IT market likely to reach 2x telecom: AlJazira Capital

Jassim AlJubran, Head of Sell-Side Research at AlJazira Capital

Jassim AlJubran, Head of Sell-Side Research at AlJazira Capital, expects rapid growth in the Saudi software & digital services sector, which has been outperforming the telecommunications sector since 2021, being valued at SAR 101 billion in 2024 versus the telecom sector’s SAR 79 billion for the same year.

This uptrend was driven by the Kingdom’s digital transformation drive and ongoing government spending, AlJubran told Argaam in an interview on the sidelines of the ICT Indicators Forum 2025.

According to the research head, the Saudi information technology (IT) market is projected to become twice the size of the telecom sector in the coming years, thanks to its strong growth potential.

He referred to the major operational changes witnessed recently in the Saudi telecom sector, fueled by 5G expansion, better fiber optic accessibility, and rising data demand.

These changes have boosted financial results of local telecom majors as their revenues reported a compound annual growth rate (CAGR) of 6.6% from 2018 to 2024, compared to negative growth in earlier years.

AlJubran pointed out that consolidating local telecom tower assets under the umbrella of a sole entity, backed by the Public Investment Fund (PIF), marked a strategic move towards improving efficiency and speeding up the 5G rollout.

On investment, he said capital expenditure (capex) climbed to 16.5% of revenues in 2024, against a 14% average during 2021-2023. This uptick underscored efforts for data center upgrades, 5G expansion, as well as artificial intelligence (AI) and cybersecurity investments.

It is worth noting that Argaam Financial Portal took part in the ICT Indicators Forum 2025, where AlJubran reviewed the financial performance of Saudi Arabia’s telecom sector.

Details of the full interview are below:

*What is impact of the recent advancements in the Saudi telecom sector on financials of heavyweights in terms of revenues, profitability, and investments? How did the performance vary across the individual, business, and wholesale segments?

The Saudi telecommunications sector has undergone a radical transformation in infrastructure development over the past few years. The operational landscape of telecom companies changed from voice/data services in the pre-pandemic period to integrated digital services post-pandemic.

Some of these developments were seen amidst the rollout of 5G technology, with coverage exceeding 90% in major cities. Further, internet penetration surpassed 99% as the pace of digital transformation accelerated post-COVID in both private and government sectors. Nevertheless, the positive spin offs were tangibly reflected in the financial results of telecom majors such as stc, Etihad Etisalat Co. (Mobily), and Mobile Telecommunication Company Saudi Arabia (Zain KSA) when these advancements started to bear fruit.

While witnessing improved profitability, the sector also achieved a favorable CAGR of 6.6% in revenues between 2018 and 2024, which is remarkable considering the sluggish CAGR of -0.7% that had been posted during the 2012-2018 period. This came as industry players managed to maintain capex as free cash flows helped minimize overall debt.

Growth drivers for the Saudi telecommunications sector are as follows:

The consumer sector is the top contributor to revenues, but growth is modest. While competitive pricing pressures persist as the foray of mobile virtual network operators (MVNOs) help operators gain market share, increased penetration, regulatory improvements in terms of open access to fiber networks, higher demand for data and internet, and changes in consumer behavior contributed to sustained growth.

The business-to-business (B2B) sector: It is deemed the key growth driver of the Saudi telecom sector, given the contracts with small and medium enterprises (SMEs) and government entities for corporate connectivity, cybersecurity, cloud services, and data centers. While stc still dominates, Zain KSA and Mobily have gained momentum on their recent robust growth, some exceeding 20% over the last two years.

Wholesale and infrastructure services are still a core revenue support amid open access to fiber optics and interconnection projects, especially as Saudi Arabia aims to become a regional digital hub.

*What was the impact of the PIF-backed consolidation of Saudi telecom tower assets under a sole entity on the resulting company and sector performance? Are more deals anticipated in the future?

The move was deemed a key milestone for the Saudi telecommunications sector, with the PIF playing a pivotal role in consolidating infrastructure.

Previously, Zain KSA sold more than 8,000 telecom towers in a deal exceeding SAR 3 billion, following suit of stc which has already consolidated its tower assets under Telecommunication Towers Co. Ltd. (TAWAL) — also under the PIF’s umbrella. It is not unlikely that Mobily will adopt the same approach in the future to unify telecom infrastructure effectively under a sole entity.

Looking at the global context, there are many exemplars reinforcing the validity of this business model in telecom sectors: India, America, or Europe, for example Vodafone, Deutsche Telekom, and Orange.

There are multiple positive aspects that outweigh any potential negatives:

Supports operational efficiency: Whether in overall cost reduction or better use of capital rather than asset freezing. This includes reducing debt and increasing capex at the sector level, instead of operators building several towers in one area and working less efficiently.

Bolsters digital infrastructure: Having a unified tower infrastructure can accelerate the rollout of standard and advanced 5G networks, while also ramping up coverage. It paves the way for further developments in smart cities, Internet of Things (IoT), cloud computing, and fiber services.

Boosts investor attractiveness: Globally speaking, telecom companies with light infrastructure and independent tower companies tend to perform well in terms of capital efficiency, hence reflecting positively on their valuations.

The only downside is the presence of a single dominant tower company: This raises monopoly risks and pricing impact, which may weigh on long-term rental costs for operators, therefore requiring strong regulatory measures.

In the GCC, there is long-term potential for the inter-border integration of telecom towers, especially given the role of sovereign wealth funds in the region and TAWAL’s current international presence. The way this is managed in the coming years may shape the future of telecom infrastructure not only in Saudi Arabia but throughout the region.

*After the peak capex in 2020 on the launch of 5G, how do you see investment trends going forward? What are the main areas requiring more spending?

