Etisalat deal to generate saving

Etisalat signs partnership with Spain's Telefónica in bid to drive down costs by collaborating on procurement and technology initiatives.

Etisalat is likely to benefit from Telefonica’s marketing expertise in winning back customers in its domestic market.

Etisalat's partnership with the Spanish telecommunications giant Telefonica will help it drive down costs and compete against its domestic rival, du, analysts say.

Etisalat and Telefonica last week signed a deal to cooperate internationally on procurement, technology and research.

The agreement "will enable both companies to improve efficiency, drive innovation and generate savings," Etisalat said.

Matthew Reed, an analyst at Informa Telecoms & Media, said the move would allow the two telecoms firms "to combine their buying power and as a result achieve cost savings".

"It could cover things like international connectivity and equipment buying," he said.

The partnership comes at a time of escalating costs and declining profit for Etisalat.

The company last week reported a 15 per cent decline in net income for this year's second quarter compared with the same period last year. Second-quarter operating costs rose to Dh4.99 billion (US$1.35bn) from Dh4.64bn in the same period last year.

"They're looking for ways to cut their costs. [In the second quarter], Etisalat's profits were down, and revenues were flat," said Mr Reed.

The Telefonica partnership could also help Etisalat fight increased competition in its domestic market, according to another analyst.

Etisalat's UAE rival, du, controls more than 40 per cent of the domestic mobile market, having gained significant share this year. In the first three months of the year, du added 272,000 mobile subscribers, while Etisalat lost 334,000 subscribers in the same period.

Philip Brazeau, who heads the telecoms practice at the Middle East law firm Al Tamimi, said Etisalat was likely to benefit from Telefonica's marketing expertise in winning back customers.

"This relationship between Etisalat and Telefonica is more of a marketing-type arrangement. Etisalat will be able to garner greater insight into successful competitive strategies," said Mr Brazeau.

"If Etisalat wanted to do a joint collaborative effort with any telco, it couldn't have chosen a better partner than Telefonica," he added. "It is an extremely progressive company in terms of introducing technologies and marketing techniques." Etisalat and Telefonica do not compete in any of the markets in which they operate. Etisalat Group has a presence in 18 countries in Africa, Asia and the Middle East, and Telefonica is in 25 markets across Europe and Latin America.

Mr Brazeau said the Telefonica deal could be a "first step" in exploring possible acquisitions by Etisalat outside of the Middle East, Africa and Asia.

"The intelligent first step is to initiate collaborations with some of the better players. And that's what Etisalat has done here," Mr Brazeau said. "If the telecoms such as Qtel, Etisalat and STC truly want to be among the top 10 players, they're not just going to do it by acquisitions in the Middle East, North Africa and Asia.

"They're going to have to go into the more traditional western markets. And I think the best way to do that is by establishing the appropriate relationships at the outset," he said. However, Mr Reed said he thought it unlikely that Telefonica and Etisalat would pursue joint acquisitions.

"I think the rationale behind the agreement is more to do with the various economies of scale," he said.