New subscribers drive first-quarter profit for du

'This quarter we achieved positive revenue growth and healthy levels of profitability driven by our strategic focus on enhancing the customer experience,' says Osman Sultan, the telecom company's chief.

Du's first quarter net profit rose 4.8 per cent. Sarah Dea / The National

The Dubai-listed telecoms operator du reported a first-quarter net profit increase of 4.8 per cent driven by new subscribers, an improving economy and rising smartphone uptake.

“Du published a good set of first-quarter results amid an environment of continuing healthy growth of the wider UAE telecom sector,” said Omar Maher, an analyst for the sector at the Cairo-based EFG-Hermes.

Net profit after royalty paid to the Government was Dh490 million. Du added 306,308 subscribers in the quarter, bringing its total to 7.55 million. Revenue reached Dh2.96 billion, an increase of 12.5 per cent, compared with Dh2.63bn in the prior-year period.

Du shares yesterday closed down 1.1 per cent at Dh5.90.

Data from the Telecommunications Regulatory Authority (TRA) shows that 51 per cent of handsets registered in the final quarter last year were smartphones, up from 46 per cent in the third quarter.

Experts say this could have led to consumers subscribing to monthly data packages, resulting in higher revenue.

The results exceeded EFG-Hermes forecast, but the royalty charge of 43.3 per cent was slightly above estimates of 41.4 per cent.

Analysts also believe that an overall improvement in the economy was a key factor in the improved performance.

“The first-quarter results from du and Etisalat indicate that both operators are benefiting from the improved economic conditions in the UAE over the past year or so,” said Matthew Reed, a principal analyst at Informa Telecoms and Media in Dubai.

Du broke Etisalat’s 30-year monopoly, when it came to the market in 2007. Etisalat, which reported its results earlier this week, said that mobile subscribers grew by a fifth to 8.9 million.

“We believe much of the vivid picture is a result of a good macroeconomic backdrop where healthy growth is partially masking the impact of increased competition,” said Mr Maher.

Competition between du and Etisalat has intensified since December after the introduction of mobile number portability. The service allows customers to change their mobile operator while keeping their number unchanged.

However, du told analysts in a conference call that mobile number portability had not been “a game changer”, without elaborating how many users had switched to or from Etisalat.

Du said its double-digit revenue growth was driven by a focus on “operational efficiencies”.

“We are somewhat reassured that du was able to post healthy growth in the first quarter of 2014, without any margin contraction similar to that of fourth quarter of 2013,” said Mr Maher. “But we highlight the longer-term risk of profitability erosion as the market draws closer to saturation, especially if the current macro activity slows down.”

Osman Sultan, du’s chief executive said: “This quarter we achieved positive revenue growth and healthy levels of profitability driven by our strategic focus on enhancing the customer experience.

“In 2014 we will continue to work towards Vision 2021 so that we actively engage with plans to implement a Smart Government across the UAE and transform Dubai into a smart city,” he added.

This week, the TRA also said that customers would be able to choose between Etisalat and du for their home internet services starting this year.

The long-awaited infrastructure-sharing agreement between the country’s two providers is likely to take place after they reach a commercial agreement.

Network sharing will have a positive impact on pricing for the consumer, analysts believe that du is more likely to benefit from the infrastructure sharing than Etisalat.