GCC Telecoms Operators: 2013 Performance And 2014 Outlook

The seven major telecoms operators in the GCC have announced the year-end results for 2013. The seven operators are STC (Saudi Arabia), Etisalat (UAE), du (UAE), Zain (Kuwait), Ooredoo (Qatar), Batelco (Bahrain) and Omantel (Oman). Four operators, STC, Etisalat, Omantel and du, reported net profit growth in 2013, while Ooredoo, Zain and Batelco reported profit losses for the twelve month period. Below, BMI analyses each operator's performance and the outlook for 2014, with an emphasis on their strategies for revenue and profit growth amid saturation of mobile voice markets in the GCC.

STC - STC's particularly impressive turn around in profitability was the result of restructuring its operational costs, mainly through the planned sale of its Indonesian unit, Axis, to Axiata. This allowed it to increase its focus on domestic operations, where it reported impressive 18% revenue growth in the enterprise sector and 80% revenue growth in the broadband segment, on the back on heavy investment in next generation fixed and mobile broadband networks, and new IT partnerships. BMI believes STC will continue pursuing this strategy throughout 2014, while remaining on the look-out for expansion opportunities closer afield.

Etisalat - While Etisalat's domestic operations still account for the bulk of the operator's revenues and profits, with strong take-up of mobile broadband services and its robust enterprise services portfolio supporting profit margins, the operator's foreign operations' contribution to total revenues rose to 33% in 2013, from 28% in 2012. BMI expects this trend to continue in 2014 and over the long term, as Etisalat increases its reach with the acquisition of Vivendi's 53% stake in Maroc Télécom, including its West African subsidiaries, and its foreign operations continue to record faster growth than the UAE's saturated market.

Bigger Operators Stay Ahead
Revenues And Net Profits, US$mn (LHS) And Net Profit And Revenue Growth, % (RHS), 2013

The seven major telecoms operators in the GCC have announced the year-end results for 2013. The seven operators are STC (Saudi Arabia), Etisalat (UAE), du (UAE), Zain (Kuwait), Ooredoo (Qatar), Batelco (Bahrain) and Omantel (Oman). Four operators, STC, Etisalat, Omantel and du, reported net profit growth in 2013, while Ooredoo, Zain and Batelco reported profit losses for the twelve month period. Below, BMI analyses each operator's performance and the outlook for 2014, with an emphasis on their strategies for revenue and profit growth amid saturation of mobile voice markets in the GCC.

STC - STC's particularly impressive turn around in profitability was the result of restructuring its operational costs, mainly through the planned sale of its Indonesian unit, Axis, to Axiata. This allowed it to increase its focus on domestic operations, where it reported impressive 18% revenue growth in the enterprise sector and 80% revenue growth in the broadband segment, on the back on heavy investment in next generation fixed and mobile broadband networks, and new IT partnerships. BMI believes STC will continue pursuing this strategy throughout 2014, while remaining on the look-out for expansion opportunities closer afield.

Etisalat - While Etisalat's domestic operations still account for the bulk of the operator's revenues and profits, with strong take-up of mobile broadband services and its robust enterprise services portfolio supporting profit margins, the operator's foreign operations' contribution to total revenues rose to 33% in 2013, from 28% in 2012. BMI expects this trend to continue in 2014 and over the long term, as Etisalat increases its reach with the acquisition of Vivendi's 53% stake in Maroc Télécom, including its West African subsidiaries, and its foreign operations continue to record faster growth than the UAE's saturated market.

Du - BMI believes du's impressive revenue growth in 2013 was supported by a growing enterprise customer base, as well as the Increasing contribution of mobile data, which accounting for 28% of mobile revenues in 2013, up from 23% in 2012. Despite the downside risks of operating in just one market, we continue to have a positive outlook for du, primarily on the back of its growing enterprise services portfolio. Since the beginning of 2014, the operator has signed agreements to provide communications and datacentre services to Petrochem Middle East and the National Drilling Company, and has also created Smart Telecom Building Infrastructure Guidelines for residential and commercial towers, which will allow it to tap into Dubai's rapidly growing real estate market.

