Net profit reward for du diligence

Forays into the business and post-paid mobile markets, as well as cost cutting, has led du to report record annual net profits.

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DUBAI // Forays into the business and post-paid mobile markets, as well as cost cutting, has led du to report record annual net profits and revenues that have surpassed analyst forecasts. The UAE's second telecommunications operator plans to extend its growth this year with the introduction of several content offerings as well as an expected launch of national broadband infrastructure sharing, said Osman Sultan, its chief executive.

"There is an explosion of traffic on our networks," Mr Sultan said. "We do the investments but we do not take the optimal part of the pipe because other players take them. We need to be able to be part of the pipe and not only by being part of the 'dumb pipeline'. We want to be a smart player." The proposed launches by du this year are expected to include a sports-based virtual world in Arabic. Mr Sultan said du was talking with Injazat, the Abu Dhabi-based data-centre firm, to develop ventures.

The telecoms company is partly owned by Dubai Holding, the investment company of Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, and by the Abu Dhabi investment vehicle Mubadala Development. It said net profit last year after provisions for a 50 per cent royalty for the Government rose to Dh264 million (US$71.8m) from Dh4m in 2008. Revenues rose 35.1 per cent to Dh5.33 billion.

According to a survey of 11 analysts by Bloomberg, du was forecast to report Dh5.24bn in revenues and Dh252m in net profit. "In the beginning of the year, we were curious as to what was happening because of the downturn and the first quarter wasn't that great," said Diala Hoteit Damaj, the assistant vice president of research for NBK Capital. "But the next quarters were better and you get the feeling that the sentiment in the UAE is changing. You can see it in the numbers."

The addition of several mobile packages by du, including BlackBerry and iPhone plans, post-paid contracts and a business-specific offering helped it buck analysts' expectations that its subscriber growth would begin to slow, due to a decline in the region's population. The company said it added 1.01 million mobile customers for the year, including 337,900 in the final quarter. Its total increase was more than double that of du's rival, Etisalat.

"It's a growing story," Ms Damaj said. "They're trying to be a different operator and target different segments of the population, such as post-paid subscribers with higher average revenue-per-user figures." Mr Sultan said that the long-awaited broadband infrastructure sharing deal between du and Etisalat would begin within the next "five to six months" and spread across the year "progressively".

The deal will be a pillar of du's business as it becomes increasingly difficult to expand mobile market share with the company nearing 40 per cent penetration, said Simon Simonian, a telecoms analyst with Shuaa Capital. "We know mobile penetration is pretty high and voice is not the growth story any more, but if you put the economy aside, broadband still is a good opportunity for du," Mr Simonian said.

He added that du had room to grow its broadband and television offerings within its exclusive areas in Dubai. Mr Sultan said that du was a "mean and lean company" and that last year's economic crisis had forced the company to cut costs. Its costs-to-revenues ratio decreased to 46 per cent from 54 per cent last year. "This is the advantage of any newcomer compared to the incumbent," Mr Sultan said.

"We have been squeezing on expenses." The operator, which ended Etisalat's monopoly in 2007, invested about Dh2.4bn in building its mobile, broadband and fixed networks last year and has an investment programme exceeding Dh2.2bn for this year, Mr Sultan said. * with Reuters