Privatization and Deregulation

Up until recently little or no sufficient steps regarding the privatization or deregulation telecommunications took place in Saudi Arabia. There were only minor steps taken in this regard most of them in the wireless services area, but had a significant impact on competition in the Saudi telecommunication market. This happened in early 1992 when the paging service was introduced, private firms where officially allowed selling and programming that equipment. But still most of the processing was done at the PTT offices; these privates had no control over services or pricing. In late 1995 and early 1996 the GSM 900 digital cellular network became operational in the Kingdome. A similar approach was used, but with little more flexibility, subscribers now can apply for the service at a vendor instead of having to apply of the service at the PTT offices. Other deregulations allowed subscribers to transfer the service to whom ever they wanted. Historically, the system the original subscriber could either terminate the service or sell it. In the first case the service goes back to the PTT, afterwards it is reissued it to some one else. Under the second option, this was widely used, mainly due to the high demand and lack of supply. A subscriber would inter into a verbal agreement with another party for the transfer, but this was unofficial and the original subscriber’s name appeared on the bill.

On December 15 1997, roomers of privatization of the PTT where confirmed, King Fahad Bin Abdulaziz, chairman of the council of ministers announce Privatization of telecommunication services and the set up a private company (STC) to run its telephone and telex facilities during the next six months. The move to set up STC is considered the first major step in the kingdom's privatization drive.

The ministerial committee for privatization will work out the basic system of the company and fix its capital. It will also finalize the new telecommunications systems to be prepared by the PTT ministry. All technical and administrative facilities including fixed telephones, data transfer system, pagers, mobile, phone public phones and the general telephone network will be shifted to the newly established company. All state rights and properties as well as local and international investments related to telecommunications will be transferred to STC. All financial and contractual commitments on the governments will be shifted to the company.

The new company will provide all telecommunications services in the kingdom, availing to Saudi nationals more job and training and will work better for technology transfer. All PTT ministry employees working for telephone and telex services will be shifted to the company. The company will get all its rights for services in the fixed schedule regularly from all subscribers without exceptions. The government will also charge the company for the following:

1. Providing the service commercially

2. Providing licenses to carry out telecommunication services in the kingdom

3. Using frequency spectrums

The privatization panel has been assigned to make proposals on the charges to be received by the State from the company. The PTT will supervise the STC's telecommunications services as per PTT's current systems until the issuance of the new telecommunications system. The Saudi government through its public investment fund will be a major shareholder (possibly 25-50 percent), and the Saudi Ministry of finance will be a board member in STC representing the Saudi government.

The government will get from STC the following percentages and amounts effective from Jan. 1, 1999.

1. Twenty seven percent of the net revenues of the company. This represents the direct percentage and the charge for extending telecommunication services commercially. As an exception, the percentage referred above will be 20 for the financial years 1999 and 2000. This percentage does not include the dividends. In the financial year 2001, the percentage of the net revenues will be added and that will be deducted from dividends.
2. One percent of the net revenues of the company represents the license fee. From that, an amount will be later set aside to finance the Saudi Telecommunication authority after forming it in coordination with the Ministry of Finance and National Economy.
3. Until the telecommunication regulation is issued, the government will get SR 200 million annually as the charge for the company and its customers using the frequency spectrum field. After that, the contents of the telecomm regulation will be implemented in this respect.
4. Net revenues in this case mean total revenues from extending telecomm services commercially minus the dues of the foreign telecommunication agencies, which will be clear from the result of the settlement of these services.
5. With the exception of those officials whose work requires that they remain in the PTT Ministry, all officials of the ministry working in the telegraphs and telephones section will be transferred to the company.