The revenue growth and profit margins of the Middle East telecom companies will come under pressure in 2012, according to market reports as advanced markets in the region will find it difficult to fend off new rivals, besides other factors.
Fitch Ratings said yesterday in a note that the revenue growth for the region’s telecom companies this year will be “flat to negative”. That is because 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. “Fitch, therefore, expects at best a stabilisation of overall revenues in Middle East telecoms,” it stated.
Threat of new rivals
Confirming the projection, Matthew Reed, Dubai-based senior telecom analyst with Informa Telecoms and Media, told Gulf News: “It would definitely be quite tough for the region’s telecom companies to maintain revenue and profit margins this year, especially as the year will see them struggling to find strategies to fend off newer rivals.” Adding to this, Bulent Akgul, director in Fitch’s EMEA Telecommunications, Media and Technology team, said in the report: “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.”
Regulatory risk however, still remains low due to the state ownership of major operators while disruptive technologies are mostly being kept at bay at the moment, he added. Further, while markets such as Kuwait, Qatar and Bahrain remain highly competitive, according to Fitch’s study. Saudi Arabia and the UAE may become “even more competitive” due to the maturity of these markets.
But despite a bleaker outlook for the region’s telecom sector, Reed said that there will be new areas of opportunities that will help telecom companies generate growth in 2012. “There will be new opportunities for companies in areas such as data services and offering of new [technologically advanced] products — a big area of potential growth for the industry,” he pointed out, citing the recent launch of 4G technology in Saudi Arabia and the UAE as an example. Meanwhile, although significant price competition is still not expected in the short term due to strong economic fundamentals, the main risk for the sector’s companies may be “mobile number portability”, which is yet to be implemented in major markets other than Saudi Arabia and now Bahrain, according to Fitch.
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