In recent years, the bulk of capex was allocated for 5G expansions and infrastructure development, so capex is now stabilizing. As demonstrated in today’s financial indicators presentation, capex as a percentage of revenues rose to between 20-23% during 2018-2020 at the peak of 5G spending. However, from 2021 to 2023, the ratio decreased to an average of 14%, before soaring to 16.5% in 2024.

Increased capex intensity is predicted in the medium term, especially after the three Saudi telecom majors recently obtained new spectrum licenses, albeit likely to remain below the peak levels reached during the 5G rollout.

Mobily has already directed a higher capex intensity of 16-18% for 2025, compared to 14% in 2024. Zain KSA is pumping SAR 1.6 billion to expand its infrastructure, 5G network, and digital services system. Therefore, the sector is likely to see firmer capex requirements in the coming years:

Key areas requiring more investments:

- Completing the expansion of 5G coverage, preparing for advanced 5G technologies and increasing network usage by the B2B sector.

- Establishing data centers to support digital transformation initiatives and infrastructure development such as cloud services and edge computing.

- Investing in new emerging technologies: A directive under the Saudi Vision 2030 mandates increased spending on research and development in new technologies, stimulating further AI and blockchain potentials in telecommunications. AI can revolutionize network management and customer service, while blockchain can strengthen network security.

Fintech: Financial services in loans, savings, and insurance through STC Bank, Mobily Pay, and Zain KSA’s TAMAM platform, particularly leveraging the current subscriber base.

Cybersecurity: Given the increasing digitization of services and data.

*How far does the ICT sector achieve the Vision 2030 targets, particularly in terms of its GDP contribution, tech market expansion, digital transformation, and job creation?

According to recent figures, it is clear that Saudi Arabia is not only meeting but also sometimes surpassing its targets, many of which are higher than what have been achieved in advanced countries in the ICT sector. This is due to strategic investments, private sector participation, government-supported digitization, and several sector-related regulation amendments like infrastructure unification and sharing.

Regarding achieving Vision 2030 goals in ICT, here are some achievements in several fields:

1- Economic impact: The ICT sector’s contribution to GDP has seen steady growth and is now approaching 4%. We are on track to meet the 5% target by 2030, which is a substantial improvement from the 2.5% range that prevailed a few years ago.

2- Growth in IT and emerging tech markets: Saudi Arabia achieved 30% growth so far, driven by digital transformation investments in cloud computing, cybersecurity, and smart infrastructure.

3- Globally, we currently rank second among G20 countries in digital readiness with 99% internet penetration, seventh in e-participation, and fourth worldwide in e-government development.

4- Another prominent field is the digitization of numerous government services at the Ministry of Justice. In 2024, over 98% of court sessions took place virtually.

5- Employment and skills development: The private sector added more than 400,000 new jobs last year alone. Meanwhile, initiatives like the National Skills Platform equip citizens with future-qualified digital skills.

6- Increasing localization of digitization domestically: Hosting cloud computing services inside the Kingdom and greater autonomy in core ICT infrastructure capabilities.

7- Saudi Arabia invests dozens of billions in advanced semiconductors, robotics, and AI. The PIF established the Alat Co. fund, a long-term plan to establish global tech leadership, with a $100 billion investment in cutting-edge technology by 2030.

*How do M&A deals in the software sector impact the market competitiveness and quality of services provided?

The nature of mergers and acquisitions (M&A) defines the impact. While some might have a detrimental impact on the industry overall, others might enhance the new entity's economics and structure. I break down the extent of M&A in IT into two sections:

M&A conducted by large companies: Much of this is mergers among high-capability large entities, integrating their technical strengths. This has positive dimensions, whether in cost reduction or improving the quality of services provided.

This is especially in light of the main Vision 2030 initiatives, which call for a high level of development and quality, and a near zero-error margin. These can be better ensured by working together with major companies.

Some current examples are Elm Co. and Thiqah Business Services Co., which will support e-government services, Arabian Internet and Communications Services Co. (solutions) and Giza Systems Co., which serves heavy industries with specialized assets like energy and utilities. These are high-level services and expertise that smaller companies in the market cannot fully access.

There is also a negative side to some M&A activities, called the hostile M&A approach: instances in which large corporations buy out smaller businesses to increase their market share and drive them out of business, mainly because of large fragmentation in the Saudi market. Today, the two largest players after mergers represent only 22% of the market; the rest are small players. Therefore, a competitive sector will help drive innovation and quality for survival and growth, which might stop if the big players dominate.

*With the rapid rise of emerging technologies, how predictable is the future of the software and digital services sector? What growth can we expect given the opportunities these technologies offer?

Since 2021, the IT market has significantly outperformed the telecom sector, with a 2024 valuation of SAR 101 billion versus SAR 79 billion for telecom. Due to its enormous growth potential, the IT sector is predicted to double in size (2x) in the upcoming years.

There are two types of growth: measurable growth, and unmeasurable/unpredictable growth.

Clear growth drivers for digital services demand that can be measured include:

a) Non-oil GDP growth expected above 4.5% annually, bolstered by rising private sector contribution targets.

b) Sustained government spending of over SAR 1.2 trillion in sectors like tourism, healthcare, and administration.

c) Rising economic activity with targets of 30 million pilgrims and 150 million tourists, boosting demand.

d) Announced contracts for listed tech companies exceeding SAR 20 billion for the upcoming few years.

However, unpredictable growth potentials exist and could push expansion beyond expectations. Innovation leads to innovation, often leading to a significant shift in demand for these technologies. Technology is used quite differently now than it was 10 years ago, and the next decade will see several technological revolutions that will have a significant impact on sector growth.