Global - GCC Telecom Sector 26-Aug 2013.pdf

Global Research

Sector-Telecommunication

26 August 2013

GCC Telecom Sector Quarterly - 2Q13

Etisalat one step closer towards acquisition of Maroc Telecom

STC seeking buyers for its Indonesian unit

Zain KSA completes a series of restructuring measures

Ooredoo wins license in Myanmar

Etisalat in exclusive talks with Vivendi after Ooredoo pulls out

Etisalat entered into exclusive talks with Vivendi after Ooredoo pulled out of the race citing “lengthy” process. Vivendi, a French company, is seeking to sell its 53.0% stake in Maroc Telecom to focus on its core operations. According to media reports, Etisalat made a higher bid and thus was preferred by Vivendi. The binding offer is worth AED18.8bn (USD5.12bn). The period of exclusivity runs till 25 September 2013. If Etisalat buys the stake, it will have to make an offer to the remaining shareholders to comply with the local regulations. The government of Morocco has a 30.0% stake in Maroc Telecom. According to news reports, the Moroccan government has demanded Etisalat to take on a local partner. The acquisition makes sense for Etisalat due to the market, geographic and management profile of the company. Maroc telecom has a dominant market position with 17.9mn subscribers and a market share of 45.3%. The company is known to have efficient management and also gives exposure to sub-Sahara African countries. Etisalat can also utilize Maroc Telecom’s experience in African markets as Etisalat itself has operations in Ivory Coast, Benin, Togo, Gabon, Niger, Central African Republic, Tanzania and Sudan. STC puts Indonesian unit “up for sale”

STC has announced that it has entered into negotiations to sell its stake in the Indonesian subsidiary. The company invested heavily to support the operations in Indonesia. However, below than expected performance has prompted the company to put the subsidiary up for sale. STC has an 80.1% direct and 3.725% indirect stake in the company. STC, in its press release, acknowledged the poor performance of the subsidiary in Indonesia where a tough competitive landscape exists due to presence of a large number of operators (10 major operators). Zain KSA restructures loan

Zain KSA reached an agreement to restructure the loan which was initially taken out in 2009. The company has been deferring payments on this loan since a year and a half. The remaining amount of USD2.3bn has been restructured over five years. This is all part of a series of restructuring measures ZAIN KSA has taken to streamline capital structure and to free up cash for network investment and enhancement to deal more effectively with the prevailing competition in the Saudi market. Ooredoo wins license in Myanmar

Ooredoo, formerly Qtel, won one of the two licenses offered in Myanmar. Myanmar offers a good opportunity as it opens up to the world. Mobile penetration is extremely low at around 9.0% due to high cost of SIMS. Global Research Telecom Coverage

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Faisal Hasan, CFA

Head of Research [email protected] Tel: (965) 22951270 Umar Faruqui, CFA, ACCA

Senior Analyst [email protected] Tel.: (965) 22951438 Global Investment House www.globalinv.net

Ticker Country Mkt Cap Price* Div. Yield

(USD mn) (in LC) 1m 3m 12m 2013E 2013E 2014E 2013E 2014E

Zain Kuwait 10,499 0.68 -1.5% -4.2% -2.9% 6.6% 12.5 11.3 7.2 6.8

Wataniya Telecom Kuwait 3,686 2.06 -2.9% -8.2% -19.2% 2.9% 11.8 10.1 3.6 3.1

Saudi Telecom KSA 22,773 42.70 3.9% 1.7% 8.5% 5.0% 10.0 9.1 4.8 4.7

Mobily KSA 17,505 85.25 1.8% 6.6% 35.6% 5.9% 10.0 9.5 7.8 7.2

Etisalat UAE 25,292 11.95 -1.7% -0.4% 23.2% 5.0% 12.9 12.6 4.9 4.8

Ooredoo Qatar 12,787 145.70 4.4% 19.5% 32.7% 3.4% 14.0 12.8 4.9 4.4

Vodafone Qatar Qatar 2,178 9.38 0.7% -0.7% 2.5% 2.1% nm nm 16.0 11.0

Omantel Oman 3,359 1.72 10.3% 17.8% 30.3% 5.8% 11.2 11.1 6.3 6.0

Batelco Bahrain 1,429 0.34 -5.6% -8.6% -7.4% 7.3% 9.7 8.7 6.0 5.3

Average 4.9% 11.5 10.7 6.8 5.9

* Market Price as of 25th August 2013.

