GCC telecom sector to consolidate in coming years

The GCC telecom sector will see consolidation in the next five years with etisalat, Saudi Telecom and Qatar Telecom emerging as major players amid slowing growth in subscriber base in the region, said a study yesterday.

Fitch Ratings said these three firms possess the balance sheets to acquire the rest of the smaller regional players with support from their governments.

"After a difficult global economic environment in 2009, the leading operators have turned cautious and limited their M&A activities to smaller acquisitions in different markets. This may change as the cash position of these companies swells and opportunities arise at reasonable prices," it said.

It said smaller firms such as Orascom Telecom could be considered targets for these leading players, following in the footsteps of smaller names such as Wataniya and Bahrain Telecom.

Of the big three, etisalat has the most financial flexibility to seek strategic opportunities, said the Fitch study.

The agency said Middle East has become a mostly mature mobile market with slowing subscriber growth, but there are still some pockets of impressive growth in markets such as Iraq and Iran. Of the most prominent markets, Saudi Arabia, Kuwait and the Qatar mobile have the highest growth potential over the next three years to end-2012.

The UAE is highly penetrated at more than 200 per cent and most of the growth will be dependent on population growth. High mobile penetration rates in markets such as the UAE, Qatar, Bahrain and Saudi Arabia will keep growth prospects in the Middle East telecom market limited in 2010. Robust top?line growth will only be possible in some markets in the mobile segment, it added.

With new licences awarded in Kuwait and Qatar since second half of 2008, the competitive environment has shifted up a gear in some leading markets. There is only limited risk for mobile voice tariffs to fall under aggressive pressure in the short to medium term as competition levels remain moderate and companies do not compete on pricing but rather on service quality.

As a result, average revenues per user (ARPU) are expected to fall only slightly in the short to medium term.

There have also been some clear good signs in the growth of data traffic both in the mobile and fixed segments since 2008. However, whether mobile broadband reaches a broader audience, remains to be seen. Fitch expects to see this data trend continuing with mobile and fixed?line data growth rates of 25-30 per cent per annum until at least end-2012.

It said mobile broadband may offset some of the loss in voice Arpus over the long run. Fitch does not expect any scaling back in capital expenditure budgets to conserve cash as the liquidity and leverage position is relatively strong across the sector in the Middle East. The global ratings agency projects that although Africa will not remain immune to the economic slowdown, its telecoms sector is expected to continue to grow faster than that in other developing markets.

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