The telecom operators in Saudi Arabia are in a race to launch next-generation mobile network services in bid to cash in on demand for smartphones, said experts.

Zain Saudi this week launched long-term evolution (LTE), or 4G - which offers download speeds more than twice that of 3G - in Dammam, Jeddah and Riyadh, with other major cities to follow by the end of 2012, partnering with Chinese group Huawei.

With this, Zain Saudi became the third telecoms operator to launch next-generation mobile network services in the Kingdom as surging demand for smartphones spurs a technology race to win data-hungry customers.

Etihad Etisalat (Mobily) and Saudi Telecom have also announced phased roll-outs of their LTE networks in Saudi Arabia, the first Middle East country to commercially launch the new technology.

This push comes as subscriber growth and voice revenues stagnate. The kingdom's mobile penetration is the third highest globally at 188 per cent, or nearly two phones for every resident.

'The mobile side is pretty much saturated, so operators are trying to convert pay-as-you go customers to contracts, tying customers into one or two commitments and bundling voice and data packages together,' said Asim Bukhtiar, Riyad Capital head of research.

Operators are also trying to cash in on demand for smartphones. About 3.5 million handsets were shipped to the Middle East in the first-quarter of 2011, up 45 per cent year-on-year, according to Canalys.

That uptake is adding to spiraling demand for mobile data, it added.

'Data is the focus for operators and will be the source of growth for the next three to four years as they try to get more revenue from each user,' said Bukhtiar.

'LTE has been long anticipated by mobile and broadband users in Saudi Arabia.'

Zain Saudi's LTE launch comes amid an ongoing takeover bid for the indebted operator.

Kuwaiti group Zain in March agreed to sell its 25 per cent stake in Zain Saudi to Bahrain Telecommunications (Batelco) and Saudi billionaire Prince Alwaleed bin Talal's Kingdom Holding for $950 million, with the buyers set to get management control.

Due diligence has yet to be completed and analysts say the protracted deal has left Zain Saudi in limbo.

The carrier's debts top $5.5 billion and it owes Zain a further $651 million, according to first-quarter results, while it also must complete a capital restructuring to alleviate accumulated losses of $2.3 billion.

'Zain Saudi's balance sheet does not support the cost of deploying a 4G network,' said Riyad Capital's Bukhtiar.

With money tight, Zain Saudi would do better focusing on particular customer segments, he said. 'Zain Saudi needs to be more selective - right now it is trying to be everything to everybody, but it can't compete with Mobily and STC.'

Zain Saudi's mobile market share fell to 16 percent in 2010, leaving it a distant third to former monopoly STC and Mobily, an affiliate of UAE's Etisalat.-Reuters