UAE’s Etisalat cuts costs through outsourcing, sues Indian JV partners

UAE’s Etisalat cuts costs through outsourcing, sues Indian JV partners

UAE telecoms operator Etisalat will outsource network maintenance and support services while abroad, it plans to sue Indian JV partners for fraud

February 25, 2012 12:41 by Reuters

Etisalat — which said on Wednesday it will shut down operations at its Indian joint venture amid a telecoms scandal — will shift some staff to companies providing outsourced services, but will not let go of any UAE citizens.

The former monopoly said the move is part of a restructuring plan to cut costs in the wake of profit declines.

The outsourcing plan will be completed in two years, it said.

“During this time, Etisalat will sign agreements with several international and local specialised partners … to conduct regular maintenance on its telecommunications networks,” the Abu Dhabi-based telco said in an emailed statement.

“Etisalat has prepared a plan to shift some of its staff members to work in new centres within the corporation or transfer them into private companies who have been selected to provide specialised services for Etisalat.”

Etisalat, which operates in 17 countries, said it would focus on its core business to improve its financial performance by reducing operating costs.

Etisalat’s annual net profit fell 24 percent to 5.8 billion dirhams ($1.6 billion) in 2011, due in part to impairments it took relating to Indian affiliate Etisalat DB, which is poised to lose its licence.

Etisalat has reported declining profits in seven of the past eight quarters as earnings from its foreign units fail to make up for sagging home revenue.

The domestic decline is due to price competition from competitor du and a move among the UAE’s mainly expatriate population to uses voice over Internet protocol (VoIP) services for international calls.

About three-quarters of Etisalat’s revenue is derived domestically, according to its third-quarter results, the most recent revenue breakdown the company has disclosed.

In related news, Etisalat has sued its Indian joint venture partners for fraud, following a top court’s recent order to cancel its affiliates licenses amid a corruption probe.

Etisalat has launched legal proceedings against Vinod Goenka and Shahid Balwa, top executives at its India partner DB Group, and Majestic Infracon Private Limited, a DB Group company, for fraud and misrepresentation.

Etisalat DB officials were not immediately available for comment.

On Wednesday, Etisalat said it would shut down the operations of Etisalat DB (EDB), in which it owns a 45 percent stake, after the unit’s 15 licences were among 122 India’s Supreme Court ordered to be scrapped.

Etisalat paid $900 million in 2008 for its stake in Swan Telecom, later renamed Etisalat DB, with Majestic owning 45.7 percent.

“Etisalat’s case is that it was induced into its investment in the company without any disclosure of the matters that are now alleged to have occurred in connection with the obtaining of 2G licences by EDB,” Etisalat said in an emailed statement.

“Those events occurred a year before Etisalat’s investment. Etisalat is facing very significant financial losses on its investment in EDB despite its having no involvement in the 2G license application or award process and being entirely innocent of any allegations relating to it.”

On Feb. 9, the UAE firm wrote off $827 million relating to Etisalat DB.

Relations between Etisalat and its joint venture partner have been tense for some time. Last July, the Abu Dhabi-based telecom operator said Majestic had brought undisclosed proceedings against it, which it called “wholly baseless”, and the case was later withdrawn. (outsourcing story: Reporting by Matt Smith; Editing by Amran Abocar; JV lawsuit story: Editing by Dinesh Nair) *image from channelemea.com