Despite achieving record growth in 2012, telecoms operators in the UAE have seen their profit margins affected by a new royalties program introduced by the federal government. However, surging demand in Dubai for the latest mobile devices, particularly smartphones and tablets, as well as a more diversified range of value-added services, should result in in even greater growth and profitability in the coming years.
In December 2012 the UAE Ministry of Finance set new royalty provisions for the two telecom operators. Etisalat will now pay 15% on revenues and 35% on profits for the 2012-15 period. Du Telecom, meanwhile, was required to pay 5% on revenues and 17.5% on profits in 2012, but will see its revenue and profit royalties rise incrementally on an annual basis to reach 15% and 30%, respectively, by 2016.
Growing subscriber and revenue figures should help offset the new levies. Etisalat achieved 8% growth in its number of UAE subscribers, reaching 9m, as well as record growth in 2012 in terms of revenue from its operations throughout the region, reaching Dh32.95bn ($8.97bn) after royalty payments (a 2.2% uptick from 2011). The company recently announced a full 2012 dividend of Dh0.70 ($0.19) per share. Du Telecom also reported a strong performance in 2012, recording net profit of Dh1.98bn ($539m), after royalties, compared to Dh1.1bn ($299.5m) in 2011.
A major factor in this is increasing demand for sophisticated mobile devices and the services they offer consumers. Peter Sondergaard, senior vice-president and global head of research at Gartner, an information technology research and advisory firm, told The National, “The growth rate in the Middle East is higher than the global average. There is a high level of spending on consumer-based technology and on subscription-based services for mobile voice and data. That is essentially what is driving the market.”
Indeed, the local market is increasingly interested in the latest offerings. “Even recently, I can recall Dubai having to wait several months for the arrival of some of the latest devices, but Dubai is fast becoming one of the leading markets for smartphones,” Neelesh Bhatnagar, CEO of eMax, an electronics retailer, told OBG.
The impact for electronics retailers has been positive. Deepak Babani, CEO of Eros Group, told OBG, “The 18-35-year-old demographic is the most active in smartphone sales. Having the latest mobile phone is a lifestyle statement, and this segment is notorious for selling their current devices, sometimes at quite a loss, to fund their next purchase.”
More than ever in this competitive marketplace retailers must keep up with customers and rapidly develop product offerings. “Telecom providers are under pressure to diversify their revenue, move up in the value chain, shift towards new business and consumer life/work style scenarios and create demand for new experiences and revenue sources, as their conventional returns are not sustainable. The opportunities are truly immense in the world of devices and services,” Samer Abu Ltaif, the general manager of Microsoft for the Gulf region, told OBG.
One example of a shift in this regard is in voice over internet protocol (VoIP), or internet telephony, which has faced opposition in the Middle East. The UAE may be moving forward, however, with the launch of Etisalat’s Five, a VoIP calling card that provides discounted international rates, while Du and Blackberry work towards a potential agreement for mobile VoIP and internet-based video services.
Though telecoms operators in Dubai are facing heavier levies, the demand and content for mobile data services for communication, media, and other services is providing opportunities for growth. The challenge for providers now is not only to produce strong revenues but also determine how they can play a more lucrative and active role in the value-chain rather than simply providing the conduit on which others base their products and innovations.
Oxford Business Group