Rivalry hits GCC telecom firms

Competition is so fierce it has forced some to even cut jobs

Fierce competition due to high penetration rates have substantially pulled down the profit margins of telecom operators in the GCC and forced some to cut jobs.
According to data compiled by Global Investment House, the aggregate net income of GCC telecom companies were $7.64 billion in 2009, 1.86 per cent down from $7.79 billion a year earlier.
The pressure was all the more seen in 2010 as companies began to post their year-end financial results – showing a declining trend.
The factors vary from company to company, but subdued growth results from high penetration level for voice segment (in the range of 100 per cent to 200 per cent), heightened competition and lower average revenue per user (ARPU) than ever before.
Mohamad Mourad, principal at Booz & Company says mobile penetration in the GCC reached an average of 178 per cent in Q2 2010, the highest among all regions globally.
“Operators are facing increasing pressure to continue with their inorganic growth through globalisation. But at this stage, there are limited new licences being issued around the world, hence the drive towards consolidation,” Mourad says
Etisalat, the largest telecom company in the GCC in terms of market capitalisation, reported a 17 per cent decrease in net operating profit before federal royalty, to Dh14.6 billion against Dh17.7 billion in 2009.
Its net operating profit after federal royalty went down by 20 per cent in the same period. It posted Dh0.97 earnings per share, 13 per cent below the Dh1.12 it distributed a year earlier.
The UAE-based company is hoping that this year onwards, growth will come from mobile data and fixed and mobile broadband, plus its overseas operations.
The second largest operator, Saudi Telecom Company, on the other hand reported that its net profit for the fourth quarter fell by 23 per cent to SAR2.29 billion. For the full year, earnings per share reached SAR4.72, 13 per cent below the SAR5.43 it posted the year before.
Omantel, Oman’s largest operator reported a 10 per cent dip in net profit to OMR112 million from OMR125.2 million in 2009. The sluggish results reported for 2010 highlights the growing competition faced by the company at home, and pressure faced by its Pakistani unit.
In Bahrain, Batelco’s fourth quarter net profits fell 18.6 per cent as loss in market share and start up costs for its Indian operations hurt full year results. For the year, the company reported a net profit of BHD86.8 million, a 17.4 per cent decline over 2009.
“We’ll be happy to get a single digit top line so we have to work twice as hard and three times as clever as before,” Peter Kaliaropoulos, group CEO of Bahrain Telecommunications Company (Batelco), said. “We are now under tremendous pressure. To grow three to five per cent organically is a good year, so operators have to make bold moves and acquire as many operators as they can.”
Meanwhile, the newly IPO’d Nawras reported revenue of OMR188.9 million for 2010, a 10 per cent increase from OMR 171.6 million posted in 2009. Net profit and EPS went up by 20 per cent to OMR50 million and OMR77, respectively.
Dubai-based Emirates Integrated Telecommunications Co. (DU.DFM), or Du is expected to post double-digit growth. It will post its financial results in March 3 but as per its third quarter results, the company – who ended Etisalat’s 30-year monopoly in 2005 – saw net profit for that quarter went up by 19 per cent.
“In the first half of 2010, we grew our top line by 30 per cent. I would guess that 2010 compared to 2009 will be less than this magnitude but we will still see very good double-digit growth," said du CEO Osman Sultan.
Despite a mobile penetration of more than 200 per cent in the UAE, du continues to register double-digit growth. The upbeat trend in the first half continued in the third quarter, with du posting revenue growth of 31 per cent year-on-year while Ebitda for the period rose 76 per cent.
"It's not a secret that the growth will be slowing down because of the levels of penetration. As you know, the UAE is now the most penetrated country in the world in terms of use of mobile services. But top line growth will continue in double-digits, that’s for sure,” Sultan said.
The squeeze in profits in the region’s telecom industry is expected to naturally spillover its effects on the job market.
In Kuwait, Zain announced that it plans on a re-organisation of the senior management structure as well as restructuring its chain of command, which would lead to laying off 40 per cent of the company's employees.
The management insisted that this was not a brand new decision, and that Zain had already planned this policy and management gave its approval. The company announced that the job cuts would take place in the parent company only, and not in any of its subsidiaries.
Etisalat, in December, also said that it will cut about 3 per cent of its staff, aiming to reduce costs as it faces greater competition in domestic markets.
The UAE market leader in the country's telecoms sector will cut at least 300 of 10,460 jobs, the National said, citing Faiez Awadh, Etisalat's senior vice president of human resources. He told the paper that the cuts would be 'focused on productivity, performance, age and redundancy factors.'
Who’s gaining/losing market share?
According to Global Investment House (Global), UAE’s total GSM subscriber base increased 12.4 per cent year-on-year (at the end of Sept. 2010). The third quarter witnessed a Q-o-Q growth of 1.4 per cent in subscriber base or an additional 169,000 new customers during the quarter. Du accounted for the major chunk of new subscriber additions in 3Q-2010, accounting for 94.1 per cent of new subscriber additions while Etisalat accounted for the remaining 5.9 per cent.
