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Gulf Telecom Firms Make Strong Domestic Profits

DUBAI - The biggest Gulf Arab telecom companies mostly shrugged off an economic downturn in the first quarter, although growing competition, job cuts and expected population declines may weigh on future earnings, analysts said.

The top telecom companies in Saudi Arabia, the UAE and Qatar either met or fell below analysts’ expectations for their profits in the first three months of the year, triggering some selling pressure on their shares on Tuesday.

Emirates Telecommunications Corp, or Etisalat, reported a 4 per cent rise in profit, while profits at Saudi Telecom Co, or STC, would have also risen if it had not written down exchange rate-related losses at its foreign units.

“The growth in Etisalat’s subscribers was quite surprising,” said Jithesh Gopi, head of research at Bahrain-based SICO investment bank. “The subscriber base may take some more time to show the trend that people are expecting.”

The UAE, the second-largest economy, is suffering from a marked slowdown in Dubai’s property sector, with residential real estate prices expected to fall almost 40 per cent this year according to a Reuters poll last month.

Scores of expansion projects have been shelved and thousands of expatriates have lost their jobs and left the country, home to about 4.5 million people comprised mainly of foreigners.

“The second half of 2009 could witness the negative impact of the expected negative population growth,” said Marise Ananian, a telecom analyst at EFG-Hermes, who expects total mobile phone additions to decline “significantly” this year. EFG-Hermes expects Dubai’s population will slump 17 per cent this year, cutting into mobile phone penetration that stood at a staggering 194 per cent for the UAE at the end of last year.