Etisalat and Mobily working out new deal after management agreement ends

Mobily had been under a management contract with the UAE’s Etisalat, which said the companies were working to create a service and technical support agreement. Courtesy Mobily

The Saudi Arabian telecoms company Etihad Etisalat (Mobily) and its founder Emirates Telecommunications, known as Etisalat, are developing a new working arrangement after their management agreement ended last week.

The deal, which was signed in 2011, expired on Friday. Abu Dhabi-listed Etisalat owns 27.4 per cent of Mobily.

“Etisalat Group and Mobily are currently working on developing a service and technical support agreement which will take into consideration Mobily’s requirements for the coming period given the scale of its operations and customer base,” Etisalat said in a statement to the Abu Dhabi bourse on Sunday.

In a statement on the Tadawul, the Riyadh-listed company said that Mobily and Etisalat Group had agreed not to renew their management agreement.

“Mobily [has] reached a level of growth that enables it to work with more flexibility,” it said.

Etisalat’s stock on Sunday opened 1.3 per cent higher in Abu Dhabi at Dh18.30. It closed at Dh18.15, rising by 0.55 per cent from last week, and up from Dh15.90 a year ago.

Mobily closed at 24.72 Saudi riyals (Dh24.18), up by 0.04 per cent from last week, but down from 28.05 riyals a year ago.

The Saudi equity market is expected to grow steadily next year unless oil markets witness renewed volatility and there is a fiscal tightening that could affect consumption, said Santhosh Balakrishnan, a research analyst at investment bank Riyad Capital.

“While we see 2017 to be an optimistic scenario and believe opportunities lie in certain pockets, broader markets may see a swing as reforms slowly kick in,” he said. “Earnings growth overall is expected to be normal.”

Mobily had reported losses during the third quarter as it took in the full impact of the Saudi regulation on fingerprinting for SIM cards. It reported losing subscribers because of the suspension of unregistered customer lines and pressure on sales.

Last year, the Saudi Communications and Information Technology Commission said anyone who uses a SIM card from any operator within Saudi Arabia must submit their fingerprints.

In October, Mobily announced its third quarter net loss of 167.7 million riyals compared with a net profit of 18.8m riyals during the previous quarter, and a net loss of 158.3m riyals in the third quarter last year. It reported third-quarter revenues of 2.93 billion riyals, down 20.8 per cent from the 3.7bn riyals for the same period last year.

The Saudi telecom market has about 54 million subscribers with STC, Mobily and Zain the major players, according to a report from Al Jazira Capital in February. STC is considered to be the largest operator and holds between 49 per cent and 52 per cent of the market. At the end of last year, Zain had about 12.4 million subscribers, the company said, which amounts to a market share of 23 per cent. Mobily was left with a market share in the range of 25 to 28 per cent, according to the report.

Mobile phone penetration in Saudi Arabia was at about 171 per cent last year, according to the report from Al Jazira Capital.

In July last year, Mobily made the last in a series of earnings restatements that in total cut 27 months of profit to March 31, 2015, by 3.63bn riyals.

These adjustments were made to fix accounting errors. In December 2014, Saudi Arabia’s market regulator referred a number of suspects to the bureau of investigation and public prosecution over the affair.

Mobily had attributed the accounting error to premature booking of revenue from wholesale broadband leases and mobile promotional campaigns. It also made changes to the way it accounts for some contracts and the depreciation of property and equipment.

This month, news reports said Mobily was studying a sale or a merger of its towers to cut costs.

During the third quarter, Etisalat reported a net profit after a royalty payment of Dh1.9bn, which decreased year on year by 4 per cent.

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