Good signs for key Saudi telecoms operators Mobily and STC

Positive results of key Saudi Arabian telecoms companies hint at further growth potential in market.

The positive financial performance of two key Saudi Arabian telecommunications companies points to strong growth potential in the local market, say analysts.

Mobily - an affiliate of Etisalat - and the Saudi Telecom Company (STC) both outperformed analysts' expectations in results posted this week.

Ibrahim Masood, a director and senior investment officer for asset management at Mashreq, said the results allayed fears the market was becoming saturated.

Fitch Ratings said last week forecast revenue in the Middle East telecoms sector to be level with or decline from last year. Market saturation, along with increased competition, were cited in the agency's gloomy forecast.

But Mr Masood said the performances of STC and Mobily pointed to more growth potential in the market.

"It was fairly decent, on balance. It indicates a market some way off getting saturated," he said.

STC reported its fourth-quarter net profit was 2.28 billion riyals (Dh2.23bn), down slightly on the same period in 2010. It blamed the dip on foreign-currency losses.

Despite that, it outperformed the expectations of analysts polled by Reuters, who forecast a quarterly profit of 1.93bn riyals.

Internet service helped to boost STC's performance. Revenue from wireless broadband more than doubled in the last three months of last year, compared with the same period a year earlier.

Mobily reported a 16 per cent increase in its fourth-quarter profit compared with the same period in 2010, also beating analysts' expectations.

The operator made a net profit of 1.7bn riyals in the fourth quarter, up from 1.46bn riyals a year earlier. Analysts polled by Reuters on average expected the firm to post a quarterly profit of 1.44bn riyals.

Mobily, which unveiled its long-term evolution (LTE) high-speed network in September, said data revenue last year rose 59 per cent. Data accounted for 22 per cent of total revenue, up from 18 per cent in 2010.

Mr Masood said fears concerning price-cutting on data services had not hurt the company.

"Mobily is crystal-clear. It has very good numbers for the fourth quarter. It was in line with what we were looking for, perhaps even better," he said.

He said he expected further growth for the company.

"I think they'll still be growing at something like 15 to 16 per cent over the next couple of years," said Mr Masood.

"At some point in time, price competition will outpace demand. That will obviously squeeze their margins a bit."

* with Reuters