Stock Performance P/E (x) EV/EBITDA (x)

Source: Global Research, Zawya, Stock exchange websites & Bloomberg

Note: Vodafone Qatar financial year ends in March.

http://www.globalinv.net/

Global Research GCC Telecom Quarterly

August 2013 2

Bahrain GSM Sector Indicators Bahrain Cellular Subscriber base (in mn)

1.71 1.75 1.80

1.90

2.10

2.1%

3.3%

5.5%

10.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0.50

1.00

1.50

2.00

2.50

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

Bahrain Cellular Subscriber base (in mn) - LHS Q-o-Q growth

Source: Industry Sources & Global Research

Bahrain Quarterly Customer Additions (in ‘000)

(11.6)36.2

57.5

99.7

194.6

(20.0)

30.0

80.0

130.0

180.0

230.0

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013


Mobile subscribers in Bahrain increased substantially by 194,600 in 2Q13 which is surprising considering the

high penetration rate in Bahrain. The subscriber growth has remained strong in the past three quarters. Launch

of 4G services by Batelco in February 2013 has apparently fueled the growth in subscriber base.

Operator-wise Subscriber Base (in ‘000)

0.0

200.0

400.0

600.0

800.0

1000.0

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

695 681 702 722

681

548

589 616686

748

467 476 486 495 476

Batelco Zain Viva


Operator-wise Customer Additions (in ‘000)

(60.0)

(40.0)

(20.0)

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

(43.0)

(14.0)

21.0 20.0

122.7

20.0

41.0 27.0

70.0 62.0

11.4 9.2 9.5 9.7 9.9

Batelco Zain Viva


Batelco’s subscriber base witnessed a massive

increase of 122,700 in 2Q13 on the back of promotions,

upgrades and product enhancements.

Zain continues to add subscribers at a steady pace.

The company added 62,000 subscribers in 2Q13. On

18th April Zain Bahrain launched its 4G services.

Quarterly Market Share based on Subscribers

38.9%

34.2%

26.9%

Q4-2012

Batelco Zain Viva

37.9%

36.0%

26.0%

Q1-2013

Batelco Zain Viva

40.3%

35.7%

24.1%

Q2-2013

Batelco Zain Viva

Strong growth in Batelco’s subscribers has pushed up its market share to 40.3% in 2Q13 from 37.9% in 1Q13.

Zain Bahrain market share was more or less stable at around 35.7% in 2Q13.

39.0%

33.7%

27.3%

Q3-2012

Batelco Zain Viva


August 2013 3

Kuwait GSM Sector Indicators Kuwait Cellular Subscriber base (in mn)

5.21

5.33

5.495.67 5.68

2.0%

2.4%3.0%

3.3%

0.1%

0.0%

1.5%

3.0%

4.5%

4.95

5.10

5.25

5.40

5.55

5.70

5.85

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

Kuwait Cellular Subscriber base (in mn) - LHS Q-o-Q growth


Kuwait Quarterly Customer Additions (in mn)

0.10

0.12

0.16

0.18

0.01

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

0.20

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013


Kuwait’s subscriber base growth came to a halt in 2Q13 after increasing steadily over the past 4 quarters. With a

penetration rate of 189.0%, the growth is likely to mirror population growth, going forward. Increase in 1Q13 was

largely driven by Zain as it launched 4G services to cater for increasing demand for high-speed internet.

Operator-wise Subscriber Base (in mn)

0.00

0.50

1.00

1.50

2.00

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

2.19 2.19 2.25 2.40 2.40 1.942.01

2.03 1.98 1.94

1.08 1.13 1.211.29 1.34

Zain Wataniya Viva



(60.0)

(40.0)

(20.0)

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

36.0

5.0

61.0

148.0

-10.0

70.0

21.7

(51.8) (39.9)

57.2 48.6

79.1 84.6

45.3

Zain Wataniya Viva


Zain subscriber growth was flat in 2Q13 after adding

148,000 subscribers in 1Q13. Strong 1Q was

apparently due to subscriber take-up of 4G.