Bigger Operators Stay Ahead
Revenues And Net Profits, US$mn (LHS) And Net Profit And Revenue Growth, % (RHS), 2013

Ooredoo - While Ooredoo has been unable to generate profit growth in 2013, owing in part to heavy investments in launching greenfield operations in Myanmar and the impact of foreign exchange losses from its international operations, BMI maintains a positive outlook for the operator in 2014. This view is supported by its heavy investment in next generation broadband networks in its domestic market of Qatar, where it announced that it reached 100,000 fibre subscribers at the end of 2013, as well as its launch of mobile services in Myanmar. The operator has announced that it expects to launch its 3G network with 97% coverage in Q314.

Omantel - Although Omantel has reported stronger profit and revenue growth than some of its larger rivals in the region, BMI maintains a fairly neutral outlook for the operator in 2014. Like du, it is susceptible to the downside risks of operating in just one market, where any economic downturn would seriously impact its revenue and profit growth. While BMI has a generally positive economic outlook for Oman, the opportunities in its enterprise sector are limited compared to the UAE, giving the operator little scope to implement revenue diversification strategies.

Zain - Zain's performance continued to be negatively impacted by its Saudi Arabian unit's heavy debt load and foreign exchange losses, mainly from its Sudanese operations, which it estimated at US$419mn for 2013. While these are expected to continue weighing on the operator's top and bottom lines in 2014, increasing take-up of mobile broadband across its markets may help to partially offset the losses. Data revenues increased 49% in Sudan, 65% in Iraq and 73% in Saudi Arabia and accounted for 14% of total group revenues in 2013. Meanwhile, Zain's CEO reiterated in February 2014 that the group is on the look-out for investment opportunities in North Africa, in particular regarding increasing its 15.5% stake in Morocco's Inwi.

Batelco - Batelco stated that its profitability in 2013 was affected by one-off expenses, including those related to the Cable & Wireless Communications' Islands division purchase. However, the acquisition was also responsible for the jump in revenues, with international revenues accounting for 54% of group revenues in 2013. BMI expects Batelco to continue seeking foreign expansion opportunities in 2014, given intense competition and the limited size of its domestic market. Since the beginning of the year, the operator has already seized the opportunity to more than double its stake in Kuwaiti fixed broadband provider QualityNet. BMI believes opportunities such as these, which will allow Batelco to build up its high-value enterprise and consumer customer base will be key for a return to profit growth.

The seven operators' year-end results for 2013 show that a number of the strategies BMI highlighted operators are employing to offset strong competition and approaching saturation in the consumer voice market are still in full swing. This includes the rising importance of non-voice revenues, supported by heavy investment in next generation mobile and fixed broadband networks and demonstrated by du, STC and Zain's results.

Though currency volatility in international operations has weighed heavily on some operators' profitability in 2013, BMI believes they will continue to seek expansion opportunities, particularly in North Africa, which offers slightly safer options than some emerging markets in Sub-Saharan Africa, for example. While Etisalat is expected to finalise its acquisition of Vivendi's stake in Maroc Télécom by May 2014, Ooredoo, Zain, STC and Batelco and, more cautiously, du, have all expressed interest in any attractive opportunities. These could include a 35% stake in Tunisie Telecom and the liberalisation of Libya's telecoms market, which both made little progress in 2013.

Meanwhile, we expect the region's telecoms operators to continue building up their enterprise services portfolios. The value of this strategy is emphasized by the outperformance of STC, Etisalat and du, the three operators that have pursued the enterprise segment most aggressively in 2013.

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Related sectors of this article: Telecoms
Geography: Middle East, United Arab Emirates, Bahrain, Kuwait, Morocco, Myanmar, Oman, Qatar, Saudi Arabia
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