Royalties on earnings paid to the gov't in 2014 accounted for 43% of its pre-tax profits
Du, the United Arab Emirates' No.2 telecommunications operator, reported a 10 percent fall in fourth-quarter profit on Thursday, missing analysts' estimates as it paid a higher tax rate on its earnings compared with a year earlier.
The firm, which ended rival Etisalat's domestic monopoly in 2007, made a net profit of AED512.7 million ($139.59 million) in the three months to December 31, down from AED570.3 million in the year-earlier period, it said in a statement.
Analysts polled by Reuters had on average forecast du would make a quarterly profit of AED586.7 million.
Du's 2014 annual profit was AED2.11 billion, up from AED1.99 billion in 2013.
Du and Etisalat pay royalties - or taxes - to the UAE's federal government, which is also ultimately the largest shareholder in both companies.
After a tax holiday in its early years of operations, the government announced it would steadily raise royalty fees for du from 2012 to 2016. These are levied on licensed revenue and profit.
In 2014, du's pre-tax annual profit was AED3.70 billion and it paid AED1.59 billion in royalties, giving an effective tax rate of 43 percent. This compares with 36 percent in 2013. Fourth-quarter profit before royalty was AED915.6 million, up 27.8 percent on the prior-year period.
Fourth-quarter revenue was AED3.23 billion - up more than 12 percent on the prior-year period - and of which AED2.43 billion came from mobile services, with fixed line, wholesale and broadcasting providing the remainder.
Average revenue per user (ARPU) - a key industry metric - was AED109.3 in the fourth quarter, up 5.6 percent versus a year earlier, although du warned margins were under strain.
"Du is likely to continue to experience pricing pressures from competitors and the popularity of VoIP (Voice over IP) services, a trend the entire industry is facing," the company said in the statement.
VoIP providers such as Skype offer free internet-to-internet calls and internet-to-phone calls at much cheaper rates than conventional telecom operators. Only du and Etisalat are licensed to offer VoIP services in the UAE, but residents can usually still access external providers.
Du has proposed a final dividend of AED0.2 per share, which would bring its total dividends for 2014 to AED0.32 per share.