Wataniya Telecom subscribers declined for the

second consecutive quarter. The launch of MNP is

likely to aggravate the situation for Wataniya.


41.0%

37.0%

22.0%

Q4-2012

Zain Wataniya Viva

Zain maintained its market share at 42.3%. Meanwhile, Viva increased its market share to 23.6% from 22.8% in 1Q13.

The increase in Viva market share has come at the expense of Wataniya which saw its market share go down to 34.2%

42.3%

34.9%

22.8%

Q1-2013

Zain Wataniya Viva

41.1%

37.7%

21.2%

Q3-2012

Zain Wataniya Viva

42.3%

34.2%

23.6%

Q2-2013

Zain Wataniya Viva


August 2013 4

Oman GSM Sector Indicators Oman Cellular Subscriber base (in mn)

5.29 5.15 5.28 5.33 5.43

7.4%

-2.7%

2.6%1.0% 1.8%

-6.0%

-3.0%

0.0%

3.0%

6.0%

9.0%

2.00

3.00

4.00

5.00

6.00

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

Oman Cellular Subscriber base (in mn) - LHS Q-o-Q growth


Oman Quarterly Customer Additions (in mn)

0.36

(0.14)

0.13

0.05 0.10

(0.15)

(0.10)

(0.05)

-

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013


Oman subscriber base growth picked up again in 2Q13 to 1.8%QoQ after increasing by 1.0%QoQ in 1Q13.

Oman subscriber base include the Mobile Virtual network operators (MNVO) which are also known as mobile

resellers. Total subscribers increased to 5.43mn implying a population penetration rate of 181.0%.


0.00

0.50

1.00

1.50

2.00

2.50

3.00

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

1.99 2.09 2.1 2.18 2.242.44 2.50 2.6 2.60 2.67

0.08 0.07 0.07 0.05 0.01

0.78

0.49 0.5 0.49 0.51

Nawras Omantel Resellers Nawras Resellers Omantel



(40.0)

10.0

60.0

110.0

160.0

210.0

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

35.3

99.6

57.8

34.2

55.0

76.0

57.3 55.3 49.6 66.9 59.6

(5.7) (0.7) (15.8)

(44.8)

193.0

(296.1)

19.9

(15.0)

19.2

Nawras Omantel Resellers Nawras Resellers Omantel


In 2Q13, Omantel’s mobile subscriber base increased

by around 66,900 subscribers while Nawras subscriber

base increased by 55,000.

However, MNVO subscribers kept on declining which

has driven away the notion that the marginal

subscribers are being captured by the resellers.


40.6%

48.6%

1.4%9.4%

Q3-2012

Nawras Omantel

Resellers Nawras Resellers Omantel

40.7%

48.4%

1.3%9.6%

Q4-2012

Nawras Omantel


41.0%

48.8%

1.0%9.2%

Q1-2013

Nawras Omantel


Omantel market share including the resellers increased slightly to 58.6%. Excluding the resellers Omantel

increased its market share slightly to 49.2% as it benefits from investment in its network. The movement in

subscriber market share is getting influenced by ongoing clean-up of subscriber base mandated by the Regulator.

41.2%

49.2%

0.2%9.4%

Q2-2013

Nawras Omantel



August 2013 5

Qatar GSM Sector Indicators Qatar Cellular Subscriber base (in mn)

2.993.07

3.21

3.41

3.56

1.9%

2.6%

4.5%6.1% 4.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2.60

2.80

3.00

3.20

3.40

3.60

3.80

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

Qatar Cellular Subscriber base (in mn) - LHS Q-o-Q growth


Qatar Quarterly Customer Additions (in ‘000)

56.977.5

139.4

195.3

151.7

-10.0

40.0

90.0

140.0

190.0

240.0

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013


Mobile subscribers grew strongly again by 4.5%QoQ in 2Q13 to 3.56mn. Despite the high penetration rate of

around 170.0%, we believe the potential for growth still remains due to forecasted economic and population

growth. Population growth is expected to exceed average GCC growth due to foreign work-force requirement.


