Etisalat loses $463m in Egyptian market

18 April 2008
Breakdown of mobile operator's financial performance reveals cost of setting up North African subsidiary

Etisalat, the UAE telecoms giant, made a loss of AED1.7bn ($463m) in Egypt in 2007, according to the first detailed breakdown of financial results for the group.

The size of the losses highlights that the cost of launching a mobile phone network in Egypt has weighed down the performance of both the Egyptian subsidiary, Etisalat Misr, and the parent company. The figures were presented to analysts in the UAE in mid-April.

"The company is concerned with acquiring a brand name and a market share, rather than making a profit," says Walaa Hazem, joint head of research at Egyptian investment bank HC Securities & Investment.

Etisalat won the competition to operate Egypt's third mobile phone licence with a bid of $2.9bn in May 2006 and has built up its customer numbers quickly since then. Etisalat Misr generated AED385m in revenues from its 3.1 million customers by the end of 2007. Its share of the market is 9.8 per cent.

The figures are still significantly lower than the company's operation in Saudi Arabia, where its Etihad Etisalat subsidiary generated AED1.4bn worth of profits from revenues of AED8.3bn in 2007. Etihad Etisalat, which operates under the brand name Mobily, had 11.1 million customers at the end of December.

While Mobily made a profit just 18 months after its launch in the spring of 2005, the Egyptian arm is unlikely to generate such a quick return on investment, according to Hazem. "It is difficult to compare because in Egypt it is the third operator not the second operator," he says. "The Saudi market is also operating at higher average revenues per user."

Despite its growth in the two markets, Etisalat's home market of the UAE is still the source of the majority of its revenues. The firm generated AED18.1bn in revenue from its domestic market in 2007.

Its mobile phone business generated revenues of AED13.6bn, while its fixed-line business brought in AED3bn, and its internet business AED1.5bn. The company declined to say how much profit it made in the UAE.

Etisalat has grown rapidly over the past few years from its expansion into Arab and African markets. Group revenues in 2007 were AED21.3bn, 31 per cent more than in 2006. Net profits climbed 25 per cent from AED5.9bn in 2006 to AED7.3bn in 2007.

The figures were revealed as telecoms firms come under increasing pressure from regulators to be more transparent and publish more details of their performance.

Saudi Arabia's telecoms regulator says it will soon make the three telecoms firms operating in the kingdom disclose their customer numbers every quarter for the first time.

As well as Etihad Etisalat, the decision by the Communications & IT Commission will also apply to Saudi Telecom, although it voluntarily discloses its customer numbers on a quarterly basis.

Saudi Arabia's third mobile phone operator, Zain, which is a subsidiary of the Kuwaiti telecoms giant of the same name, will have to comply with the regulations once it launches its mobile phone services at the end of June.

"The new rule will be implemented very soon" says Samir Assad Matbouly, vice-president of Saudi Telecom's business-to-business unit. "The regulator only wants us to count people who make or receive at least one phone call in every billing month. This is good because we do not want to do something that is different from the rest of the Gulf. I think the regulations will come into effect in the next quarter."

The Saudi regulator's decision to toughen up its disclosure regime comes just weeks after Egypt's Communications & IT Minister Tarek Kamel revealed that telecoms operators in the country will soon have to disclose their financial results every quarter (MEED 4:4:08).

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