x Abu Dhabi, UAEWednesday 24 January 2018

Etisalat gains from foreign business even as profits fall

Etisalat's international businesses have helped the UAE operator surpass analyst profit forecasts despite the increasing competitive threat in its home territory.

The carrier has steadily lost mobile market share to its competitor du.
The carrier has steadily lost mobile market share to its competitor du.

A steady loss of local mobile and internet customers to the rival operator du over the past year helped to push Etisalat's annual profit down by almost 14 per cent despite continued growth from its international subsidiaries.

Etisalat made a profit of Dh7.63 billion (US$2.07bn) last year, a decrease of more than 13.6 per cent per cent compared with 2009, the company said.

However, international subsidiaries helped to increase the company's revenue by 2 per cent to Dh31.9bn. Analysts polled by Bloomberg expected Etisalat to report revenue of Dh31.3bn and profit of Dh7.56bn.

Etisalat lost 50,000 mobile subscribers in the quarter ending in December and now has 7.76 million. Over the past year, the operator has steadily lost mobile market share to du, its only competitor in the UAE, after ending 2009 with 7.79 million customers.

Etisalat also lost 20,000 internet subscribers in last year's final quarter, the second-straight quarter in which it lost customers. It now has 1.33 million internet customers.

"Etisalat realised well ahead of time that growth opportunities in the UAE telecom market would start diminishing due to high saturation of the UAE's mobile market," said Mohammed Omran, the company's chairman.

"Therefore, we developed a long-term strategy that would maintain the rate of growth, revenues and profit margins for our stakeholders - primarily the UAE Federal Government, [which] owns 60 per cent of the corporation - by diversifying our source of income and moving towards regional and international markets."

Etisalat added 25 million subscribers from its international operations and now has 135 million in 18 countries.

Etisalat's foreign subsidiaries represent about 20 per cent of the company's total revenue, up from 14 per cent in 2009.

The operator is in the due diligence phase of acquiring a 51 per cent stake in Kuwait's Zain for 1.70 dinars per share in a deal worth about $11bn.

The process is scheduled to be completed at the end of this month and could make Etisalat one of the top operators in the world with about 162 million subscribers in 25 countries.

Etisalat said it spent more than Dh1bn last year on boosting its investments in a number of African operators including Atlantique Telecom, which operates in seven west African countries, Zanzibar Telecom, and Canar Telecommunications in Sudan.

However, there are a few wrinkles in Etisalat's overseas ventures that could hurt its business later this year. The operator's Indian unit, Etisalat DB, has been accused of obtaining licences for second-generation mobile services at deflated prices, a charge that the parent company has rejected.

Meanwhile, it is expected that Etisalat's subsidiary in Egypt, Etisalat Misr, will see its earnings affected by the Egyptian government's order that it shut down mobile services during last week's protests in Cairo.

Irfan Ellam, a telecoms analyst with Al Mal Capital, said that while Etisalat remained focussed on the UAE, the operator was clearly looking abroad for growth.

"You could argue that maybe from a shareholder perspective, maybe du has been too aggressive and they're destroying value in the market for both operators," Mr Ellam said.

"While it's great from a consumers perspective, it's not so much from the shareholders'. We've come into a situation where the mobile voice market is fully penetrated, so where do you go from there?"

Mr Ellam said it was likely Etisalat would continue to look internationally after the Zain purchase to maintain its momentum.

"The acquisition strategy seems to be twofold," Mr Ellam said. "One is finding licences in the Middle East, and secondly, let's try to get operations where people that live in the UAE are from, such as Pakistan, India and maybe the Philippines."