* Q1 net 29.1 mln rials vs forecast 26.2 mln

* Revenue 114.5 mln rials vs 111.1 mln yr ago

* Operating expenses up 5.4 pct at 83.9 mln

* Mkt share 58.6 pct, domestic subscriber base up 9.7 pct

By Matt Smith

DUBAI, May 9 - Oman Telecommunications (Omantel) OTL.OM said first-quarter net profit fell 2.5 percent as rising costs outstripped revenue growth.

Yet the former monopoly's earnings topped analysts' forecasts, with the operator increasing its subscriber base to up the pressure on ailing rival Nawras NWRS.OM , a unit of Ooredoo QTEL.QA (Qatar Telecom).

Omantel made a net profit of 29.1 million rials ($75.6 million) in the three months to March 31, down from 29.9 million in the year-earlier period, it said in an emailed statement.

Analysts polled by Reuters had on average forecast a quarterly profit of 26.2 million rials. ID:nL5N0CT040

First-quarter revenue was 114.5 million rials, up from 111.1 million a year ago. But operating expenses rose 5.4 percent to 83.9 million rials, due to network upgrades, higher employee costs and increased call costs to Pakistan, which the operator did not pass on to clients.

"We anticipated higher costs related to investments and other operating expenses, but Omantel has been able to manage this well," said Kanaga Sundar, head of research at Gulf Baader Capital Markets.

Omantel's domestic subscriber base rose 9.7 percent to 2.96 million, giving it a market share of 58.6 percent.

Rival Nawras has posted declining profits for five straight quarters. ID:nL6N0DF0FK

"Omantel has been dominating the domestic market for the past 10 quarters and this is likely to continue for the year as Nawras continues to revamp its network and competitive strategy," Sundar added.

"The company is strengthening its grip on the market and the competitor needs to catch up."

Omantel also hosts two mobile virtual network operators (MVNOs), Friendi and Renna, and owns a controlling stake in Pakistan's Worldcall.

The Omani operator's shares ended 0.1 percent lower on the Muscat bourse, giving a decline of 2.3 percent so far this year. ($1 = 0.3850 Omani rials)

(Reporting by Matt Smith; Editing by David Holmes)

((matt.smith1@thomsonreuters.com)(00971506354039)(Reuters Messaging: matt.smith1.thomsonreuters.com@reuters.net))

Keywords: OMANTEL RESULTS/