The overseas forays of Middle Eastern telecommunications companies have been one of the region's international success stories.
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The overseas forays of Middle Eastern telecommunications companies have been one of the region's great international corporate success stories in recent years. But they are also emerging as the Achilles heel of otherwise bulletproof regional operators. Companies such as Etisalat, Saudi Telecom, Orascom Telecom of Egypt and Zain of Kuwait each have cash-cow home markets facing increased competition. Each has responded by looking to the emerging economies of Asia and Africa. While these markets may offer fast growth, some are showing their risky sides as the global economy deteriorates. Saudi Telecom reported a 62 per cent drop in quarterly profits late last month, attributing the fall to massive losses in overseas operations caused by currency depreciation. Etisalat's own fourth-quarter results took a Dh700 million (US$190.5m) hit and, while the company has yet to reveal the cause of the adjustment, industry analysts say international operations are likely to be a contributor. Even Omantel, a small regional player that took to the international stage later than most, is feeling the international pain. This week the company announced it would write down the value of its Pakistani business, WorldCall, by Dh180m, sending fourth-quarter profits down by almost 70 per cent. What Etisalat and Omantel have in common is Pakistan, a nation that offers great promise but also significant macro-level risk. The country has nuclear weapons, two conflict-ridden borders and an unstable political system, but it also has a large, growing population, an emerging middle class and strong links to the Middle East. In the freewheeling, optimistic years gone by, such advantages meant operators were willing to look past the risks and make bold investments. And they were rewarded with millions of new customers and a compelling growth story for investors. Now, Pakistan's economy is sinking, an ugly conflict between the government and the Taliban is growing in intensity, neighbouring Afghanistan is deteriorating and the national currency, the rupee, is in a tailspin. Orascom, also a major player in Pakistan, has said it has been reviewing its plans for the country and would reduce investments there. The company will report fourth-quarter results in the coming month; analysts are predicting bad news to emerge from the subcontinent. Beyond the global economic crisis, the news is largely good. More than 650 million people received their first mobile line last year, according to a new report by the International Telecommunications Union (ITU), pushing the total number of mobile users globally to four billion. In emerging markets, more than half the population now has a phone. In India, now the largest telecoms market in the world, 10 million people get their first mobile line every month. The ITU predicts that the rapid penetration of mobile phones into the developing world is laying the foundations for a long-term expansion in the kinds of communications services consumed by low-income customers; a child born in India, Egypt or Brazil today is likely to first experience the internet through a mobile network, the UN-affiliated body says. Now, the ITU believes the information and communication technology (ICT) industry will help to pull the world out of a recession. "Having contributed consistently as a high-growth sector in its own right, ICT can now power economic recovery across all sectors," said Hamadoun Touré, the secretary general of the ITU in a speech at the World Mobile Congress in Barcelona this week. "Along with stimulus packages put together by governments, the ICT industry must continue to invest in infrastructure and the roll-out of cost-effective services, such as next-generation networks." But most now agree that global expansion by Middle Eastern telecoms businesses has reached its high-water mark. Regional operators spent almost $10 billion acquiring new telecoms licences and companies last year, and have spent more than $50bn so far this decade. The spending spree has created more competitive telecoms markets throughout the Middle East. The entrance of Zain and Etisalat into Saudi Arabia has sparked a low-intensity price war, and Egypt - home to networks run by Etisalat, Orascom and the UK's Vodafone - now has some of the cheapest telecoms services in the world. Even in the UAE, where two government-owned companies engage in carefully managed competition, consumers are seeing the emergence of a discount operator as du pushes its low-cost options further into the mainstream. By cutting the cost of registering a new mobile line and offering special rates on local and international calls, the company has established itself as a price-focused offering. It now attracts more than 70 per cent of all new mobile subscribers and says it will reveal discount offers on more advanced services such as mobile internet in coming months. Whether the national Telecommunications Regulatory Authority (TRA) will allow more vigorous price competition this year remains an open question. Its original rationale for keeping prices stable was to prevent Etisalat from using its deep pockets and dominant market position to kill off du in its infancy. Now that du has turned profitable, attracted more than three million customers and appears to be itching to engage in an all-out price war, that logic is coming into question. A third competitor in the UAE mobile market could also be just a year away. Mohamed al Ghanim, the head of the TRA, has said in the past that the regulator would give du a three-year period of no new competition. This period, intended to allow the new operator to become profitable and sustainable, comes to an end next year. email@example.com