PARIS, 16 December 2003 — With the upcoming bidding for the second Saudi mobile telephone license, major telecom providers have taken a new interest in the Kingdom. Alcatel, the number one telecom infrastructure provider globally, has increased its activities in the Saudi market in order to position itself ideally in the competition for the lucrative mobile license.
Alcatel serves 15 countries in the Middle East including Afghanistan, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Oman, Pakistan, Qatar, Saudi Arabia, Sudan, Syria, UAE and Yemen through seven country offices and a Middle East regional head office in Cairo.
“For Alcatel, the Middle East represents 300 million Euros in orders,” said Vincenzo Nesci, chairman, Alcatel Egypt and Alcatel VP, Middle East. “This was a difficult year compared to what we have done in the past due to the war in Iraq and problems in Palestine which have put negative stress on Egypt, a nation where we have high activity and presence.”
In the Middle East, Alcatel operates business divisions integrated into three different groups representing specific market segments. The Fixed Communications Group focuses on design, integration and installation of fixed networks supporting Voice, Data and Multimedia services. The Mobile Communications Group handles the design, integration and installation of 2G, 2.5G and 3G mobile networks. Design, integration and installation of private networks are the purview of the Private Communications Group.
Alcatel has a long-standing presence in Saudi Arabia and has over the years operated its different activities through various legal entities including Alcatel Telettra, Alcatel SEL, and ASAL. Now, taking advantage of the recent developments concerning the Investment Laws in the Kingdom, Alcatel has set-up a local company that integrates most of the current company’s activities under one entity. This consolidation aims at better serving Alcatel’s customers and at adapting to the rapid expansion of local telecommunications.
Alcatel’s experience in Saudi Arabia has been extensive. The company has handled turnkey telecommunication projects including design, installation, training and network management. These projects were executed for the Ministry of PTT, Saudi Telecom Company (STC), Saudi Electricity Company, Saudi Aramco, the Ministry of Defense and Aviation, the Ministry of Interior, as well as other ministries and private sector enterprises.
“Saudi Aramco and Saudi Telecom are major customers in Saudi Arabia,” Nesci said. “In Qatar we have a market share of 68 percent and we have a 26 percent market share in Egypt. But in Saudi Arabia, Alcatel has only a five percent market share. Our low market share in the Kingdom is due to historical reasons. We are now giving the Saudi market the attention it deserves in an effort to reverse our marginal position in this market.”
While Alcatel’s position in the Saudi market is weak, it still has a presence in many different local telecommunications sectors. In the area of data networks, Alcatel has migrated part of the Saudi Arabian Monetary Agency (SAMA) network to the new Alcatel X25 network, which is currently in operation. Also, Alcatel has recently provided STC with part of its public ATM switching backbone. Thirty-five exchanges are currently in operation, enabling STC to make available Internet access, ATM and Frame Relay services over ADSL. In the same context, Alcatel is the main provider of Saudi Aramco’s data networking equipment.
Perhaps the highest profile contract involving Saudi Arabia and completed by Alcatel this year was the SAS-1 Project. Late in 2002, Alcatel signed a contract for implementing a 332-km submarine cable system link between Jeddah and Port Sudan for SAS-1. This cable was inaugurated by the customer ASCC, a joint venture between STC, Sudatel and TAIC, in June 2003, with no delays in the schedule.
Alcatel hopes to repeat this excellent performance in two new contracts. On Oct. 17, 2003, Alcatel was selected by STC to supply equipment for a DSL network that delivers high-speed services to 38 locations across the country. This contract further reinforces Alcatel leadership in the global DSL market, of which Alcatel holds 37.6 percent share based on August 2003 data from industry analyst Dell’Oro Group. And, on Oct. 21, 2003, Alcatel was chosen by Saudi Aramco to build a carrier class high-speed backbone for its mission critical applications. This contract gives Saudi Aramco data centers having the enhanced performance needed to preserve existing data, video and voice services, while also supplying a go-forward investment upon which to deploy and evolve new IP-based services.
“In Saudi Arabia you could say that the telecom activity is two-thirds mobile and one-third fixed,” explained Guy Martin-Prevel, Country Senior Officer (CSO) Saudi Arabia and Bahrain. “This is why at this time our activities are limited and why it is important for us to compete in the mobile sector. The constrained activities with STC have made Saudi Aramco important to us. Alcatel has long had an office in Riyadh, but in June, we opened an office in Alkhobar to better serve Saudi Aramco and to demonstrate to them our interest in providing ideal service.”
Alcatel’s expanding presence in Saudi Arabia is part of the company’s strategy to focus on emerging markets in order to grasp new opportunities. The last few years have been a time of crisis for most global telecom infrastructure providers.
“In 2003 the global market was down 15-20 percent. We have made reductions in our expenses and manpower over a three-year period from 2000, but our portfolio and customer reach has been maintained, our R&D increased and our financial health — our operating profit — remains positive,” said Alcatel’s Marketing Director, Europe, Guillaume Humbert. “Alcatel’s strategy is to keep a broad portfolio of products and technologies. This is despite the downturn in the telecom segment where other companies are actually cutting entire product lines. We have strategic alliances with companies such as IBM and HP in the area of integration and Brocade in the storage segment. We are also investing heavily in R&D and continue our acquisitions in order to ensure we have a leading position in new technologies. In 2002 Alcatel had 16.5 billion euros in sales of that 13.5 percent was invested in R&D.”
But Alcatel is not working to preserve its position in every area of telecommunications technology. According to Humbert the company is concentrating more on telecom infrastructure than the handsets themselves. This is because handsets are a pure consumer market where competition is high and margins are low. Alcatel has a small market share in handsets and doesn’t plan to invest much in this area, although Humbert did state that media rumors that Alcatel is withdrawing from the handset market have been denied by top management. It is true however, that the company has decided not to invest in the production of 3G/UMTS handsets. Humbert added that Alcatel is in the handset segment mostly to increase brand awareness.
“Something that we have discovered is that it is difficult to predict the future even five years down the road in the telecommunications market,” said Olivier Picard, president, Alcatel, and responsible for its telecoms operations in France, Africa, the Middle East, the Indian sub-continent, Turkey and Central Asia. “We have learned humility. The situation today is tremendously different from what we forecast four years ago.”
Picard claimed that while Alcatel’s revenues were down, the company was now leaner, more productive and profitable. He insisted that Alcatel was one of the two or three global telecommunication infrastructure companies sure to survive.
“The big problem is that you have to invest for ten years but there’s only market clarity perhaps two to three years in advance,” Picard commented. “What we do know is that mobile is the future trend for voice and fixed lines will rule the data market.”
Not only is it a challenge to predict market trends, but when politics intrude, the best-laid plans can be shot down. It came as a blow to Alcatel when the US announced last week that contracts in Iraq will only be awarded to companies from those countries that supported the coalition in the war. In the past, Alcatel, headquartered in France, has faced discrimination from the US government. They are excluded from selling satellite solutions and services to the American military because the firm is not a US provider. This is directly responsible for reducing Alcatel to the No. 3 position in satellite solutions and services globally.
“I hope that one day the Iraqis will have some say in their own affairs,” Nesci said. “The US has stated that they will not allow companies in countries which did not support the war to bid for projects in Iraq. This would mean that there is the potential for Alcatel to be excluded as France was not part of the coalition. However, we have thirty years of experience in Iraq and through Orascom we plan to follow a business strategy that will increase our presence in Iraq. We have already been in talks with the Iraqi Telecommunication and Postal Corporation (ITPC) on various projects.”
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