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Out with the old, in with the new: Incumbent telcos slump at the sight competition

Out with the old, in with the new: Incumbent telcos slump at the sight competition

Saturated home markets and loss-making efforts abroad hasten nosedive for former telco monopolies while second and third entry operators shine in a data and mobile broadband playing field - Reuters

July 10, 2011 10:51 by

Most telecoms carriers in the Gulf, especially the former monopolies, face another period of flat-to-lower profits in the second quarter as saturated home markets and loss-making foreign units eat into the bottom line.

Analysts expect some non-incumbents, as second and third operators are known, such as Saudi Arabia’s Etihad Etisalat (Mobily) and the UAE’s du to prosper as they win further market share and data revenues rise, helping them post double-digit profit increases.

“All incumbents are facing higher competition at home and that is continuing to impact earnings — their domestic markets provide most of the revenues,” said Nishit Lakhotia, telecoms analyst at Securities & Investment Co (SICO) in Bahrain.

UAE’s Etisalat, the Gulf’s largest carrier by value, is forecast to post an average 0.5-percent rise in quarterly profit, according to a Reuters poll.

But profits at fellow incumbents Saudi Telecom Co (STC) and Bahrain Telecommunications (Batelco) will drop 3.7 and 19.9 percent respectively.


“There are signs of saturation in Gulf markets, while many Gulf operators’ international operations are still making losses — Etisalat and Batelco in India and STC in Indonesia are all EBITDA-negative,” said Simon Simonian, Shuaa Capital analyst.

STC is struggling to increase its operating margins, said Nadine Ghobrial, EFG-Hermes telecoms analyst.

“Strong competition in both its home and foreign markets implies these will stay in the mid to late 30s – I don’t see margins returning above the 40 percent level,” she said.

Earnings are largely priced into incumbent carriers’ shares and so are unlikely to have much impact, said Shuaa’s Simonian.

“Telecoms are still attractive if they can offer a mixture of dividends and growth and there’s still value in some carriers,” he said.


Quarterly profit at Saudi’s Mobily, an affiliate of the UAE’s Etisalat, is expected to rise 22 percent, according to analysts’ forecasts. The carrier may also announce an interim dividend, said EFG’s Ghobrial.

But losses at rival Zain Saudi will keep mounting despite top line revenues increasing, analysts predict.

“Competition this quarter was again focused on data and broadband, with Mobily and STC active with offers and promotions,” said Ghobrial.

“But we still do not see significant presence for Zain Saudi in this area, we believe a lot of the focus now is on the ongoing stake sale.”

Kuwait’s Zain has agreed to sell its quarter-stake in Zain Saudi to joint bidders Batelco and Kingdom Holding.


Saudi Arabia’s conservative rules — mixing with the opposite sex is strictly controlled and cinemas are banned — are helping to push demand for data as residents look to the internet, especially video, for entertainment.

“Mobily has done very well from mobile broadband and selling smart phones and accompanying data packages, which has driven most of its growth,” said Sico’s Lakhotia.

“The pace of growth will decline and that will get reflected in Mobily’s multiples. Nevertheless, it’s currently at attractive valuations, which is why it’s among the top picks of most analysts.”

UAE’s du, which ended Etisalat’s home monopoly in 2007, is expected to see a 53 percent rise in profits, analysts forecast.

Quarterly profit at Qatar Telecom is expected rise between 18 and 35 percent, according to the Reuters poll, but Oman Telecommunications Co’s profit is seen falling 14 percent. (By Matt Smith; Editing by Amran Abocar)

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