Roaming rate cut likely to hurt GCC operators

A move by the Gulf Cooperation Council to cap mobile roaming rates is bad news for the region's incumbent telecoms operators, warns Moody's, the ratings agency.

Mobile roaming rates are a perennial bugbear of travellers, who often return from holidays or business trips to find themselves out of pocket.
Such is the level of ill-feeling that the GCC banded together last year to cut roaming rates for voice calls. The cuts came into effect on Wednesday.
But a reduction in rates is "credit negative" for the region's big telecommunications companies, Moody's Investors Service has warned. "The implementation of the required reduction in roaming rates for voice calls across GCC countries will have a negative effect on all telecoms operators in the region," analysts from Moody's wrote in a report.
"Given that competition for market share is likely to remain intense, the policy will likely result in further margin compression in the operators' respective domestic markets, which have historically been highly cash-generative."
Etisalat, Qtel and Saudi Telecom Company (STC) are likely to be most affected, Moody's warned.
Etisalat said last month it would cut its roaming rates by 26 per cent, bringing its prices in line with du, its domestic rival.
Good news for customers, but not so for Etisalat's shareholders, who witnessed the company's stock fall 15.4 per cent last year.
The company is expected to report full-year earnings of Dh6.9 billion, a decline of 8.4 per cent compared with a year earlier.
Other regional telecoms giants have seen profits fall as competition heats up. STC reported full-year profits of 7.67bn Saudi riyals, a decrease of 18.7 per cent from a year earlier.
But margins are showing signs of pressure: the company accepted lower margins as a "sacrificial lamb" to grow its customer base, allowing sales to increase 8.5 per cent, analysts from Riyad Capital wrote in a research note.
Meanwhile, QTel is expected to see a dip in profits of 9.4 per cent to 2.6bn Qatari rials when it reports next month. The company announced a new strategy last month to focus on mobile data, IT services and business services.
But Moody's said strategies intended to compensate for lost roaming income could result in a tighter margins still.
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