Zain Saudi Arabia (Zain KSA) has signed an agreement with the local government to reduce royalty fee for commercial service from 15 percent to 10 percent of revenues retrospectively, commencing 1 January, 2018.
The reduction in unified annual royalty fees will assist Zain KSA to save SAR 220 million or $59 million for the period from 1 January, 2018 to 30 September, 2018.
The reduction in annual royalty fees will positively impact the company’s financial results going forward.
In addition, Zain KSA and the government have settled disputed amounts related to the payment of annual royalty fees by Zain KSA to the CITC for the nine-year period between 2009 and 2017.
Zain need to invest in expanding its mobile and broadband infrastructure in addition to other conditions over the next three years as per the settlement conditions. The expected financial impact of this settlement is expected to reach SAR 1.7 billion or $453 million over the next three years.
“This will allow the company to utilize that additional liquidity to continue the expansion and development of its 4G and 5G network and fiber (FTTH) expansion to meet the demand for broadband,” Bader Al-Kharafi, Zain Vice-Chairman and Group CEO, said.
Zain Saudi Arabia reported revenues of $1.5 billion and EBITDA of $510 million with 35 percent EBITDA margin for the first nine months of 2018. Zain Saudi Arabia has 8 million customers at the end of September 2018. Data revenues excluding SMS and VAS represent 52 percent of total revenues.
Zain Saudi Arabia’s, revenue was $521 million (+8 percent), EBITDA of $194 million (+15 percent) with 37 percent EBITDA margin and net income of $13 million compared for the third quarter of 2018.
Telecommunications operators Saudi Telecom and Etihad Etisalat (Mobily) also agreed with the government to a change in the calculation of their annual royalty fees.
The companies also said they had reached a deal with the government to settle disputed fees to be paid for previous years up to 2017. In return, they agreed to invest in upgrading their network infrastructure over the next three years.
The kingdom has set specific goals to boost high-speed broadband internet connectivity as part of its Vision 2030 plan to modernize the economy, including exceeding 90 percent of housing coverage in densely populated cities and 66 percent in other urban areas.
Mobily said it would also pay an annual license royalty equal to 1 percent of its annual net telecommunication revenues.
STC said the new calculation was compared to the previous fee of 15 percent of net revenues from mobile services, 10 percent of net revenues from fixed line services and 8 percent of net revenues from data services.
STC said the change would have a positive impact on its financial results during the fourth quarter of 2018, while Zain Saudi said it would mean a drop in its payment for the period Jan. 1 to Sept. 30 by 220 million riyals ($58.7 million).
Mobily said that starting from 2019 onwards, the impact represents an additional cost estimated to be in the range of 450 to 600 million riyals per year over the next few years.
Mobily said its agreement to invest over the next three years would enable it to boost the quality of its fixed and mobile networks and to invest in the deployment of new technologies such as 5G.