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GLOBAL TELECOM, INC.

A Feasibility Study for the third Telecommunication provider in the Kingdom of


Saudi Arabia

Submitted by

Dr. Gene Benter


PhD – Business Management

Excutive Summary
Telecommunication is an important part of many modern societies. In 2006, the
telecommunication industry is estimated to have $1.2 trillion revenues or just
fewer than 3% of the gross world product. Good telecommunication infrastructure is
widely acknowledged as important for economic success in the modern world on both
the micro and the macro economic scale.
On the microeconomic scale, most companies have used their telecommunication to
help build global empires, this is self evident in the business of online retailer
like the Amazon.com but even the conventional retailer Wal-Mart has benefited from
possessing superior telecommunication infrastructure compared to its competitors.
In modern Western society, homeowners often used their telephones to organize many
home services ranging from pizza deliveries to electrician. Even relatively poor
countries have been noted to use telecommunication to their advantage. In
Bangladesh’s Narshingdi district, isolated villagers use cell phones to speak
directly to wholesalers and arrange a better price for their good. In Cote
d’lvoire coffee growers share mobile phones to follow hourly variations in coffee
prices and sell at the best price.
A 2003 survey by the International telecommunication Union (ITU) revealed that
roughly one-third of countries have less than 1 mobile subscription for every 20
people. In terms of internet access, roughly half of the countries have less than
1 to 20 people with internet access. From this information, as well as educational
data, the ITU was able to compile a Digital access Index that measures the over
all ability of citizens to access and use information and communication
technologies.
In the Kingdom of Saudi Arabia, majority of the Saudi have PDA ranging from the
old to the latest Nokia or Motorola models. The presence of three
telecommunication provider in the Kingdom can hardly keep the heavy traffic of
calls and messages especially during the peak hours of the day especially during
the Holy months in the Kingdom. The situation is brought to the attention of
interested parties to put up the third telecommunication provider in the Kingdom.
Bayanat also known as Bayanat Al Oula for Network Services is a Saudi company
established in 2005 through a consortium of local investors, Bayanat was licensed
by the Communication & Information Technology Commission to provide local,
national, and international data communications services. Bayanat Al Oula for
Network Services is a privately funded and owned by three of the leading
communication firms in Saudi Arabia: Nour Communications, Baud Telecom Company and
Al-Harbi Telecom. Bayanat is still on its preparatory stages.
1. Current Situation
A. Economy
Saudi Arabia's economy is petroleum-based; roughly 75% of budget revenues and 90%
of export earnings come from the oil industry. The oil industry comprises about
45% of Saudi Arabia's gross domestic product, compared with 40% from the private
sector. The combination of relatively high oil prices and exports led to a
revenues windfall for Saudi Arabia during 2004 and early 2005. For 2004 as a
whole, Saudi Arabia earned about $116 billion in net oil export revenues, up 35
percent from 2003 revenue levels. Saudi net oil export revenues are forecast to
increase in 2005 and 2006, to $150 billion and $154 billion, respectively, mainly
due to higher oil prices. Increased oil prices and consequent revenues since the
price collapse of 1998 have significantly improved Saudi Arabia's economic
situation, with real GDP growth of 5.2 percent in 2004, and forecasts of 5.7% and
4.8% growth for 2005 and 2006, respectively.
B. Legal
Saudi Arabia does not have much of a formal criminal code, and thus much of its
law is derived from an ultra-conservative form of Sunni Islam commonly known as,
Washbasin. To that end judges are free to impose capital punishment or corporal
punishment, including amputations of hands and feet for certain crimes such as
murder, robbery, rape, drug smuggling and for various forms of sexual behavior
such as homosexuality and adultery. The courts may impose less severe
punishments, such as floggings, for less serious crimes against public morality
such as drunkenness.
The punishments, especially the executions, are carried out in public in order to
add humiliation to the convicted person and also to act as deterrence. Judges are
generally given a tremendous amount of discretion in deciding how to punish a
particular individual, and will make such decisions based on the particular school
of Islam that they follow. For example;
Theft is punishable by the amputation-only if the thief is not poor and the stolen
money is not from public sources or a company (must be a private secure money that
was stolen by well-off adult)- of the right hand. If the right hand has already
been amputated, the left hand is chosen instead.
Drinking, selling, or buying alcohol and sniffing drugs or injecting drugs is
punished by a sentence of eighty lashes. Smuggling heroin or cocaine into the
country is punished by beheading with a sword.
Fornication is proven by four righteous witnesses - is normally punished with
forty lashes, as is adultery. During flogging, the face, head and vital organs of
the person are protected. Murder, accidental death and bodily harm are open to
punishment from the victim's family. Retribution may be sought in kind or through
blood money. The blood money payable for a woman's accidental death is half as
much as that for a man.
C. Government
The central institution of the Saudi Arabian government is the Saudi monarchy. The
Basic Law of Government adopted in 1992 declared that Saudi Arabia is a monarchy
