Calm seas in the UAE telecoms sector, but choppy waters ahead

The UAE telecommunications sector went through a slow year in 2014, apart from Etisalat’s stake acquisition in Maroc Telecom.

Moving forward, the telecoms operator will face pressure in relation to the accounting errors of its Saudi affiliate, Mobily.

“The [Maroc Telecom] deal gave Etisalat control of the Moroccan operator as well as its subsidiaries in sub-Saharan Africa, increasing the UAE group’s international footprint quite substantially,” says Matthew Reed, the practice leader for the Middle East and Africa at Ovum in Dubai.

Etisalat finalised its 53 per cent stake acquisition in Marco Telecom in May.

But on a less optimistic note, Mobily, Saudi Arabia’s second-biggest phone operator and an affiliate of Etisalat, is under investigation by the kingdom’s capital market authority because of alleged accounting irregularities that led to the company restating 18 months of earnings.

In November, the company suspended its chief executive, Khalid Al Kaf, and said Serkan Okandan, the deputy chief executive, would be running the company’s operations.

Renaissance Capital says it is putting Mobily’s stock “under review” until the investment bank sees the “first set of clean and audited financials”. However, it is positive about the company’s prospects.

“Mobily is seeking to receive 2.2 billion Saudi riyals [Dh2.15bn] from Zain KSA for site-sharing, interconnect and other intercompany dealings,” says Renaissance Capital, adding that Mobily could receive half the amount over the coming quarters.

Moving into next year, competition between telecoms operators in this country is likely to heat up. Etisalat and its competitor du are working to finalise a long-awaited infrastructure sharing pact. By sharing their infrastructure, consumers here will be able to choose their TV, internet and landline provider – without being restricted to the operator in their area.

By the end of 2013, du and Etisalat introduced mobile number portability, which allows customers to switch between the two telecoms companies without changing their number. Few people were keen to use the service, according to Mr Reed.

“The impact of mobile number portability seems to have been fairly modest, as was expected,” he says.

In terms of industry trends, the best growth potential for telecoms operators lies in data services rather than voice.

Voice revenue has been on the decline in recent years, as programmes such as Skype and Viber provide the service for free.

However, fast internet is needed for those applications, which raises the demand for data packages.

Mobile data revenue in the Middle East will rise from about US$9.93bn in 2014 to $16.28bn in 2019, according to Ovum forecasts.

“Data connectivity will be more important to operator strategies over the coming year and beyond,” says Mr Reed.

“Telcos are increasingly offering content and applications, often in partnership with content specialists, as well as getting involved in e-commerce and m-commerce activities.”

Follow The National's Business section on Twitter