IT market likely to reach 2x telecom: AlJazira Capital

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

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Jassim AlJubran, Head of Sell-Side Research at AlJazira Capital, expects rapid growth in the software and digital services sector.

 

This sector surpassed telecommunications in 2021, reaching SAR 101 billion in 2024 versus SAR 79 billion for telecom. Growth is driven by digital transformation and ongoing government spending.

 

In an interview with Argaam at the 2025 Telecom and Technology Indicators Forum, AlJubran said the IT market is forecasted to become twice the size of telecom in the coming years due to strong growth potential.

 

He noted that telecom has seen major operational changes recently, fueled by 5G expansion, fiber optic access, and rising data demand.

 

These changes have boosted financial results for major firms, with revenue compound annual growth rate (CAGR) rising to 6.6% from 2018 to 2024, compared to negative growth in earlier years.

 

AlJubran pointed out that unifying telecom tower assets under one entity, backed by the Public Investment Fund, is a strategic move improving efficiency and speeding up 5G rollout.

 

On investment, he said capital expenditure climbed to 16.5% of revenues in 2024, up from a 14% average during 2021–2023. This increase supports data center upgrades, 5G expansion, and AI and cybersecurity investments.

 

Argaam’s financial portal took part in the forum where AlJubran reviewed the financial performance of Saudi Arabia’s telecom sector.

 

And to the details of the interview:

 

*The Saudi telecommunications sector has witnessed significant developments including the expansion of 5G, the spread of the internet, and the opening of access to fiber optics. How has this affected the financial performance of the major companies in terms of revenues, profitability, and investment? And how does the performance differ among 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 this development was seen in the rollout of 5G technology, with coverage exceeding 90% in major cities. Internet penetration surpassed 99%. The pace of digital transformation accelerated after the pandemic in both private and government sectors. But what is really interesting is how this reflected on the financial results of key companies such as Saudi Telecom Co. (stc), Etihad Etisalat Co. (Mobily), and Zain KSA.

 

The sector achieved a good compound annual growth rate (CAGR) of 6.6% in revenues between 2018 and 2024, which is remarkable considering a low CAGR of -0.7% during the 2012-2018 period. Profitability also improved. Companies managed to continue capital expenditures and free cash flows helped reduce overall debt levels.

 

Growth drivers for the telecommunications sector are as follows:

 

The consumer sector is the largest contributor to revenues, but growth is modest. Yes, there may be competitive pricing pressures due to the entry of Mobile Virtual Network Operators (MVNOs), which help operators gain market share, but increased penetration, regulatory improvements regarding open access to fiber networks, higher demand for data and internet, and changes in consumer behavior towards them contributed to sustained growth.

 

The business-to-business (B2B) sector: It is the most prominent growth driver in the sector through contracts with small and medium enterprises and government entities for corporate connectivity, cybersecurity, cloud services, and data centers. STC still dominates the sector, but Zain and Mobily have gained momentum with strong growth recently, some exceeding 20% over the last two years.

 

Wholesale and infrastructure services: Still an important revenue support amid open access to fiber optics and interconnection projects, especially as Saudi Arabia aims to become a regional digital hub.

 

*The unification of telecom tower assets under a single entity, supported by the Public Investment Fund (PIF), represents an important transformation in the telecommunications sector structure in the Kingdom. In your opinion, what impact does this approach have on company and sector performance? And do you expect more deals in the future?

 

- The unification of towers is an important development for the telecommunications industry in Saudi Arabia. Today, the Public Investment Fund plays a pivotal role in consolidating infrastructure. Previously, Zain Saudi Arabia sold more than 8,000 towers in a deal exceeding 3 billion SAR. Similarly, Saudi Telecom Company has already consolidated its tower assets under TAWAL Co., which is also under the PIF umbrella, merging all towers into one company. It is not unlikely that Mobily will adopt the same approach in the future to unify telecom infrastructure effectively under one entity.

 

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

 

There are multiple positive aspects that outweigh any negative impacts:

 

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

 

- Supports digital infrastructure: Having a unified tower infrastructure can accelerate the rollout of standard and advanced 5G networks and improve coverage. It opens the door to support developments in smart cities, Internet of Things, cloud services, and fiber services.

 

- Enhances investor attractiveness: Globally, telecom companies with light infrastructure and independent tower companies tend to perform well in capital efficiency, 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 affect long-term rental costs for operators, requiring strong regulatory mechanisms.