ruled by the sons and grandsons of the first king, Abd Al Aziz Al Saud, it also
claims that the Qur’an is the constitution of the country, which is governed on
the basis of Islamic law (Shari’a)
There are no recognized political parties or national elections, except the local
elections which were held in the year 2005. The king's powers are theoretically
limited within the bounds of Shari'a and other Saudi traditions. He also must
retain a consensus of the Saudi royal family, religious leaders, and other
important elements in Saudi society. The Saudi government spreads Islam by funding
construction of mosques and Qur’an around the world. The leading members of the
royal family choose the king from among themselves with the subsequent approval of
the ulema.
The government is attempting to promote growth in the private sector by
privatizing industries such as power and telecom. Saudi Arabia announced plans to
begin privatizing the electricity companies in 1999, which followed the ongoing
privatization of the telecommunications company.
D. Technology
Saudi Arabia main lines telephone in use as of 2002 has a total of 3,317,500
receivers. Saudis who use mobile cellular telephones is 5.008 million. In 2004 the
Saudi Telecom Company monopolization was broken by authorizing Etihad Etisalat /
Mobily to operate competing with the STC. The Kingdom telephone system is
modernized and upgraded to world class advanced technology. Domestic inter changes
microwave radio relay and coaxial and fiber-optic cable system international:
microwave radio relay to Bahrain, Jordan, Kuwait, Qatar, UAE, Yemen, and Sudan;
coaxial cable to Kuwait and Jordan; submarine cable to Djibouti, Egypt and
Bahrain; satellite earth stations - 5 ntelsat, 3 Atlantic Ocean and 2 Indian
Ocean, 1 Arabsat, and 1 Inmarsat in the Indian Ocean region. The radio broadcast
stations are found at AM 43, FM 31 and SW. There are 6.25 million radio listeners
in the entire kingdom. For television the broadcast station is at channel 117 and
there are about 5.1 million daily viewers. In 2005, there are 22 Internet
service providers found in the Kingdom.
E. Ecological
Shortages of water and rapid population growth may constrain government
efforts to increase self-sufficiency in agricultural products. Center Pivot
Irrigation in Saudi Arabia is typical of many isolated irrigation projects
scattered throughout the arid and hyper-arid regions of the Earth Fossil water is
mined from depths as great as 1 km (3,000 ft), pumped to the surface, and
distributed via large center pivot irrigation feeds. The circles of green
irrigated vegetation may comprise a variety of agricultural commodities from
alfalta to wheat. Diameters of the normally circular fields range from a few
hundred meters to as much as 3 km (2 miles).
The Kingdom has implemented a multifaceted program to provide the vast supplies of
water necessary to achieve the spectacular growth of the agricultural sector. A
network of dams has been built to trap and utilize precious seasonal floods. Vast
underground water reservoirs have been tapped through deep wells. Desalination
plants have been built to produce fresh water from the sea for urban and
industrial use, thereby freeing other sources for agriculture. Facilities have
also been put into place to treat urban and industrial run-off for agricultural
irrigation. These efforts collectively have helped transform vast tracts of the
desert into fertile farmland. Land under cultivation has grown from under 400,000
acres (1600 km²) in 1976 to more than 8 million acres (32,000 km²) in 1993.
F. Socio-cultural
Saudi Arabian culture revolves almost entirely around the religion of Islam.
Islam's two holiest sites, Mecca and Medina, are located in the country. Every
day, five times a day, Muslims are called to prayer from the minarets of mosques
which dot the country. The weekend consists of Thursday and Friday. The public
practice of any religion other than Islam, including Christianity and Judaism, the
presence of churches, and open possession of Christian religious materials are
only allowed in places of non-Muslim concentration e.g. foreign army base camps.
Public theatres and cinemas are prohibited, as Wahabi tradition deems those
institutions to be incompatible with Islam. However, in private compounds such as
Dahran and Ras Tanura public theaters can be found, but often are more popular for
local music, arts, and theatre productions rather than the exhibition of motion
pictures. Recently, plans for some cinemas that will be allowed to feature Arabic
cartoons for women and children were announced. The cultural heritage is
celebrated at the annual Jenadriyah Cultural festival. During this event, the
Saudi national cake, carrot cake, is handed out to visitors.
G. Supply chain
Within the kingdom, the supply chain is segmented due to importation of goods and
materials from another country and regions. Saudi Arabia has less rw material
resources and still lacks the competencies to produce its own materials. That is
why, to solve this dilemma and to address the same concern in other countries
within the peninsula, a council was formed to put effect supply chain cooperation.
The Cooperation Council for the Arab States of the Gulf formerly named and still
commonly called Gulf Cooperation Council (GCC) is a regional organization
involving the six Arab Gulf states with many economic and social objectives in
mind, among the stated objectives are:
• formulating similar regulations in various fields such as economy, finance,
trade, customs, tourism, legislation, and administration;
• fostering scientific and technical progress in industry, mining,
agriculture, water and animal resources;
• establishing scientific research centers;
• setting up joint ventures;
• encouraging cooperation of the private sector;
• strengthening ties between their peoples; and
• establishing a common currency by 2010, the Khaleen
2. Current Situation

