By Andy Sambidge
Moody's says implementation of cheaper calls will have negative impact on telcos
The implementation of the required reduction in roaming rates for voice calls across the Gulf region will have a negative impact on all telecoms operators in the region, Moody's Investors Service has said in a new report.
The rating agency said the policy will likely result in further margin compression in the operators' respective domestic markets, which have historically been highly cash-generative.
This will be especially relevant for incumbent telco operators such as Etisalat, Qatar Telecom and Saudi Telecom Company, it added.
A February deadline has been given for the implementation of the reduction in roaming rates for voice calls across all GCC countries, as decided by GCC telecoms ministers in June 2011.
In response, Etisalat, the main telecoms operator in the UAE, announced on January 31 that it would cut its roaming rates within the GCC by up to 26 percent.
This brings Etisalat's roaming rates more into line with those of du, its only competitor in the UAE, Moody's said.
Separately, the Qatari regulator (ictQatar) has announced that its local operators already comply with the policy.
"Many Gulf telecoms operators, including the rated incumbents, have set up cost efficiency programmes to stem the margin erosion that is likely to result from the GCC-wide policy," Moody's added.
In view of increasing competition as well as ongoing deregulation, Moody's said it believes that measures to protect profitability levels will increasingly become more challenging, as has been evident in recent reported results.
For the first nine months of 2011, Etisalat reported a margin decline of 5.6 percent for its UAE business.
For the same period, Qatar's Qtel reported a decline in its segment profit-before-tax margin for Qatar to 27.5 percent from 44.2 percent, compared with the same period in 2010.
Gulf telecom regulators have long campaigned for a reduction in roaming charges in a bid to bring costs in line with those seen in developed markets.
As usual, Moody's does not know what its talking about. They have a proven track record of failure when it comes to predicting the future, or even basic business sense (ratings of toxic debt that sank Banks...)
Also, roaming constitutes a very small part of the over all revenue for Telcos generally, and the GCC is no exception. Also, the "margin compression" is good because the costs in the UAE particularly and GCC generally are very high. Lowering costs will result in a higher volume (more people calling) and in anything will result in a higher bottom line.
Moodys should really do more research before publishing reports that mean little.
Ah Moody's. Always jumping on the band wagon when it has picked up speed.
In the absence of any competition in the gulf Telco sector, this is a half hearted attempt to appease the local populace.
It should be world-wide for all, but of course that will not happen.
I would hope that all Telcos insist that any Moody's employee "roaming" around the gulf pay the full whack in prices to keep the article well balanced!