Contractual and Regulatory Framework of Mobile Virtual Network Operators (MVNOs) in Saudi Arabia
In an attempt to further open the Saudi mobile telecommunications market to competition and to meet the growing demand for mobile services, the Saudi telecommunications regulator, the Communications and Information Technology Commission (“CITC”) has issued on January 12, 2012 a public consultation document aimed at garnering comments on the regulatory and contractual framework for the operations of MVNOs in the Kingdom. As a result of the consultation, the CITC has prepared and issued a Request for Applications (‘RFA”) that has served as a basis for the licensing of two foreign mobile operators namely Virgin Mobile MEA (in partnership with STC) and Lebara (in partnership with Mobily) and for the tendering of the third license (initially awarded to Axiom Telecom in partnership with Zain but currently re-tendered).
The regulatory (I) and contractual (II) framework laid out by the RFA may be summarized as follows:
I-The Regulatory Framework: Section 2 of the RFA titled “Governing Legislation” provides an overview of the legal provisions governing the operations of the MVNO. These provisions are to be found in various laws and implementing regulations namely the Telecommunications Act (“Act”) enacted by Royal Decree No. (M/12) DATED 04/06/2001, The Telecommunications Bylaw (“Bylaw”) issued by Ministerial Resolution No. 11 dated 27/07/2002 and the CITC Ordinance, which was enacted pursuant to Council of Ministers Resolution No.74 dated 28/05/2001.Any MVNO, like any telecommunications service provider shall be subject to the obligations and shall have the rights set out in the Bylaw and more specifically those relating competition between service providers, interconnection, disputes between service providers, tariffs, relations between service providers and users, universal access and universal service policies, frequency, telecommunications equipment regulation, network intrusions and violations of the Act and Bylaw.
Furthermore, the CITC has issued Regulatory Framework documents (available on the CITC’s websitewww.citc.gov.sa) which reflect the CITC’s views on a number of relevant topics including, without limitation, the following:-Fixed and Mobile Services Licensing;-License Classifications and Scope of Fixed and Mobile Services;-Interconnection Guidelines;-National Numbering Plan;-Mobile Number Portability. The RFA has also dealt with other regulatory and legislative issues relating to the licensing but also operational aspects of the MVNO activities. In particular, the RFA specifies that:- any foreign MVNO shall be subject to the Saudi laws governing foreign investment in the Kingdom;-numbers will be assigned to the licensee in accordance with the provisions of the National Numbering Plan;-the licensee shall provide Mobile Number Portability to its subscribers pursuant to CITC regulations;-the licensee shall be committed to meet universal access and universal service obligations as laid out in the Universal Access and Universal Service Policy and any related CITC decisions. More importantly, the RFA stipulates that the licensee (applicable to the two first MVNOs and the third one yet to be selected) shall be hosted by a single Host Facilities Based Provider (defined in the RFA as the facilities based provider providing mobile network capacity to the MVNO on a wholesale basis for resale to end-users) and that no Host Facilities Based Provider shall host more than one licensee. That said, the CITC has reserved the right, following an evaluation of the market (subsequently to the award of the third MVNO license), to (i) allow MVNOs to move to another Host Facilities Based Provider and/or; (ii) allow the hosting of an MVNO by more than one Host Facilities Based Provider and/or (iii) allow the hosting of more than one MVNO by a Host Facilities Based Provider and/or (iv) add, when it is appropriate further MVNOs.
II-The Contractual Framework Appendix 12 to the RFA titled “General Framework of MVNO Agreement” sets out the key provisions that should govern the relationship between an MVNO and the Host Facilities Based Provider from a contractual, operational, technical and financial perspectives.
1-The term of the MVNO agreement should be clearly stated and should provide for the commencement and end dates of the contract as well as the renewal terms thereof;2-The MVNO agreement should define the scope of the services to be provided by the Host Facilities Based Provider to the MVNO;3-The MVNO agreement may also define the services which are specifically excluded or not provided by the Host Facilities Based Provider to the MVNO; The MVNO agreement should contain provisions:4-Allowing the MVNO to meet all applicable CITC quality of service, terms of service and other regulatory obligations;5-Defining the liability of either party to the other and to third parties;6-Ensuring continuity of service and preservation of the rights of customers in the event of termination or suspension of the MVNO agreement, pending settlement of obligations to customers in accordance with procedures established by the CITC;7-Dealing with dispute resolution and escalation.
The MVNO agreement should:1-Include change procedures for new, modified, extended or improved services;2-Allow sufficient time to make any necessary changes or adjustments to ensure provision and continuity of service to subscribers;3-Contain provisions allowing the MVNO to pass its international traffic through the Host Facilities Based Provider’s network as MVNOs are not allowed to build or operate their own international gateway;4-Allow MVNOs to sign international roaming agreements for their subscribers.
The MVNO agreement should:1-Stipulate that the parties shall cooperate to address fraud, forgery and intrusive activities;2-Ensure compliance with technical criteria and standards adopted by the CITC;3- Clearly specify all services provided by the Host Facilities Based Provider to the MVNO and the quality of service indicators for the provision of those services;4- Stipulating that the MVNO is responsible for ensuring compliance with regulatory requirements and security monitoring obligations and that the Host Facilities Based Provider shall provide the support required to permit the MVNO to meet these obligations.
The MVNO agreement should:1-Reflect the relationship between wholesale and retail prices and the difference between them, and clearly state the wholesale prices for services that have no retail equivalent;2- Ensure that there is no restriction on international roaming subscribers within the Kingdom from selecting their desired network to enable the MVNO to benefit from roaming across its network;3- Ensure that the Host Facilities Based provider supplies in a timely and accurate manner information required for billing .It is worth noting in this regard, that any entity applying for a license shall be required, as part of the licensing process, to submit a preliminary signed MVNO agreement which will be reviewed during the evaluation of applications and later on (if declared the successful applicant) a final MVNO agreement signed with the Host Facilities Based Provider. This will enable the CITC to ensure compliance by the applicant/licensee with the aforementioned requirements.
Despite the commendable efforts of CITC to properly regulate the
licensing and operation of MVNOs in the Kingdom and to afford competitive
quality mobile services to customers, still the penetration of the market by
foreign MVNOs is subject to many obstacles. Indeed, CITC has clearly indicated
that it is not inclined for the time being to allow more than three MVNOs to
enter the market (two licenses already awarded and the third being currently
re-tendered). Although it has left open the possibility of considering allowing
more MVNOs into the Saudi market in the future, following an evaluation of the
market, still this considerably limits the window of opportunities for
prospective MVNOs interested in investing in the local telecommunications
market. Moreover, the current licensees (Virgin Mobile MEA and Lebara) have
experienced difficulties in their rollout mainly due to a lack of cooperation
from the local telecoms operators and security requirements imposed by the
relevant governmental agencies. Yasser Alobaidan CEO at Lebara was quoted
saying that “most of the challenges are interconnections with other operators”
while the head of Virgin Mobile MEA Mikkel Vinter has declared that “MVNOs have
also faced difficulties meeting the demands of Saudi’s security apparatus to
allow for so-called lawful intercept, which allows for electronic surveillance
of an individual”. Any prospective foreign MVNO considering entering the Saudi
telecommunications market should therefore keep an eye on regulatory developments
and be fully aware of the difficulties associated with negotiating
interconnection arrangements with local operators and meeting relevant security