We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Sun 15 Jan 2012 06:07 PM

Font Size

- Aa +

Fitch says cautious on Middle East telco revenues

Rating agency expects increased competition will put pressure on revenues in 2012

Fitch says cautious on Middle East telco revenues
(Photo for illustrative purposes only)

Telecom companies operating in the Middle East will at best see a stabilisation in revenues in 2012 amid increased competition, Fitch Ratings has said in a new report.

The rating agency said maturing market penetration rates aligned with increased competition will offset strong economic fundamentals due to high oil prices, population growth and higher wages for state employees.

Fitch said it expects "at best a stabilisation of overall revenues in Middle East telecoms".

"However, Fitch still sees the possibility of some revenue contraction in 2012 as data revenue and the new driver of growth, mobile broadband fail to offset the fundamental decline in voice revenue," its report added.

Certain markets such as Kuwait, Qatar, and Bahrain remain highly competitive while Saudi Arabia and the UAE may become even more competitive due to the maturity of these markets.

"Although significant price competition is still not expected in the short-term due to strong economic fundamentals, the main risk may be mobile number portability, which is yet to be implemented in major markets other than Saudi Arabia and now Bahrain," Fitch said.

It said that pressure on average revenue per user (ARPU) levels due to a saturated voice market that still remains the major contributor to overall revenues could be highlighted as the main mid-term trend.

"Although the heightened level of competition is leading to lower operating margins for most Middle Eastern telecoms, Fitch believes that the credit outlook for the top-four telecoms is stable due to strong credit metrics and positive free cash flow (FCF) generation capability," said Bulent Akgul, director in Fitch's EMEA Telecommunications, Media and Technology team.

"Regulatory risk still remains benign due to the state's involvement in major telecom operators and disruptive technologies are mostly being kept at bay at the moment," added Akgul.

Fitch said mobile data traffic growth will continue to grow at double-digit rates in 2012 but this will only partially offset some of the competitive pressure on ARPU's and margins.

The rating agency said it still expects high single digit growth in selected markets such as the politically unstable Iraq and Yemen as well as the mobile segment for the North African market due to its under-penetrated nature and under-investment in the fixed-line sector.

However, new untapped subscriber growth is being gained at the expense of cheaper service offerings, as profit margins and ARPUs fall, it added.

Incumbent sector leverage and liquidity profiles are expected to remain relatively low and healthy respectively versus west European peers, Fitch said.

"Fitch does not expect any significant pressure on most operators' credit profile and cash-flow generation," it added.

Arabian Business: why we're going behind a paywall

For all the latest tech news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.