UAE telecoms operator Du halts earnings slump

Du, the UAE's second largest telecoms operator, announced flat profit for the second quarter of the year, beating analysts forecasts and halting a long decline in quarterly earnings thanks to rising revenues.

But the Dubai-based telco continued to warn of "challenging market conditions" and ongoing pressure on mobile rates and data monetisation. The company has pledged to expand beyond its core telecom business lines into managed services to protect its bottom line.

Net profit for the three months to the end of June reached Dh443.2 million, compared with Dh439.3m a year earlier, coming in ahead of analysts' expectations.

NBAD Securities in Abu Dhabi had forecast a net profit of Dh387m for the period, while EFG-Hermes predicted Dh409.3m.

The slight increase in profit compared with the same period last year breaks a run of several consecutive quarters of lower year-on-year income.

The operator's revenues increased by 6 per cent to Dh3.3 billion for the quarter, thanks to a 9 per cent increase in fixed line revenues and a 5 per cent rise in mobile revenues.

Du's chief executive Osman Sultan attributed the higher rise in mobile revenues – which increased by just 1.5 per cent year-on-year during the first quarter – to a strategy "of focusing increasingly on attracting and retaining higher quality customers, with solid growth in postpaid customer additions."

Much of the operator's traditional mobile revenues  are derived from prepaid customers, who typically generate a lower average revenue per user (Arpu) than customers with monthly postpaid subscriptions.

Such an uptick in revenues may well prove to be temporary, driven by rising revenues from handset sales rather than service revenues, said Omar Maher, vice president for telecommunications research at EFG-Hermes.

"Excluding [handset sales], mobile revenue growth year-on-year would have been in the low single digit range rather than the actual 5 per cent," he said.

"We had not expected the surprising strong growth in handset sales, but we do not believe this growth is necessarily sustainable as this segment tends to be erratic, depending on new model/brand launches and seasonal retail shopping trends."

Du announced a licensing agreement in January with Virgin Mobile to offer mobile services under the international telecoms brand, which is also used in markets including Oman, Saudi Arabia and Canada.

Mr Sultan told reporters on a conference call yesterday that "thousands" of customers had signed up to the service as part of a soft launch in late-May.

"The launch by Du – or rather, its parent company EITC – of the Virgin Mobile brand is an interesting development that should strengthen EITC's offering in the mobile market," said Matthew Reed, an analyst with consultancy Ovum in Dubai.  

"A full launch is planned for end-August or early September, so the introduction of the Virgin Mobile service should begin to have a more significant effect from that point."

Mr Sultan declined to comment on how Arpu levels among Virgin Mobile users compared with those of du customers, noting that the impact on the operator's bottom line for the quarter was minimal.

In spite of rising revenues, Mr Sultan acknowledged the ongoing need to improve revenue streams beyond du's traditional core business areas of voice and data, in the face of challenges impacting operators worldwide.

"Next year will likely remain a challenging one for du, as the market has largely matured and competition is likely to remain tough," said Mr Maher.  

In the face of such challenges, du has invested heavily in alternative business lines including managed services for corporate customers, an area also targeted by its competitor Etisalat.

Mr Sultan said that such services currently account for around 2.5 per cent of its total revenues, equivalent to around Dh77m for the quarter, and that it intended to lift this figure to 15 per cent by 2021.