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Amman October 1-2, 2003

Presentation. Evolution of Saudi Telecom During Sector Reform. Amman October 1-2, 2003. Dr. Homoud A l-Kussayer General Manager, Regulatory Affairs. 3 rd Annual Private Sector Cooperation Meeting in the Arab Region. Introduction.

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Amman October 1-2, 2003

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  1. Presentation Evolution of Saudi Telecom During Sector Reform Amman October 1-2, 2003 Dr. Homoud Al-Kussayer General Manager, Regulatory Affairs 3rd Annual Private Sector Cooperation Meeting in the Arab Region

  2. Introduction • The changing environment during telecom reform introduces various challenges to incumbent operator Challenges • Regulatory framework can be optimized, through consultation, to benefit all sector stakeholders Optimized Regulations • Incumbent proactiveness in dealing with liberalization challenges can lead to successful results Incumbent Proactiveness

  3. In the Kingdom, significant progress has been achieved in telecom sector reform Telecom Sector Reform Milestones – Saudi Arabia • Corporatization of STC: The Saudi Telecom Company (STC) is separated from the Ministry and starts operating on a commercial basis Mid 1998 • CITC Ordinance is issued by Council of Ministers decision • Telecom Act is issued by Royal Decree and goes into effect Q3 2001 • The Communications and Information Technology Commission (CITC) is established Q4 2001 • The Commission Board approves the Telecommunications Bylaw which is issued by the Minister in June 2002 Q3 2002 • The Saudi Telecom Company launches partial privatization process through IPO in December 2002 Q4 2002

  4. Corporatization resulted in substantial service growth STC PSTN Subscribers Base (1996-2003E) (in Million) STC Mobile Subscribers Base (1996-2003E) (in Million) Post Corporatization Post Corporatization +84% +2267% Source: Adapted form STC Operational Reports 1996-2002

  5. Liberalization is an integral element of telecom reform in Saudi Arabia Objectives of Liberalization in Saudi Arabia • Develop the telecommunications sector in terms of coverage and network with the objective to meet the social and economic requirements of the Kingdom Telecom Sector Development • Stimulate investments in the telecommunications sector and create a competitive environment that provides services at fair charges Investment Stimulation • Promote economic efficiency of the sector in general and the incumbent telecom operator in specific through well functioning market economy Economic Efficiency • Withdraw the Government’s active engagement (financing, strategic planning, operating) from the telecommunications sector which is better suited to private enterprises Privatization • Spread share ownership, and contribute to the expansion of the local capital market Expansion of Local Capital Market

  6. Adequate consultation between the telecom sector stakeholders can identify the optimal path to liberalization Transition Paths to Liberalization World-Class Managed Transition USA Germany UK • Competition drives performance by attracting more players • Adequate management of market liberalization ensures the viability of competition • Experiences of delayed competition or over-rushed full competition have proven to be detrimental to all stakeholders Japan Singapore Advanced Sector Performance Average Rudimentary Monopoly Early Competition Managed Competition Full Competition Regulatory Framework

  7. During telecom reform, incumbent operator proactively interacts with various institutions STC Policy Environment Telecom Regulatory Authority (CITC) Ministry of Finance Ministry of Telecommunication and Information Technology Ministry of Commerce SAUDI TELECOM COMPANY Ministry of Municipalities Investment Authority

  8. Incumbent should comply to different telecommunications regulations Telecommunications Regulatory Framework 3 4 Telecommunications Bylaw Regulations 2 5 CITC Ordinance Rules of Procedure • Legal document derived from the Telecom Act and specifying the authority of the Commission and the roles and responsibilities of service providers • Issued by the Commission and approved by the Telecom Minister • Terms of Service • Interconnection Guidelines • Numbering Plan • National Frequency Plan • Tariff Regulation • Universal Access and Universal Service Policies • Establishes Commission Board and Governor and responsibilities • Defines sources of funding of the Commission • Describes how STC should interact with the Commission and how to apply specific proceedings (Rule-making proceedings, License Proceedings, Tariff Applications, etc.) • Issued and approved by the Commission 1 6 Telecommunications Act STC License SAUDI TELECOM COMPANY • Primary legislation document used to regulate the telecom sector • Issued by Royal Decree and gone into effect on December 26, 2001 • Grants a service provider the right to operate according to certain conditions, and defines its obligations and responsibilities • Issued by the Commission and approved by the Council of Ministers 7 Commission Decisions

  9. In order to succeed in a regulated environment, incumbent should efficiently manage its relationships with its counterparts Regulated Environment Ministries and Agencies Policy Setting Competitors Commission SAUDI TELECOM COMPANY Interconnection Regulation Service Obligations Agreements Partners, Dealers, and Suppliers Customers

  10. Internally, incumbent should improve its capabilities to face environment challenges Challenges Facing Incumbent Telecom Operators Regulatory Framework Environment Telecommunications Sector Development and Growth Telecom Operator Business Strategy Operational Efficiencies Organizational Structure Future Alliances Incumbent Operator Future Status and Performance of Incumbent Operator

  11. Review draft license Incumbent operator should develop comprehensive regulatory program to succeed in the new environment Regulatory Program 1 Understand Policy and Environment Analyze new environment Analyze regulatory framework Assess impact of regulations on STC 2 Interact within the Company and with the Commission Coordinate with Commission and respond to its requests Implement external and internal regulatory communication Implement regulatory compliance program 3 Contribute to License Development Develop position on licensing policy Develop position on license content 4 Institute Interconnection Program Analyze current situation and define scenarios Undertake gap analysis and develop action plans Implement required changes 5 Define and Implement Regulatory Function Define key regulatory processes Design Regulatory organization Monitor performance

  12. Incumbent can improve operational performance and efficiency Productivity in Number of Lines (Fixed & Mobile) per Employee (Saudi Telecom, 2000-2002) Productivity in Revenue per Employee (in SR Thousand) (Saudi Telecom, 2000-2002) CAGR (2000-2002) CAGR (2000-2002) 61% 25%

  13. Appropriate incumbent action can benefit customers, government and shareholders Value Transferred to STC Customers Through Tariff Reductions (2000-2002) (in SR Billion) STC Revenues (1999-2002) (in SR Billion) CAGR (1999-2002) 6.1 18% 3.9 2.2

  14. STC Share Price Evolution – Tadawul (January 25 – September 22, 2003) Comments • Initial share offering set at SR 170 for 90,000,000 shares, representing 30% of the Company’ shares • Opening share price on first day of trading was SR 190 • Average share price for September 16-22, 2003, period was SR 400, representing a 110% appreciation The positive results would reflect in the continuous increase of share price value

  15. THANK YOU

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