Shiv Putcha

By Shiv Putcha

Zain, Mobily and STC launch LTE in Saudi Arabia

OVUM VIEW

Summary

Saudi Arabian operators Zain, Mobily, and STC have all launched LTE services in the past week. The announcements came within days of each other, indicating a desire among the operators to claim first-mover advantage. All of the launches use the TD-LTE variant of the LTE standard and will be deployed in the 2.6GHz spectrum band.

The announcements are a significant development in the Middle East. As one of the largest markets in the region, Saudi Arabia is a barometer for technological trends in the Middle East, and the launch of three LTE networks in the country will increase the uptake of high-speed mobile broadband services across the region. Many Middle Eastern operators have deployed WiMAX services without a lot of success, and many of these operators have cautiously evaluated the viability of the TD-LTE ecosystem. These TD-LTE launches provide the WiMAX players with a clear and increasingly viable migration path to LTE. In addition, the launches will further increase the growing momentum behind TD-LTE as the next-generation mobile broadband technology of choice in emerging markets.

Saudi Arabia will drive LTE adoption across the Middle East

Despite Zain, Mobily, and STC releasing limited details on the pricing of their LTE services, we expect that there will be considerable interest and reasonable traction for their services. However, with all three operators launching services simultaneously, we expect that there will be significant price competition as all the operators work hard to acquire new customers or upgrade their existing subscribers to LTE.

Like many Middle Eastern markets, Saudi Arabia is sparsely populated outside of the major cities. Saudi operators are unlikely to deploy fiber infrastructure beyond major urban and industrial areas as economic activity is typically highly concentrated in these areas. Connecting remote areas using fixed broadband technologies such as DSL or fiber will be prohibitively expensive and will have a very low return on investment (ROI). However, technologies such as LTE and HSPA could serve as a relatively cost-efficient option to deploy high-speed broadband services to smaller towns and villages across the country.

Deploying a dense network on the 2.6GHz band will not be cheap, especially if it is deployed nationwide. However, a strategy using LTE in dense urban areas and HSPA at lower frequencies in smaller towns and villages has a much better chance of success. This type of strategy will also work better from a backhaul point of view as it will be much easier to connect LTE traffic to the core network in urban areas. We believe that this strategy will be replicated by other Middle Eastern operators, and will drive a number of LTE deployments.

All three Saudi operators have different rollout plans and partners

Despite launching their networks at the same time, all three operators have different approaches, motivations, and strategic partners for their deployments. Zain has partnered with Motorola, Ericsson, and Huawei to offer LTE services in the major cities of Riyadh, Jeddah, and Dammam. Zain’s plan is to extend coverage to all major cities in Saudi Arabia by the end of 2012. Mobily has partnered with Samsung and Huawei to deploy its network. Mobily’s subsidiary Bayanat al Oula previously operated a WiMAX network which will be upgraded to TD-LTE. The WiMAX network was installed by Samsung, which we believe will upgrade it to LTE. Mobily’s rollout strategy is the opposite of Zain’s, with the operator initially focusing on smaller cities before expanding its services to Riyadh, Jeddah, and Dammam at a later date. STC has partnered with Huawei and NSN, and its services will initially be available in Riyadh and Dammam. The operator plans to expand its coverage to a further 400 locations during its initial launch phase.

Huawei is the big winner out of the launches

Despite the presence of other notable infrastructure vendors, Huawei has emerged as the biggest winner out of the Saudi Arabian LTE announcements. The vendor is involved in all three deployments, which we believe is largely due to their strength in the provision of TD-LTE services. The Saudi Arabian announcements also highlight Huawei’s rising stature and increasing traction in the global infrastructure business.

Huawei is also making a significant impact in the device market. The vendor has announced the launch of the world’s first TD-LTE wireless broadband router, which will be available through Mobily in October 2011. This new device will boost Huawei’s already strong position in the 3G and LTE modem markets.

TD-LTE continues to make strong gains over WiMAX in emerging markets

In our report LTE in Emerging Markets (OT00034-002, April 2011), we highlighted that there are several WiMAX deployments in the Middle East by providers such as Wi-Tribe and Mena Telecom. Many of these deployments use the 3.5GHz band and are a mix of mobile WiMAX 16d and 16e networks. Some of these WiMAX operators have indicated that they have been monitoring the progress of LTE globally, but that their market environments aren’t conducive to an upgrade to LTE. Others have also recently made significant investments in WiMAX and need to realize a ROI. We believe that these operators are waiting for the TD-LTE ecosystem to mature so that they can plan an orderly and economical upgrade from WiMAX to TD-LTE.

The LTE launches in Saudi Arabia represent an important step in the progress of TD-LTE in the Middle East. These launches will build on the strong momentum generated by interest in the technology in markets such as India, China, and Russia. This momentum has been further strengthened by the establishment of the Global TD-LTE Initiative (GTI), an industry grouping of major operators such as Airtel, China Mobile, Softbank, and Vodafone. The GTI will be crucial in promoting the TD-LTE standard and driving the convergence of the LTE TDD and FDD variants to maximize economies of scale. Ovum believes that TD-LTE is cementing its place as the best deployment option for greenfield deployments in unpaired spectrum bands, as well as for former WiMAX operators looking for an upgrade path to continue offering mobile broadband services across the Middle East.

APPENDIX

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