A decision by Gulf oil producers to trim mobile phone roaming rates is expected to depress the net profits of their telecommunications companies given the strong competition in the region, Moody’s Investment Service has said.

In a brief comment on the decision by the six-nation Gulf Cooperation Council (GCC), Moody’s said it would affect mainly Etisalat of the UAE, Qatar’s Qtel and the Saudi Telecommunications Company (STC).

“The implementation of the required reduction in roaming rates for voice calls across the GCC countries will have a negative impact on all telecoms operators in the region,” said the report sent to Emirates 24/7.

“Given that competition for market share is likely to remain intense, the policy will likely result in further margin compression in the operators' respective domestic markets, which have historically been highly cash-generative. This is especially relevant for incumbent telco operators such as Etisalat (Aa3/stable), Qtel (A2/stable) and STC (A1/stable).”

Moody’s was referring to the February 1 deadline for the implementation of the required reduction in roaming rates for voice calls across all GCC countries, as decided by the telecommunications ministers of member states in June 2011 in collaboration with regional telecom regulators.

In response to the policy, Etisalat announced on Monday that it would cut its roaming rates within the GCC by up to 26 per cent. This brings Etisalat's roaming rates more into line with those of Du, its only competitor in the UAE.

Separately, the Qatari regulator (Ict Qatar) has announced that its local operators already comply with this policy.

Many GCC operators, including the rated incumbents, have set up cost efficiency programmes to stem the margin erosion that is likely to result from the decision.

“In view of increasing competition as well as ongoing deregulation, Moody's believes that measures to protect profitability levels will increasingly become more challenging, as has been evident in recent reported results.”