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Mena Telecom Cos Face 2Q Earns Headwinds As Competition Erodes Revs

Sunday, Jul 10, 2011

(This story was originally published Thursday)

By Shereen El Gazzar

Of ZAWYA DOW JONES

DUBAI (Zawya Dow Jones)--Major telecom companies in the Middle East, North Africa region are likely to see second quarter earnings decline, compared with the year ago period, as intense domestic competition continues to erode voice revenues and operators grapple with how to tap the potential of mobile broadband and data, analysts say.

"The profits of a number of the big regional operators have been under pressure lately as a result of rising competition, and in some cases regional instability, and that is likely to be reflected in 2Q results," said Matthew Reed, a senior analyst at Informa Telecoms & Media in Dubai.

Faced with having to find new revenue streams in crowded domestic markets and as mobile penetration rates in some countries top 100%, many of the biggest telecom firms in the region are forecast to show slowing profit growth and in some cases even post losses.

Analysts at EFG Hermes expect U.A.E.-based Emirates Integrated Telecommunications Co., or Etisalat, the Gulf Cooperation Council area's biggest telco by market capitalization, to post a 3% drop in second quarter net profit. The investment firm also predicts 3% profit declines for fellow industry heavyweights Saudi Telecom Co. and Kuwait's Mobile Telecommunications Co., or Zain .

"I believe that the competition for Gulf telecoms has intensified, therefore margins and ARPUs are likely to remain in check," said Chandresh Bhatt, assistant vice president of research at Kuwait-based Global Investment House.

A dearth of mobile license auctions in the region as well as big ticket acquisition opportunities are also keeping a lid on the ability of telco's to grow profits.

Ongoing political ructions in Syria saw Saudi Telecom and Qatar Telecom miss out on an opportunity to bid for Syria's third mobile license in April, while Etisalat canned its pursuit of a major stake in Kuwait's Zain back in March, citing regional unrest and disagreement among Zain shareholders.

EGYPT STRUGGLES

Telecom companies in Egypt will likely see earnings drop sharply in the second quarter of the year as they tally up the cost of a revolution that put an end to President Hosni Mubarak's 30-year regime.

Telecom Egypt said in late June that the impact of the damages caused by the political unrest in the country cost the operator 85.5 million Egyptian Pounds ($14.2 million).

Analysts at EFG expect Telecom Egypt's second quarter net profit to drop 10% on the year, while Egyptian Co. for Mobile Services, or Mobinil, the country's biggest mobile operator by subscribers, is seen reporting a 54% slump in profit.

With most telco's profits under pressure, analysts say greater adoption and roll out of data technology could go a long way to helping prop up sagging revenues.

While the GCC has some of the world's highest mobile penetration rates, data adoption is still in its early stages. A lack of local language content, restricted media and less competition are all factors that have left broadband penetration levels low, say analysts.

"Increasing sales of smart phones and gadgets along with ongoing deployment of 3G and LTE (long term evolution) will be a catalyst for broadband growth in the region," said analysts at Bahrain-based Sico.

Madhvendra Singh, a telecoms analyst at Morgan Stanley in Dubai, said operators that lead in the broadband/data sector, like Saudi's Etihad Etisalat, or Mobily, will most likely post better second quarter earnings than the more traditional telco companies.

"Mobily has recently reached 5 million broadband customers. Its focus on postpaid and smartphone segment will continue to boost earnings throughout 2011 in our view," said Singh.

-By Shereen El Gazzar, Dow Jones Newswires; +971 444 61684; Shereen.elgazzar@dowjones.com

Copyright (c) 2011 Dow Jones & Co.

(END) Dow Jones Newswires

10-07-11 0352GMT