UAE telco du drops Saudi expansion

UAE's second telco does meet criteria to bid for virtual network in kingdom - CEO
Osman Sultan CEO Du.
By Reuters
Wed 20 Feb 2013 09:13 AM

Telco du, the United Arab Emirates' number two operator, beat quarterly profit forecasts, helped by a buoyant local economy, and said it was dropping plans to expand into Saudi Arabia because it would need to find a partner.

Chief executive Osman Sultan said on Tuesday du did not meet the criteria to bid for one of three so-called mobile virtual network operator (MVNO) licences for sale in Saudi Arabia.

"We wouldn't qualify directly [and] going there through some kind of partnership would make the financial equation less interesting," he told reporters. "I don't see us going into regional expansion at least in the coming two years in the traditional way, which is new licences."

MVNOs lease capacity from conventional mobile operators and pay a percentage of their revenue to them, as well as fees.

Dubai-based du had hoped to expand beyond its UAE base as mobile penetration growth stagnated, but with the country's economy buoyant this now appears less of a priority.

The UAE government has estimated GDP grew around 4 percent in 2012, while it attracted AED30bn (US$8.2bn) of direct foreign investment last year.

Du said its fourth-quarter net profit more than doubled after it wrote back tax provisions. Its per-customer revenue also rose and its mobile subscriber base increased by nearly a quarter from a year earlier.

Sultan said du's 2013 capital expenditure would be roughly the same as last year's AED1.7bn, with the money to be spent on expanding and improving its mobile network and broader infrastructure.

Du, which ended rival Etisalat's domestic monopoly in 2007, made net profit of AED994m in the three months to December 31, up from AED440m in the year-earlier period. Analysts had on average forecast a profit of AED809.7m, in a Reuters poll.

Du's shares surged 11.7 percent to their highest close since November 2008.

Fourth-quarter revenue was AED2.74bn. This compares with AED2.4bn a year earlier.

UAE telecom operators are taxed via royalties under licenses from the federal government. The latter announced a new formula in December that includes a levy on revenues as well as profits.

Du had expected to pay 50 percent of its profit in royalty fees through the year, the same rate as the longer-established Etisalat. But the new formula means it pays less tax as a percentage of profit than 2011, enabling it to write back some of the provisions it set aside in the first nine months of 2012.

Du proposed a cash dividend of 30 fils per share.

The operator had 6.46m mobile subscribers as of December 31, up from 5.2m a year earlier, giving it a market share of 48.7 percent. Average revenue per user rose to AED117 in the quarter from AED110 in the third quarter.

The company has sought to sign up more mobile customers to monthly, or post-paid, contracts, with these customers typically spending more and being less likely to switch provider.

Post-paid subscribers accounted for about a quarter of du's fourth-quarter mobile revenue of AED2.18bn, but less than a tenth of subscribers.

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