Data services set to boost telecom operators' income

Dubai: Mobile telecommunications operators in the region will focus on boosting their revenues from data services and content in 2012, as they seek to offset falling profit margins on their voice services by exploiting the boom in sales of tablets and smartphones, analysts say.

Data services, including broadband connections and smartphone data plans, contributed 10 to 15 per cent of the telcos' overall revenues in the first half of 2011 and the share is expected to rise further in 2012, according to Reda Haidar, a consultant at Informa Telecoms & Media.

And as the companies shift from offering mere connectivity to becoming "smart-pipe" operators, there's likely to be more mergers and acquisitions in the industry, with operators seeking to snap up companies that provide new technology or content relevant to Arab audiences in the region.

For example, Saudi Tele-com Co (STC), the kingdom's biggest operator, in December took its total stake in Intigral to 71 one per cent as part of its strategy to focus on providing content services. Intigral provides locally relevant digital content and applications, including a social networking app and one targeted exclusively at women. And STC is looking for further acquisition opportunities.

"We are looking at what is available [to acquire] to complement our portfolio at the right price. It could be in infrastructure or application and content," said Gassan Hasbani, chief executive officer of STC's international operations.

Kuwait's Mobile Tele-communications Co, or Zain, may look for niche acquisitions such as an Internet Service Provider, according to Simon Simonian, the senior vice-president for telecom, media and technology research, at Shuaa Capital. And Emirates Telecommunications Corporation, or etisalat, is developing a new online and mobile content service called eLife OnWeb, which will sell content from third-party providers.

However, Haider at Informa believes the investment in content and new technologies won't be sufficient to reverse the decline in margins. At etisalat, the region's biggest telecoms provider by market value, the net profit margin shrank to 21 per cent in the first nine months of 2011, from 24 per cent in the same period a year earlier. STC's profit margin fell to 13.2 per cent from 18.7 per cent over the same period, according to Zawya.com.

Because consolidation within the region is unlikely, as regional governments would likely resist any outside attempts at mergers, the way forward for regional telcos would be to look at expansion outside the Middle East region, Haider said.

For instance, etisalat and Qatar Telecom, or Qtel, could increase their stakes in assets in Africa and Asia, Haider said. Alternately, telcos could enter greenfield areas like Iraq or Syria when political conditions improve by bidding for new licences, like STC and Qtel plan.