The announcement that the state will sell more than a quarter of its holdings in Oman Telecommunications Company (Omantel) could bring changes to a market facing challenging conditions and increased competition.
On September 17, Omantel issued a statement, saying the government, which owns 70% of the operator, is planning to divest a 19% stake in the former state monopoly holder. According to the company, the sale will be conducted through public subscription to Omani nationals, individuals or institutions.
A long time in the works
This is not the first time that the government has moved to downsize its position in Omantel after the partial privatization of the company in 2005. In late 2008, the state announced its intention to divest a further 25%, though this plan was put on hold as the economic climate cooled following the global financial crisis.
Then in January, Darwish al Balushi, the minister responsible for financial affairs, told parliament that the government was considering the sale of some of its shares in wholly or partially government-owned companies, though Omantel was not singled out in the minister’s speech.
With the local and regional economy rebounding strongly, and with the state looking to generate more cash to support its spending programs, the government has deemed the time is right to float part of its stake in the telecoms sector, according to Matthew Reed, the principal analyst at Informa Telecoms and Media.
“My best guess is that the Omani government has taken a view that the financial markets have recovered sufficiently to revive the idea of selling a further stake in Omantel,” Reed told UAE daily The National on September 17. “It seems to be part of a wider drive to generate money for the state.”
However, the market did not respond well to the announcement, with Omantel’s shares on the Muscat Securities Market sliding more than 4% on the news of the planned sale, though analysts expected the stock to rebound once investors gave the proposal due consideration.
“Once the stock price corrects and stabilizes, you’ll see some buyers coming in, mainly institutions, because it is high-dividend stock,” Idris Kathiwalla, senior research analyst at Oman Arab Bank, told the Bloomberg news agency hours after the Omantel announcement to the MSM.
Mixed results for H1
The sale comes after the announcement of mixed results for the first half of the year by the sector’s largest players, Omantel and Omani Qatari Telecommunications (Nawras). The two operators are active in all areas of the market, providing telephone and internet services via both mobile devices and fixed-line connections. Of the 5.3m mobile subscribers, Omantel accounts for 49% and Nawras 41%, with the balance made up by re-sellers, according to the most recent data from the Telecommunications Regulatory Authority (TRA).
In July Nawras released its first half-year results. Revenues were up by 3.3% year-on-year, hitting OR98.4m ($254.9m), but net profit fell to OR15.2m ($39.4m) from OR19.5m ($50.5m). The company attributed the decline to higher depreciation costs due to network modernization.
Then in August, Omantel announced its financials for the first six months of the year, reporting that its revenues amounted to OR239.3m ($619.9m), up 2.1% y-o-y, while net profit dropped from OR62m ($160.6m) to OR60.5m ($156.7m).
Both operators noted growth in mobile and fixed broadband services, which have offset a decline in other areas, such as SMS revenues. The number of mobile broadband subscribers has more than quadrupled over the past few years, jumping from 425,000 in 2009 to 1.9m as of March 2013, according to the TRA. The same data show a mobile broadband penetration rate of 52.43% as of the end of the first quarter of this year, suggesting substantial room for growth.
However, there could be challenges. Despite the rapid rise in the number of mobile broadband subscribers, the average revenue per use (ARPU) in the mobile segment has been trending down, both for Omantel and the sector as a whole. Omantel’s mobile ARPU fell from OR9.7 ($25.13) to OR9.3 ($24.09) between 2011 and 2012, while the sector-wide ARPU declined from OR8.8 ($22.80) to 8.2 ($21.24), data from TRA show. This suggests that, despite the boost in the market from the addition of new mobile broadband users, competition is keeping prices in check.
Oxford Business Group