Amid rising costs and a drop in mobile subscribers, the UAE’s telecoms operators Etisalat and du are betting on 5G and digital solutions to boost their bottom lines.
Emirates Integrated Telecommunications Company , du's parent company, posted a 7.4 per cent fall in third-quarter net profit due to a one-off item in last year's comparative period and a dip in mobile subscribers.
Etisalat, the UAE’s biggest telco, reported a decline of 4.2 per cent in quarterly net profit as expenses and expenditure rose.
Both companies fell short of the median estimates of analysts who were polled by Bloomberg.
However, despite a sluggish run in the quarter, in terms of year-on-year net profits, the UAE telcos are in a good position for a profitable future, analysts said.
"We expect the UAE to be a growth market in the longer term," Nishit Lakhotia, head of research at Bahraini investment bank Sico, told The National.
“With the introduction of 5G and digital solutions, it will be a leader on the technological footprint, offering sufficient opportunities for both telecom operators to capitalise.”
Sico forecasts the market will remain profitable for both Etisalat and du.
“As we look towards a smart future, we are working diligently to bring next generation technologies such as 5G, IoT [Internet of Things], AI and blockchain into our network,” said Osman Sultan, du chief executive.
“In the UAE telecoms market fixed business appears to remain robust, whereas the mobile prepaid segment is shrinking while growth is visible in the post-paid segment,” said Mr Lakhotia.
He added that du’s third-quarter results were marginally weak due to lower gross margins and higher royalty and taxes.
International Data Cooperation in the US observed a positive top line growth for the UAE telecoms sector.
“Both telecoms operators in the UAE reported a positive year-on-year growth in 2017, driven by growth from the fixed line, mobile post-paid, devices business and digital services segments,” said Krishna Chinta, programme manager, telecoms and IoT [Internet of Things] for the Middle East, Africa and Turkey at IDC.
“This growth momentum is expected to remain through 2019 driven by a stronger consumer demand, opportunities emerging from Smart Dubai and national transformation programmes.
“There are also a number of upcoming projects in preparation for Expo 2020,” said Mr Chinta.
In the Middle East, Moody’s expects low-to-single digit revenue growth in the next 12 to 18 months for telcos, the rating agency said.
“Our outlook on the Emea [Europe, the Middle East and Africa] telecoms sector remains stable but fragile into 2019,” said Carlos Winzer, senior vice president at Moody’s.
“Intensifying competition, slower GDP growth and the impact of past regulation continue to raise concerns about the future sustainability of revenue growth.”
Omar Maher, vice president of telecoms at EFG-Hermes, said the dip in Etisalat’s quarterly profit was attributable to lower interest income as well as higher non-operating expenses.
“This is nothing to worry about, since non-operating items always fluctuate on quarterly basis.” Mr Maher said.
“Overall, it is a reassuring set of numbers … in line with our estimates at all levels.”
However, for du, Mr Maher predicted a strong fourth quarter compared with the third.
“Revenue and margins are still pretty healthy [in Q3] despite slower growth in the economy and talks of expat departures,” he said.
“The fourth quarter should be better than the third as a result of stronger demand trends.”
Both operators are preparing to introduce limited 5G services, the ultra-high speed mobile broadband, from next year.
This describes the fifth generation of cellular mobile communications, which is set to include faster data transfer rates, energy saving, cost reductions and widespread device connectivity through the IoT.