o market definition – the entire Kingdom of Saudi Arabia, the Middle East
countries, the whole of Asia and the entire world.
o market size – figuratively, close to around 22 million people is the total
number of target subscriber once fully operational five years after its
inauguration.
o market segmentation – students, professionals, businessmen, workforce

City name Population Comments


Riyadh
+ 4,700,000 Capital city / highest population
Jeddah
+ 3,600,000 2nd largest city / main seaport on Red Sea

Mecca
+ 1,700,000 Holiest city of Islam religion

Medina
+ 1,300,000 2nd Holiest city of Islam religion

Dammam
+ 1,300,000 main seaport on Persian gulf

Locations of other cities in Saudi Arabia where the transmitter are to be


installed: Buraydah 600,000 people, Dahaban +96,000, Al Hufuf +334,000, Hafr
Al-Batin, Al Jafer +12,000, Khamis Mushayt 630,000, Al-Mubarraz 550,000, Al Omran
+49,000, Al Oyon +33,000
o competition and market share
Two existing companies are fully operational, Al Jawal keeps 24% of the
market share, Mobily has 15% share of the market. The third company is yet to
insert itself in the market and still lacking in many facilities. It was supposed
to operate on 2005 unfortunately its market share is narrowing and many
stockholders are withdrawing their shares. Al Jawal and Mobily are competing on
very small percentage of the market. Many subscribers have complains ranging from
poor network connection to expensive rate of the service. The market is reluctant
to remain in one company and if they will have another option, they might leave
their current telecommunication company.
o market trends
The demands in telecommunications are definitely increasing and will
continue to increase in the coming years as more and more Saudis are becoming
familiar to its advantages and benefit. The business industry finds the use of PDA
and telephones beneficial in marketing and selling. Hence, telecommunications in
the Kingdom are becoming a necessity as the country moves towards
industrialization. This is the best opportunity so far for those aspiring to join
the telecommunication industry.
3. Current Situation - Consumer Analysis

