Investors are betting that demand for mobile phones will take off

Led by the United Arab Emirates' Etisalat, it also has plans to float on the stock market.

The contracts end the monopoly of Saudi Telecommunications, one of the country's biggest and best-known firms.

About 24 million people live in Saudi Arabia, with about one in every three inhabitants owning a mobile phone.

Fast growth

Demand is expected to pick up and the group of investors said they plan to expand quickly.

"We are looking at seven million customers in the first five years and this is a very conservative figure," said Etisalat senior vice-president Obaid Saeed Bin Mes'har.

"There is a large segment of the market out there. We have a very aggressive roll-out plan to start covering the main cities in the kingdom within six months."

The group, which is 35%-owned by Etisalat, paid 12.2bn Saudi riyals (�1.8bn; $3.25bn) for the country's second conventional mobile licence.

It also paid 735.8m riyals for the right to operate a 3G system, which will allow users to access more sophisticated audio and video services.

The agreements will run for 25 years.

Saudi Telecommunications also won the right to operate a 3G system.

Mr Mes'har said that the group would offer investors the chance to buy a 20% stake in the company as soon as King Fahd approved the contracts and licences.

Depending on demand, the company may sell more shares, and increase spending.