 

Regarding additional future opportunities in Saudi Arabia: Yes, there is a potential, in the long term, to integrate towers across borders throughout the Gulf Cooperation Council countries, especially considering the role of sovereign wealth funds in the region and Tawal’s current international presence. How 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 capital expenditure in 2020 with the launch of 5G, how do you see investment trends in the coming period? And what are the main areas requiring significant spending?

 

A large part of capital expenditures in recent years was in 5G expansions and infrastructure development, so capital expenditures are now stabilizing. As we saw in today’s financial indicators presentation, capital expenditures as a percentage of revenues rose to between 20-23% during the 2018-2020 years at the peak of 5G spending, but between 2021-2023, it decreased to an average of 14%. However, in 2024, capital expenditure intensity increased to 16.5%.

 

I believe we are heading towards increased capital expenditure intensity in the medium term, especially after the three operators recently obtained new spectrum licenses, but it will remain lower than the peak levels reached during the 5G rollout.

 

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

 

Main areas requiring major investments:

 

- Completing the expansion of 5G coverage and 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: There is a directive from the Vision to increase spending on research and development in new technologies, which opens the field for AI and blockchain potentials in telecommunications. AI can revolutionize network management and customer service, while blockchain can enhance network security.

 

- Fintech: Financial services in loans, savings, and insurance like bank STC, Mobily Pay, Zain Tammam, especially benefiting from the current subscriber base.

 

- Cybersecurity: With the increasing digitization of services and data.

 

*Where has the telecommunications and information technology sector reached in achieving the Vision 2030 targets, especially regarding its contribution to GDP, tech market growth, digital transformation, and job creation?

 

- According to the numbers we have recently witnessed, it is clear that Saudi Arabia is not only achieving the targets but sometimes exceeding them, to the extent that many of our figures surpass what has been achieved in advanced countries in the ICT sector.

 

All of this is due to strategic investments, private sector participation, government-supported digitization, and many regulatory amendments related to the sector such as infrastructure sharing and unification.

 

Regarding achieving Vision 2030 goals in ICT, I will review some achievements in several fields:

 

1- Economic impact: The ICT sector’s contribution to GDP has seen steady growth and is now approaching 4%. This is a significant increase from the 2.5% range that prevailed a few years ago, and we are on the right track to reach the 5% goal by 2030.

 

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

 

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

 

4- Digitization of many government services at the Ministry of Justice is another prominent field. More than 98% of court sessions in 2024 were held online.

 

5- Employment and skills development: More than 400,000 new jobs were provided in the private sector 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- Investment in emerging technologies: Saudi Arabia allocates tens of billions for AI, robotics, and advanced semiconductors. The PIF launched the Alat Co. fund, with a $100 billion investment in advanced technologies by 2030, a long-term strategy to build global tech leadership.

 

*What is the impact of mergers and acquisitions in the software sector on market competitiveness and quality of services provided?

 

- The impact depends on the nature of the mergers and acquisitions (M&A). Some may improve the structure and economics of the new entity, while others may negatively affect the sector as a whole. On the scope of M&A in IT, I divide it into two parts:

 

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

 

Especially in light of the main Vision 2030 initiatives, which require a high level of development and quality, and a near-zero error margin, which can be better ensured through the collaboration of major companies.

 

There are some current examples like Elm Co. and Thiqah Business Services Co., which will support e-government services, Arabian Internet and Communications Services Co. (solutions) and Giza Systems Co. serving heavy industries with specialized assets such as energy and utilities, which are high-level services and expertise not fully available to smaller companies in the market.

 

- There is also a negative side for some M&A activities, called hostile M&A approach: cases where big players acquire smaller companies to eliminate them from the market and boost their market share. Especially since the IT market in Saudi Arabia is largely fragmented with many small players. Today, the two largest players after mergers represent only 22% of the market; the rest are small players. Therefore, I believe 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 noticeably surpassed telecommunications, reaching 101 billion SAR in 2024 versus 79 billion SAR for telecom. It is expected to double telecom’s size in the coming years due to huge growth potential.

 

There are two types of growth: measurable and unpredictable.

 

Clear growth drivers for digital services demand include:

 

Non-oil GDP growth expected above 4.5% annually, supported by increasing private sector contribution targets.

 

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

 

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

 

Announced contracts for listed tech companies exceeding 20 billion SAR next year.

 

These drivers are measurable. However, unpredictable growth potentials exist and could push expansion beyond expectations. Innovation fuels more innovation, often transforming demand dramatically. Technology use today differs greatly from ten years ago, and upcoming tech revolutions over the next decade will strongly impact sector growth.