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STC has unveiled a $500m venture capital fund, STV, which will focus on the technology sector and will be the largest of its kind in the Middle East, according to the Saudi Arabian telco.
STC's launch of a $500m technology investment fund reveals the scale of Saudi Arabia's incumbent operator's ambitions to move beyond the low-growth market for traditional telecoms services, and embrace new opportunities in the wider digital economy.
The Middle East is witnessing a digital transformation, and STC plans to invest in new digital areas with the intention of becoming a "serious world-class player" in the digital economy, said STC in a statement about the launch of STV.
According to STC Group CEO Dr. Khaled Hussain Biyari, telecoms operators face a stark choice, and with the establishment of STV, STC has made its decision clear.
"Global telecoms have two choices – to either change and evolve into digital companies or to convert into a utility," Biyari said. "We have elected to go down the first route."
As well as being a growth vehicle for STC, STV is intended to help Saudi Arabia achieve its Vision 2030 national development plan, which calls for a move to a more diverse and technologically-advanced economy. STV will be independently managed but will be able to use STC's assets.
Abdulrahman Tarabzouni, a Saudi Arabian national who was formerly an executive at Google with roles in the Middle East and US, has been appointed as CEO of STV. Tarabzouni has been with STC since late-2016, and led the $100m investment that STC made in December in Careem, a Dubai-based taxi-booking service.
Tarabzouni has said he aims to remodel STC along the lines of SoftBank, which has interests in online advertising, e-commerce, and semiconductor businesses, as well as in telecom operators. SoftBank also recently launched a technology investment fund that will be run in partnership with the Public Investment Fund, a Saudi Arabian sovereign wealth fund.
STV is currently considering investments in areas such as artificial intelligence, virtual reality, digital health, financial services, and logistics, according to reports about its launch event in Riyadh. STV will invest its $500m over a period of four to five years, with the first transaction expected by 4Q17.
In STC's quest to reinvent itself as a global player in the digital economy, one obvious challenge that it will face will be to make the right investments. Many of the sectors and investment targets that STC will be looking at through STV are new and unproven, and there will inevitably be much uncertainty. A further challenge for STC will be to overcome its background as a large, bureaucratic organization which has been focused on conventional telecoms, as well as realizing new opportunities that will help to reshape the wider business through digital investments.
Nevertheless, STC's launch last year of a digital brand, Jawwy, demonstrated the Saudi Arabian telecoms giant's willingness to try new things. And STC's launch of STV reveals its readiness to make a large financial commitment to the digital economy.
Middle East Market Outlook, 2Q17, TE0015-000432 (April 2017)
STC Update, July 2016, TE0015-000399 (August 2016)
"STC targets Saudi millennials with Jawwy," TE0015-000400 (August 2016)
Matthew Reed, Practice Leader, Middle East and Africa
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