Etisalat feels the heat as profit falls

Intense competition in the UAE and higher operating expenses saw Etisalat report its third consecutive decline in quarterly profits.

Competition in the UAE and higher operating expenses resulted in Etisalat reporting its third consecutive decline in quarterly profit.

The UAE telecommunications company reported lower revenue in its home market, amid competition from rival du, although global operations have grown.

Shares in Etisalat fell beneath the Dh10 mark yesterday, after the company said its third-quarter profit amounted to Dh1.72 billion (US$468 million), a decline of 1 per cent on the same period last year. The operator failed to increase its UAE mobile-subscriber base, reporting 7.5 million customers. That was level with the figure reported in its second-quarter results, and a decline on its 7.8 million customers reported in the same period a year ago.

Revenue in the UAE stood at Dh18.04bn for the first nine months of this year, down 1.34 per cent on the same period last year.

Matthew Reed, a senior analyst for the Middle East and Africa at Informa Telecoms & Media, said that Etisalat was suffering in its home market.

"The UAE market remains tough for Etisalat. Their revenues have not grown here; they have declined slightly," he said. "The growth is coming from its overseas subsidiaries."

Etisalat operates in 17 countries, but its global expansion was set back this year with the failure of its $12bn bid for a controlling stake in the Kuwaiti operator Zain.

It has also faced legal difficulties in India.

In the UAE, Etisalat's rival, du, launched commercial services in 2007, and now claims a 43.6 per cent share of the local mobile market. The competition has dented Etisalat's performance, Mr Reed said.

"For several years it had relatively easy growth. That's a lot harder to come by now," he said.

Etisalat's total revenue increased to Dh8.04bn in the third quarter of this year, up by 8.6 per cent on the same period last year.

That was outpaced by increased operating expenses, which amounted to Dh5.14bn in the third quarter, a 22.3 per cent increase over the same period last year.

Mr Reed said that these higher operating expenses were probably down to greater competition and the related need to spend more on advertising.

"As the UAE and other markets become increasingly competitive it is probably having to spend more on marketing," he said.

Etisalat's decline in quarterly profit is slowing. In the first quarter of this year, the company reported 8.5 per cent lower profit compared with the same period last year. In the second quarter, profit was down by 15 per cent. But the company made a turnaround with a profit decline of only 1 per cent in the third quarter versus the same period last year.

The company has invested about Dh6bn in installing fibre-optic and fourth-generation mobile networks in the UAE. The group said capital expenditure had fallen to Dh2.97bn in the first nine months of this year, compared with Dh3.44bn during the same period last year.

Shares in Etisalat, which trade on the Abu Dhabi Securities Exchange, yesterday closed down by 0.1 per cent at Dh9.99.

Published: October 19, 2011 04:00 AM


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