Competition drags down Etisalat profit

Expansion strategy succeeding but UAE is still crucial.

The increased competition among telecommunications companies in the UAE is sure to be a win for consumers, but it looks to be a drag on Etisalat's earnings. The company is projected to post a 9 per cent decline in earnings compared with the same period last year, according to Martin Mabbutt, a London-based analyst with the investment bank Nomura. Mr Mabbutt expects Etisalat to post profits of Dh4.8 billion in the second quarter of this year, down from Dh5.3bn in the same period last year.

The Telecommunications Regulatory Authority announced this month that it planned to end Etisalat's monopoly in many regions. Etisalat, which is based in Abu Dhabi, will soon begin competing head-to-head with du. The younger firm's internet and cable TV services are available only in some newer neighbourhoods of Dubai pending the changes. Already, du has announced a promotion bundling its internet, television and landline services for Dh249 a month, while Etisalat's similar package is priced at Dh399.

In addition, "du continues to make inroads into Etisalat's market position with its mobile offers moving up-market from its early focus on the lower-spending consumer", Mr Mabbutt wrote. Etisalat said it generated 53 per cent of its revenues last year through its mobile business. Earlier, du said it gained more than 260,000 mobile users in the first quarter, while Etisalat said it lost about 30,000 users in the same period. Mr Mabbutt sees Etisalat's second-quarter revenue falling to Dh7.45bn from Dh7.94bn in the previous quarter. It also had an 8 per cent drop in revenue in the first quarter and in those figures "group revenues were principally rescued by very strong growth from the Egyptian operations", Mr Mabbutt said. Etisalat is expanding aggressively internationally, with considerable success, but still depends heavily on the UAE for its profits.

Investors will also be watching closely to see if Etisalat sticks with its policy of awarding generous dividends, given the shifting landscape in the market. The company last year awarded a dividend totalling Dh4.3bn. In a statement to the Abu Dhabi bourse yesterday, the company said its board would meet on Monday to discuss its first-half dividend.