STC Transformation; Where is it coming from? and Where is it going?

STC is the biggest telecom operator in Saudi Arabia currently. They have been in the telecom operation for over 25-years, yet over the past decade they took and still taking strategic decisions that reshape STC Group and transform it to a conglomerate in digital service providers space. These decisions ranged from horizontal diversification, vertical integration and divestiture of some business unites. Earlier in the past decade STC started diversifying its telecom service portfolio by expanding across boarders regionally to the neighboring countries. The reason is obviously pursuing profitable opportunities and compete in growing regional market. Another strategic decision followed by diversifying STC services beyond telecom operation to pursue profitable opportunities in the finance service nationally through Fintech. They tapped into untapped market nationally where they developed their own online financial services utilizing their resources and capabilities. They provided the first digital wallet regionally utilizing Fintech technologies, they called it “STC Pay”, which revolutionized how online financial services, transactions, and payments are performed with unthinkable convenience.

In fact, STC Pay is competing with Apple and Google pay, in an essence, within Saudi and regional market with introducing even more convenient online money movement and payment services than other competitors. End of 2020 STC pay attracted more than 4-million users within only 2-years of its market age. This is has attracted global money movement providers to invest in STC Pay, later in 2020 Western Union announced their investment of $200 million in a bid for Internationalize this competitive Fintech organization. It is clear these two diversification strategies are to pursue profitable opportunities which both were proven to be the right strategic move thus far. In these two diversification decisions, they were wise because administrative costs are unavoidable but much less expensive than transaction cost if entirely outsourced.

Other strategic decisions made to vertically integrate all their major value chain verticals one at a time which used to be all outsourced. They started with integrating their customer call centers, which were outsourced to another company, integration decision reasons were to reduce costs, gain back control, getting closer to customers, improve quality, and contribute to national economy. Thereafter, they integrated their sales channels, B2C and B2B, which used to be partially outsourced to several small companies that with increased inflation rate they demand increasing commissions to a point where STC realized it is time to gain back control and improve sales channels in-house. They divested their sales division by splitting-off and introduced STC Channels organization within STC Group which is dedicated to only sales and marketing of all STC B2C products and services. This organization can pursue alternatives, i.e. outsourcing sales channels through small store franchising to reach wider market.

Following that split-off, they turned to IT and cybersecurity division by integrating these vital divisions vertically which used to be both outsourced; these are crucial functions area for any telecom or digital services provider. Their aim is to integrate a fragmented IT and cybersecurity functions, scale up, gain back control, and secure their internal information to prepare for a new era of transformation toward being the leading service provider in the region.

When looking at STC core business, Telecom Networks, we see that STC outsource almost all activities of network infrastructure, integration, implementation and operation to telecom vendors. The main reason is telecom hardware have uncountable propriety rights, and the reason for outsourcing network services is to transfer risk and hold vendors accountable to their network footprint performance and KPIs. This strategy is mostly followed across almost all international operators because of enormous administrative cost of network design, implementation, performance, operation, and maintenance which are very costly for operators. However, outsourcing will incur some transaction cost that is more bearable and more economically feasible than doing network aforementioned work functions directly in-house. In-line with VARS framework, below figure, this strategy enables STC to focus on scope of the enterprise, the value proposition, and the revenue model while outsourcing activities, resources and capabilities that work on network work functions. The next anticipated strategic move is even to bring home some of these vital work functions rather outsourcing them through developing and attracting resources and capabilities mainly across technical functions.

In terms of cutting-edge networks leadership, STC movement to lead in 5G network infrastructure is crucial at this specific time to complement their strategic direction. This is because 5G network is unlike previous networks, which were mainly for voice and internet connection, but more about opening new untapped business and consumer use cases that enable a more connected and digital world. In fact, 5G paves the way to realize most of STC expansion strategy to be the leading service provider in the region. 5G diverse use cases model and the standard requirement of each of these 3 use cases domains will revolutionize connectivity and pave the way for IR4.0 enablement. Those 3 use cases are Extreme Mobile Broadband (EMBB) domain, Critical Machine Communication, and Massive Machine Communication. EMBB will enable a various uses cases, i.e. work and play in cloud, VR and AR at 8K 3D resolutions; and IoT applications from smart meters and smart home to smart city and beyond. Critical machine communication domain will enable autonomous vehicle, Industry automation and IIoT, machine critical application, and health, hazard and rescue missions’ applications. Massive machine type communication will enable sensors networks and IoT applications that are not delay sensitive at ultra-low cost and long battery (in some cases up to 10 years) through small data transmission over longer time interval; below figure summurize 5G diverse use cases. These domains collectively will transform business models to adapt with new era of connectivity and digital services marketplace.

In conclusion, all this sculptured through STC DARE strategy which stand for Digitize, Accelerate performance, Reinvent experience, and Expand scale and scope. This strategy has strongly contributed to transforming STC to a giant service provider and conglomerate if continued. Diversification through continuous service portfolio expansion and pursuing profitable opportunities are strategic decisions to transform STC Group into a regional conglomerate with sustainable competitive advantages for the long run.

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Some additional resources

https://www.verdict.co.uk/stc-pay-telecom-mfs/

https://www.forbes.com/sites/danielwebber/2020/11/24/western-unions-stc-pay-investment-a-roadmap-to-the-future/?sh=49d7b4ea2538

https://www.stc.com.sa/wps/wcm/connect/english/stc/aboutSTC/Strategy