Du Looks To Buoyant UAE Economy For Future Growth

Du, the United Arab Emirates’ second biggest telecoms operator, expects further growth in the business due to a buoyant local economy, its chief executive said after reporting a rise in revenue and a better than expected fourth-quarter profit on Tuesday.

Du expanded rapidly after ending Etisalat’s domestic monopoly in 2007 to claim 46.4 per cent of mobile subscribers as of Sept. 30, the most recently available data.

However, the Dubai-based firm’s market share by revenues is more modest, at 29.2 per cent in the third quarter, with Etisalat still having the bulk of the business with corporate customers and wealthy individuals.

As a result du’s profit for 2013 was little changed at Dhs1.99 billion ($542 million), up from Dhs1.98 billion in 2012, a bourse filing on Tuesday showed.

However, chief executive Osman Sultan said the company would still benefit from overall growth in the UAE’s booming economy. Economists polled by Reuters estimate the country’s gross domestic product increased by 4.3 per cent in 2013 and predict it will expand by the same rate in 2014 and 2015.

“We believe being in the service sector we’re in a good position to profit from this momentum,” said Sultan.

Yet he warned the UAE telecoms market was becoming more competitive and du’s share of new business was less than it had been during its start-up phase.

“We used to get the lion’s share,” said Sultan.

Du’s fourth-quarter profit fell 43 per cent to Dhs570 million from Dhs994 million a year earlier when the company wrote back some tax provisions, according to Reuters calculations.

Analysts polled by Reuters had on average forecast du would make a quarterly profit of Dhs487.9 million.

FOREIGN EXPANSION?

As to prospects for du expanding abroad Sultan said a move was possible eventually but that “we’re not looking at any specific opportunity now – we’re keeping the door open”.

Du previously considered and then decided against bidding for a virtual operator licence in Saudi Arabia.

The company also faces a higher tax bill – UAE telecom operators are taxed via royalties paid on licences issued by the federal government, with du paying Dhs183.5 million more in royalties in 2013 compared with a year earlier.

The government announced a new formula in December 2012 that includes a levy on revenue as well as profit and steadily increases the level of taxation on du to eventually reach parity with the longer-established Etisalat.

Du’s mobile data revenue increased 34 per cent to Dhs2.36 billion in 2013, with data now accounting for 28 per cent of this, up from 23 per cent a year earlier. Sultan said he hoped this would top 30 per cent in 2014.

Annual revenue rose 9.7 per cent to Dhs10.8 billion. Of this, Dhs8.37 billion was from mobile, while fixed line services accounted for Dhs1.68 billion, up 3.4 per cent from a year earlier.

Fixed line provides a greater gross profit margin, but du has been hamstrung by its failure to agree a network infrastructure sharing deal with Etisalat more than four years since talks began. Both companies are ultimately majority-owned by government institutions.

Such a deal would open up fixed services to competition. Currently both firms offer fixed-line broadband, phone and television packages in the UAE, but not in the same districts, with du largely confined to the newer areas of Dubai.

“We are disappointed that this is taking more time than we anticipated. We look at this as an important track for our future growth,” said Sultan.