Saudi Arabia
The pace of decline in market share for the incumbent Saudi Telecom Company appears to have declined as it resorted to aggressive international call promotions in 1Q-2010.
Saudi Telecom’s market share has come down to 46.5 per cent in 3Q-2010 compared to 46.7 per cent at the end of 2Q-2010. On the other hand, Zain KSA continues to march along with its market share increasing to 15.2 per cent at the end of 3Q-2010 compared to 11.9 per cent at the start of the year.
Mobily market share declined slightly to 37.8 per cent from 40.0 per cent at the start if the year.
Saudi cellular subscriber has increased by 9.1 per cent to 48 million at the end of 3Q-2010 compared to 44.0 million at the start of the year. Approximately 4 million cellular subscribers were added during 9M-2010. However, the quarterly subscriber growth has seen a declining trend since the start of the year with subscribers growing by 1.7 million, 1.6 million and 0.7 million in 1Q-2010, 2Q-2010 and 3Q-2010 respectively.
With subscriber rate of over 175 per cent the trend is likely to continue, barring the seasonal effect.
Figures from Global show that STC subscriber base has increased to 22.3 million at the end of Q3 compared to 21 million at the start of the year, while Mobily saw 500,000 new subscribers during the same period.
The growth in subscriber base was driven by Zain KSA and Saudi Telecom which added 2.07mn and 1.34mn subscribers in 9M-2010 on the back of aggressive call promotions and advertising campaigns.
In Q3 2010, Viva achieved a Q-o-Q subscribers growth of 11 per cent while Wataniya grew by 2.9 per cent and Zain declined by nearly 1 per cent. Viva thus took a higher share of new subscribers addition, posing stiff competition to Zain and Wataniya.
Viva achieved significant mileage in terms of subscriber’s market share, which increased from 4.2 per cent at the end of 2008 (when it started its operation) to 16.9 per cent in 3Q-2010.
Zain witnessed a decline in its market share from 55 per cent at the end of 2008 to 43.3 per cent at the end of 3Q-2010. Since last few quarters Wataniya’s market share remained almost Zain stable in the range of 39.5 per cent to 39.8 per cent.
At the end of Sept. 2010, Kuwait’s total GSM subscriber base was at 4.32 million, 17 per cent higher than the year before.
At the end of Sept. 2010, Bahrain’s total mobile subscriber base grew year-on-year by 9.6 per cent to 1.61 million. Batelco and Zain saw 3.8 per cent (33,000) and 6.5 per cent (39,000) decline, respectively, in subscriber base.
“Over the last few quarters, Batelco and Zain are gradually losing their subscriber market share,” Global said. “The entry of the third operator, STC (Viva) resulted in stiff competition in Bahrain and it gained around 13 per cent market share at the end of Q3-2010.”
Oman’s total mobile subscriber base grew 19 per cent year on year to 4.5 million, at the end of Sept. 2010. Quarter-on quarter wise, the sultanate saw a 3 per cent growth or 130,000 new in subscriber base. Omantel took the higher share of new subscriber additions in 3Q-2010. Omantel accounted for 62.1 per cent (81,000) of new subscriber additions in 3Q-2010 while Nawras accounted for the rest 37.9 per cent (50,000).
In Qatar’s mobile segment, Vodafone is gaining the subscribers market share which increased from 0.8 per cent at the end of 2Q-2009 (when it started its operation) to 22 per cent at the end of 3Q-2010.
Global data shows that during the third quarter, Qtel’s mobile subscriber abse declined by .9 per cent (20,000) while Vodafone grew by 12.4 per cent (66,000), quarter-over-quarter. Overall, Qatar’s total GSM subscriber base grew 19.6 per cent year-on-year to 2.73 million.
Top 12 telecom companies in the GCC ( in terms of market capitalisation)
1. Etisalat- $20,477 million
2. Saudi Telecom Company (STC )-            $19,158 million
3. Mobile Telecommunications Company KSC (ZAIN)- $9,518 million
4. Etihad Etisalat Company- $6,475 million
5. Qatar Telecom (Q-TEL) - $3,684 million
6. Emirates Integrated Telecommunications Company (DU) - $3,152 million
7. National Mobile Telecommunications Co. (NMTC) - $2,376 million
8. Mobile Telecommunications Company Saudi Arabia - $1,802 million
9. Oman Telecommunications Company (OTEL)- $1,780 million
10. Bahrain Telecommunications Company (BATELCO)- $365 million
11. Vodafone Qatar - $264 million
12. Omani Qatari Telecommunications Company (NWRS) - $129 million
Source: Capital IQ (As of 26 February 2011, Historical rate)
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