Moody's upbeat on GCC telecom sector

The telecoms sector in the GCC is predicted to see "moderate" revenue growth in the next 12-18 months, a new report by ratings agency Moody's said on Monday.

It said the outlook for the integrated telecommunications industry in the region remained stable, as companies continued to demonstrate solid liquidity backed by strong cash flow generation.

Moody's report said the integrated telecoms industry in the GCC was changing, with increasing competition and nearly saturated penetration rates.

Last week, the Telecommunications Regulatory Authority in the UAE said it was looking at increasing competition between operators Etisalat and Du. Mobile phone number portability will be launched in the UAE in November, Mohammed Gheyath, TRA executive director, Technology Development Affairs said.

"Intensifying domestic competition will negatively affect profitability and market share; however, Moody's expects the incumbent GCC integrated telecoms companies to retain their leadership positions and EBITDA margins to be in excess of 50% in the medium term," said Martin Kohlhase, an assistant vice president-analyst at Moody's.

He added that expansions abroad have intensified to help increase revenue bases and diversify cash flow streams.

GCC operators have recently engaged in rapid and significant international acquisitions to compensate for the loss of monopoly positions and increasing domestic penetration rates, the report added.

Most companies are expected to remain acquisitive over the medium to long term, and M&A activity is likely to comprise mostly small to medium-sized acquisitions in emerging markets in the next 18 months, Moody's said.

"Moody's expects the companies to maintain their conservative financial policies and to continue to conservatively manage their capital structures, which supports a stable outlook," added Kohlhase.

"Moderate revenue growth for mobile telecoms services coupled with acceleration in the provision of data, broadband and other value-added services should also help the operating margins of GCC integrated telecoms companies stay well above their global peers -- despite potential margin dilution arising from the consolidation of lower-margin foreign subsidiaries," said Kohlhase.

Moody's said that ratings upgrades were unlikely at this time due to the already high level of standalone creditworthiness of the rated issuers.

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