Saudi Telecom Co (STC) aims to connect 500,000 homes in the kingdom with optical fibre for highspeed broadband, but a lack of spectrum is limiting the adoption of next-generation mobile services, a top executive said.

Saudi Arabia's 26.5 million people had 1.95 million fixed broadband subscriptions at the end of 2011, according to the telecoms regulator, while of these only 18,500 are high-speed fibre-to-the-home (FFTH) connections, Informa Telecoms and Media estimates.

'With FTTH, we're looking to pass 500,000 homes by the end of this year and go up to 2 million in 2013,' Jameel Al-Molhem, Saudi Telecom chief executive for Saudi Arabia, told a conference in Dubai.

Slumping margins on conventional voice calls have prompted STC and rivals Mobily, an affiliate of the United Arab Emirates' Etisalat, and Zain Saudi to bet on soaring demand for broadband to bolster income.

That strategy seems to be working - STC's first-quarter profit rose 60 percent, while its mobile broadband revenue was up 145 percent, Bahrain's Securities & Investment Co (SICO) wrote in a note.

Potential further growth is huge, with only 41 percent of Saudis using the internet at the end of 2010, according the International Telecommunications Union's most recent data.

Analysts say this relatively low penetration, which is barely half that of the neighouring United Arab Emirates, is partly due to a lack of fixed-line infrastructure in the vast kingdom that is more than twice the size of France and Germany combined.

So telecoms operators want their roll-out of next generation long-term evolution (LTE) mobile networks, which potentially offer twice the internet speeds of 3G, to help fill this void, although they are being hampered by a lack of spectrum.

'You cannot do a big bang on LTE without having the right frequencies,' said Molhem. 'The frequency situation in Saudi is also putting the brakes on the potential ... to see real money coming from LTE. If you want to connect rural and small cities and to be profitable also, then LTE is something you can use.'

Informa estimates there were only an estimated 12,500 LTE users in Saudi Arabia at March-end.

'The key problem the operators have with LTE is that they don't have their preferred spectrum, which is reserved for the military,' said Matthew Reed, a senior Informa analyst.

Saudi's mobile operators were unable to launch LTE using their preferred frequency, so they had to reallocate frequencies that were meant to be for other services.

'Saudi operators don't yet have the spectrum to carry large volume of data traffic over LTE,' said Reed. 'Also, there's a lack of LTE devices and operators haven't yet convinced many consumers that it is worth switching from 3G handsets.' – Reuters