o nature of the buying decision


Saudis and all other customers of telecommunication opt to subscribe to services
with lower cost, more efficient and contain several features that are accessible
at their finger tips.
o Participants
Telecommunications may range from students, college students, professionals,
business men, company, organizations and associations. There may be other
investors who would take the opportunity to put in investment in the company.
Stakeholders will be given company options for their loyal and continues support
to the company
o Demographics
Expect that majority of the subscribers would be males but the company is
considering giving special discounts for female subscriber in the Kingdom.
Population over 1 million
Riyadh capital
Jeddah second largest city; pilgrimage gateway to Mecca; main Red Sea port
Dammam Eastern Province capital; third largest metropolitan area
Makkah Mecca, the holiest city in Islam
Madinah second holiest city in Islam (traditionally spelled Medina in English)
Other major cities
Ta’if mountain resort above Mecca
Tabuk northwestern border city near Jordan
Buraidah city in north central Arabia
Hofuf major urban center of the Al Hasa oasis
Qatif large coastal oasis city and oilfield
Khamis Mushayt western Arabian mountain city and military base
o Psychographics
Most customers would be emotionally, psychology and mentally capable of
making decisions for themselves. They could patronize the company once they
are fully satisfied with the service and the cost that we will provide over and
above other companies.
o buyer motivation and expectations
a. motivated by family connectivity
b. peer groups and acquaintances communications
c. sense of pride and integrity
d. latest source of fun and excitement
o loyalty segments
a. professionals and businessmen who need highly advanced communication gadgets
b. public servants and those in medical professions
c. college and graduate school students
d. Secondary school level students
4. Current Situation - Internal
Investment
Investment Capital of Global telecommunication is 100,000.000.00 SAR.
Registered Stock at NASDAQ IPO 1.50 USD per share
people
The Board is a composition of different investors from Saudi, Bahrain, USA, Japan,
China, Singapore, North Korea, The Philippines and India. Mohammad Faisal
Deleigan, as CEO/Chairman (Saudi), Thomas Wells (American), Hirohito Masawa
(Japan), Ahmad Nabtiti (Jordan), Sahle Al-Harbi (Saudi), Leonardo Mendoza
(Philippines), Ahmad Tajar (Bahrain), Naeem Badr (India), Mohammad Kaicer
(Singapore), Ming Li Tao (China) and Lew Kuan Ho (N. Korea
Skills
Holding top management positions in the corporation are licensed electronic
engineers, electrical engineers, computer engineers, Master degree holders in
Industrial Marketing, Industrial Management, Services Marketing, Human Resources.
Added to the list is the group of administrative staff, personnel, security,
maintenance and 1000 to 1,500 skilled field workers and sales representatives.
o Objectives

Vision Statement : A global telecommunication company providing humanity


with excellent services, bridging distances and making families always connected
anytime, everywhere”
Mission Statement : “Handler of advanced telecommunication services to the
GCC and the entire world capitalizing on superior and excellent customer care and
services”
Corporate objectives: To be one of the worlds firm and stable
telecommunication organization based in the Kingdom of Saudi Arabia.
Financial objective: To maintain financial stability and profitability
amidst global economic recession.
Marketing objectives: To create loyal customers who shares the vision and
mission of the corporation hence maintaining balance between associates and
customers.
Long term objectives: To establish own satellite network of subscribers all
over the world
o Corporate culture
Focus on excellent customer care and services
The Global Telecommunication is in business because of our customers.
Our customers deserve to enjoy the benefits that our company has to offer,
fully satisfied with our services and keeping them fully informed of the
corporation’s innovations and new products. The best way to keep the customers
loyal to the corporation is to make participate in the business operation not only
as buyers but also as marketers. On this regard, they also have the chance to
earn.
5. Summary of Situation Analysis
o external threats
Decline in oil production due to narrowing quantity of mineral resources.
o external opportunities
Opening of Saudi Arabia for Foreign Direct Investors and other foreign
investors to put up businesses in the \Kingdom.
o internal strengths
Highly qualified management team, skilled technicians and experienced
administrative staff and personnel with 300 strong willed and dedicated field
workers
o internal weaknesses
Inability of the corporation to fully monitor for 24 hours a day the
different towers all over the \Kingdom

