and issued policies to enhance cybersecurity and support the transition to e-government. These initiatives have contributed to improving service quality, reducing outage rates, and increasing network speed and efficiency, while supporting the Kingdom's aspirations to become a regional hub for digital innovation. These efforts affirm the government's commitment to developing the telecom sector as a key element in achieving Vision 2030 and enhancing Saudi Arabia's position on the global digital economy map.

The Saudi telecom sector looks to the future with continuous development, as major companies have begun laying the foundations for sixth-generation (6G) networks and preparing to adopt emerging technologies. In this context, companies such as STC and Mobily have signed agreements with local and global universities and research centers to research and develop future communication technologies, such as wireless light (Li-Fi), low Earth orbit (LEO) satellite communication, and advanced artificial intelligence. These initiatives aim to provide unprecedented connection speeds and near-instantaneous response times, opening new horizons for applications in virtual reality, smart cities, autonomous vehicles, and fully automated industrial systems. Emerging technologies also enhance cybersecurity capabilities and provide innovative solutions for network management and real-time big data analytics. From an investment perspective, the sector is expected to invest billions of riyals over the next decade in research and development, supported by the government and Vision 2030 programs. In the market, companies will benefit from the Saudi economy's shift towards greater digitization, increased reliance on cloud services, and transforming the Kingdom into a regional hub for innovation in communication technologies. With the advent of technologies such as quantum computing and industrial IoT, the telecom sector will continue to solidify its position as a driver of economic growth and digital transformation in the Kingdom.