Etisalat, the Gulf’s No.1 telecom operator, reported an 18 per cent drop in third-quarter profit on Monday, missing analysts’ estimates as capital spending and operating expenses each rose by about a third.
The UAE former monopoly, which operates in about 15 countries across the Middle East, Africa and Asia and is in exclusive talks to buy a controlling stake in Maroc Telecom, made a net profit of Dhs1.83 billion ($498.23 million) in the three months to Sept. 30, according to a statement to Abu Dhabi’s bourse.
This compares with a profit of Dhs2.21 billion a year earlier.
Analysts polled by Reuters on average forecast Etisalat would make a quarterly profit of Dhs1.96 billion.
Third-quarter revenue was Dhs9.59 billion, up from Dhs8.01 billion a year earlier.
Etisalat said the revenue rise “was primarily due to customer acquisition, an increase in the revenues of data and handset sales”.
Unlike markets in Europe and North America, Middle East consumers typically buy unlocked handsets and separately choose a mobile operator.
But slowing subscriber growth has led regional operators to increasingly sell handsets directly to persuade customers to sign up to monthly contracts. These so-called post-paid customers usually spend more on telecom services and are less likely to switch provider.
Handset sales offer little profit for operators and may help explain how Etisalat’s third-quarter net profit margin fell to 19 per cent, from 28 per cent a year ago.
Quarterly operating expenses rose 32 per cent to Dhs6.09 billion. This was largely due to a 47 per cent jump in sales costs to Dhs2.15 billion, while staff costs and depreciation also increased.
The UAE accounted for Dhs6.17 billion, or 64 per cent, of Etisalat’s third-quarter revenue.
The remaining revenue came from its international units, which rose 41 per cent to Dhs3.4 billion, partly due to the consolidation of its affiliate Pakistan Telecommunication Co (PTCL).
Revenue from Egyptian unit Etisalat Misr fell 14 per cent to Dhs1.12 billion, a drop Etisalat blamed on foreign exchange losses.
Consolidated capital expenditure rose 39 per cent in the third quarter to Dhs1.3 billion, compared with the year-earlier period, Etisalat said.
In Africa, Etisalat’s earnings before interest, tax, depreciation and amortisation (EBITDA), a key industry metric, fell 38 percent due to what Etisalat described as new call taxes and increased marketing spending.
Etisalat had a net cash balance of Dhs5.83 billion as of Sept. 30, down from Dhs8.13 billion at 2012-end.