The Saudi Telecommunications Company (STC) currently leads the expansion of telecommunications operators from the Middle East. It also is a main player in the development of regional content offerings both as distributor of content and as 71-percent owner of Intigral, a company focused on the mobile applications and content space. Executive caught up with Ghassan Hasbani, the chief executive of STC International, at the ArabNet Entrepreneurship Summit in Beirut and asked him about the group’s strategies.
What role do mobile applications play in the STC strategy?
Mobile applications are now at the heart of most of our activities in the region and globally. For mobile applications to be widely spread and available we need to make sure that we do not play a direct role as telecom operators but allow a maximum level of creativity by encouraging the environment for application developers. Our strategy stems from the fact that the people that will make up the economy from now on over the next 30 years are people who were born after 1990. Those people live of applications and a connected world.
When I asked a Lebanese developer of mobile apps what question he has for the international CEO of STC, his question was, 'How can I make more money off them?’
Of course. The answer is simple. It depends what they are developing. If they are a startup they can make money by submitting their business plan to our venture capital [fund] so that we can co-invest with them. If they want to be a supplier, we have an application store where they can upload their applications and share revenues, or we have a company that deals with contents and applications and they can direct their developments towards the needs of that company. This company knows the market very well and interacts with us quite closely on our customer base. They can help the developer in developing the right things or modify their applications to suit the demand in the market, and make more money. These are the three channels we have.
Some people in the industry told Executive that only very few apps control attention while most have trouble to find market share and be profitable. As host of a very large customer base, your company presumably could decide which applications get visibility and which developers will fail to do so. How does STC approach this?
You need to strike a balance between a democratized service and a central command and control enforced distribution. If you have too much interference in enforcing distribution you move more into a socialist type of environment as opposed to a democratized type. In a true democratized environment applications are running based on their attractiveness to the consumer. If you create a randomized accessibility to searches rather than a prioritized accessibility to searches, then the smart applications and the popular applications will end up winning. Our policy is to provide an equal opportunity across the board. Saying democratization of access means that the developer has to be very smart in describing the applications that they are putting in the app store or online. It is about the ability of the developer to market their applications with the right key words, and the right targeting. This is what I call a true democracy.
Today you are described as being one of the top 20 operators worldwide and largest in the Arab markets. When another regional telecommunications operator went into an expansion spree some years ago with a declared aim to become one of the world’s top ten networks, STC was reported to announce similar aspirations to rise to being a top ten operator. Are you still pursuing this type of goal?
We are not saying that we want to be among the top ten telecommunications operators in the world. We want to be an operator – and we are effectively where we want to be – and continue being an operator that contributes to the economy and the society where we invest a higher value than we extract from it. That doesn’t mean we are making losses and we are not actually squeezing every penny out of the market. This is a business discussion. What we are saying is that for every dollar extracted from a specific market we contribute in value to that economy and society much more than one dollar. We believe effectively that for every $700 invested through our infrastructure development investments, a job must be created somewhere in that society whether inside or outside of telecoms.
Is this a benchmark you have devised?
No, this is the World Economic Forum’s benchmark. It was an OECD study on the Mediterranean countries published by the World Economic Forum. I am looking at this as a benchmark. If beyond this, we are looking at the relations to our shareholders, it is not our objective to be in the top ten for the sake of being there. Our objective is to be large enough to create synergies, to create economies of scale, to be able to serve our customers with the best possible prices and the best possible offerings. The objective is to remain profitable from our international investments, to diversify our base, and create enough scale to give us the economies that we are looking for.
On the side of profitability you said here at ArabNet that STC last year generated $100 million in Saudi Arabia in direct billings related to mobile application and content services. Is it correct that a lot of that revenue is created in profit sharing between STC and content developers?
I also understand that a lot of content demanded by your customers has specific cultural relevance in Saudi Arabia, such as information of Hajj rites. Where do you see your position between commerce and cultural obligations?
Part of our strategy is always to be culturally sensitive to the market we operate in while preserving our values and our beliefs and our value system. In fact, there is huge demand for content that is Arabized and tailored to the culture that we operate in. That doesn’t mean it contradicts with profit making. For example, among the most popular contents and applications we have are religious contents. That content serves the requirements of the market, is culturally an extremely valuable content, and at the same time provides the right profits for the developer and for the producers and for us as distributors.
If you agree that mobile applications are at the drivers of future growth in the telecommunications industry, one will expect this to be the center of competition. In the past, we have seen for example the previous browser wars. Will the next wars be those of app stores, do you expect a commercial war between the STC store and the Android App market or Apple’s App store?
I don’t see this emerging into a full-fledged war because there is always going to be demand for global type of applications and contents that are useful to everyone. I think what we can do is differentiate on relevance. There could be market specific applications and activities that we can do that complement global international applications. This is what we would encourage developers to focus on and this would also allow those developers to differentiate themselves from the masses of developers in India, in Europe, in China, the US and all over the world.
But there is also the financial element. You are not part of the revenue stream if the app is sold to your customer via the Apple or Android markets.
Let me put it this way: how much is that revenue worth? It is a small portion and that revenue will not exceed ten to 15 percent of the total revenue base. This industry has been there for 150 years and it has been making the bulk of its revenues from connectivity services. I am not just saying connectivity infrastructure but access and capacity.
So you see your role also for the future to be providing access more than building a community and provide content?
I am not saying no but the dominant part of our revenues will still come from selling capacity, access, and quality of service. By being smart carriers we bring value to the industry and continue to build value for the next 150 years because somebody has to create that part of the industry. If we try to pretend that we will turn our business model into applications and contents and go and compete with every developer in the world, which means we will have to develop our own content, it doesn’t make sense because we don’t have the mass.
If someone were to try to convince you to scale up in other ways and add non-telecom capacities by for example buying a bank or buying a handset maker, what would you say?
That would be the biggest mistake because if you buy a bank, you limit yourself to the license of that bank. If you buy a handset player, you limit yourself to the creativity of that one player. Trying to do other people’s business is wrong. Equally, if Google is trying to become a telecoms operator, it is also wrong. They will fail.
As STC has a growing international profile and has recently been invited to join the International Telecommunications Union’s Broadband Commission, what do you see as your role and contribution in shaping the global broadband culture and its social and socioeconomic performance?
Our position is to turn what today is broadband into the narrow band of the future. [We also aim] to create a differentiated quality of service approach, which is based on the experience of consumers and on the value they extract from it and are willing to pay for as well. This maintains value across the telecommunications industry and enhances the ability of the top players to use the broadband infrastructure effectively and it creates a system by which everyone can happily live for the next 20, 30 years until the next big thing comes up.
What can your specific experience as operator in Saudi Arabia as a market with extremely high mobile phone penetration and at the same time vastly different income groups tell you about the priorities for the development of mobile communications in the coming few years in developing and emerging markets?
Our experience is summarized in one word, competition. Whenever you have fair competition in a market regulated by a transparent, fair and independent regulator with a clear government strategy to enhance and build the ICT sector, knowing full well that this sector will build the entire economy, this is where you get a system that caters to everyone and enhances penetration, provides affordability to everyone, and creates a momentum in the economy and society.
Is STC planning to grow into any new areas?
We always look for opportunities.
Are there still opportunities for expansion of telecommunications through new licenses or acquisitions?
There are always opportunities and the price is a function of the value to the operator. If it is something you can extract value from, adjacent to a market you have, the synergies, why not? You can pay for it the proper value. It is always based on the right calculations. We always look for opportunities that complement our portfolio and at the same time, on a standalone basis, make a business case.