o key success factors in the industry


Competent background and training in customer service, electronics and
telecommunications
Fully equipped facilities and state of the art transmission equipments.
Partnership with the largest satellite network in the Middle East, Japan,
China and India
First to introduced cable free fixed telephone for home and offices
Partnership with internet service providers in the kingdom and other
countries.
Capital investment as horizon foreign direct investment to other countries
Probability of greater market share in the whole middle East and Asia due to
presence of million expatriates in the Kingdom
o Other sustainable competitive advantage
Strategic marketing plan,
superior customer care,
highly advanced technological know how and
telecommunication competency

6. Financial Summary *
The following balance sheet structure is just an example. It does not show all
possible kinds of assets, equity and liabilities, but it shows the most usual
ones. Because it shows goodwill it could be a consolidated balance sheet. Monetary
values are not shown and the summary rows are missing as well.
A. Balance Sheet of Global Telecommunication, Incorporated as of February 28,
2007.

ASSETS

Current Assets
Cash and cash equivalents
Account receivable
Inventories
Prepaid Expenses
Investments held for trading
Other current assets

Fixed Assets (Non-Current Assets)


Property, plant and equipment
Less: Accumulated Depreciation
Goodwill
Other intangible fixed assets
Investment in associates
Deferred tax assets assets

LIABILITIES and EQUITY

Current liabilities
Account Payable
Current income tax liabilities
Current portion of bank loans payable
Short-term provisions
Other current liabilities

Long term Liabilities (Fixed Liabilities)


Bank Loans
Issued debt securities
Deferred tax liability
Provisions
Equity
Share capital
Capital reserves
Revaluation reserve
Translation reserve
Retained earnings
Equity valuation
The real value to a purchaser of the business or a shareholder may be different
from the net assets shown by the balance sheet. This is because factors that
affect the value of a business may not be recorded yet. For example, a purchaser
will be interested in the future earnings of the business, whether assets such as
property have been revalued recently, and whether there are potential liabilities
in the future such as lawsuits. The value of the assets in the balance has also
been based on the assumption that the business is a going concern; otherwise the
break-up value of the assets may be far less than the value in the balance sheet.
B. Income Statement of Global Telecommunication Incorporated from the Stock Market
dated February 28, 2007.
Net sales ____________________$3,400,000
Rent revenue _________________ 40,000
Interest revenue _______________ 12,000
Total revenue ____________ __ 3,452,000

Expenses (usually sorted by amount)


Cost of goods sold ____________ 2,000,000
Selling expenses ______________ 450,000
Administrative expenses ________ 350,000
Interest expense _______________ 45,000
Total expense ______________ 2,845,000

Income before taxes ____________ 607,000


Income taxes __________________ 182,100
Net income ____________________ 424,900

Earnings per share _______________ $4.20

C.

Period Ending 28- February- 2007

Operating activities, Cash flows provided by or used in

Net Income 17,853


Adjustment to net income 13,263
Depreciation 2,121
Changes in account receivables 14,188
Changes in Liabilities 31,571
Changes in operating activities (93,848)
Total Cash flow from operating activities (14,854)

Investing Activities

Capital expenditures (2,354)


Dividends Paid (5,773)
Treasury stocks acquired paid (2,416)
Issuance of long term debt 67,054
Payments and redemption of long-term debt 67,054
Change in deposits 42,136
Contract holder fund deposits 8,346
Contact holder fund withdrawal (5,976)
Cash flows from financing activities 64,405
Effect of exchange rate 579
Change in cash and due from banks 3,823

*Amount figures are purely fictional


END