0.00

0.50

1.00

1.50

2.00

2.50

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

2.12 2.14 2.212.32 2.41

0.88 0.94 1.00 1.08 1.15

Ooredoo Vodafone



-

20.0

40.0

60.0

80.0

100.0

120.0

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

15.9 19.7

70.6

116.1

89.7

41.0

57.8

68.8 79.2

62.0

Ooredoo Vodafone


As we anticipated in the last report, Ooredoo extended

the growth momentum to 2Q13 by adding 89,700

subs. after it launched 4G services on 16th April 2013.

Vodafone subs. base also kept its growth momentum

due to increase in both post-paid and pre-paid

segment on the back of 11.0% growth in population.


67.8%

32.2%

Q2-2013

Ooredoo Vodafone

The erosion in Ooredoo’s market share has slowed down significantly. Ooredoo market share declined slightly to

67.8% in 2Q13 compared to 68.2% in 1Q13.

68.2%

31.8%

Q1-2013

Ooredoo Vodafone

68.7%

31.3%

Q4-2012

Ooredoo Vodafone

69.5%

30.5%

Q3-2012

Ooredoo Vodafone


August 2013 6

Saudi GSM Sector Indicators Saudi Cellular Subscriber base (in mn)

54.354.5

53.2 53.0

52.1

1.0%

0.4%

-2.5%

-0.3%

-1.7%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

50.0

51.0

52.0

53.0

54.0

55.0

Q1-2012 Q2-2012 Q3-2012 Q4-2012 Q1-2013

Saudi Cellular subscriber base Growth


Saudi Quarterly Customer Additions (in mn)

0.5

0.2

-1.3

-0.2 -0.9

-1.5

-1.0

-0.5

0.0

0.5

1.0

Q1-2012 Q2-2012 Q3-2012 Q4-2012 Q1-2013


Saudi cellular subscriber base declined by 1.7%QoQ to 52.1mn in 1Q13. The subscriber base was affected by

CITC regulation on sale and activation of pre-paid SIM cards. As a result, the companies have deactivated the

unidentified SIM cards which had an effect on their subscriber numbers.


-

5.00

10.00

15.00

20.00

25.00

30.00

Q1-2012 Q2-2012 Q3-2012 Q4-2012 Q1-2013

0.17 0.17 0.16 0.16 0.17

21.45 21.50 20.80 21.06 20.16

26.15 25.45 25.50 24.28 23.49

6.52 7.40 6.71 7.50 8.28

Bravo Mobily STC Zain


Operator-wise Customer Additions (in mn)

(1.50)

(1.00)

(0.50)

-

0.50

1.00

Q1-2012 Q2-2012 Q3-2012 Q4-2012 Q1-2013

0.01

(0.00)

(0.01)

0.01 0.00

0.64

0.05

(0.70)

0.26

(0.90)

0.93

(0.70)

0.05

(1.22)

(0.79)

(1.05)

0.88

(0.69)

0.79 0.79

Bravo Mobily STC Zain


Since STC and Mobily don’t disclose their subscriber

numbers, we have derived the numbers by subtracting

Zain and Bravo subscribers from CITC subscriber data.

Thus, the numbers may differ from the actual numbers.

We have estimated that Mobily and STC subscribers

have declined to 20.16mn and 23.49mn in view of

the subscriber clean-up effort. It is important to note

that these are estimates and may change.


0.3%

39.7%

45.8%

14.1%

Q4-2012

Bravo Mobily Saudi Telecom Zain

STC remains the market leader with an estimated market share of 45.1% followed by Mobily with a market share

of 38.7%. Meanwhile, Zain KSA has managed to increase its market share to 15.9% in 1Q13.

0.3%

39.4%

46.7%

13.6%

Q2-2012


0.3%

39.1%

48.0%

12.6%

Q3-2012


0.3%

38.7%

45.1%

15.9%

Q1-2013



August 2013 7

UAE GSM Sector Indicators UAE Cellular Subscriber base (in mn)

12.71

13.01

13.53

14.06

14.66

2.0%2.3%

4.0%

3.9%

4.3%

1.0%

2.0%

3.0%

4.0%

5.0%

12.00

12.50

13.00

13.50

14.00

14.50

15.00

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

UAE Cellular Subscriber base (in mn) - LHS Q-o-Q growth


UAE Quarterly Customer Additions (in mn)

0.250.30

0.52 0.53

0.60

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013


UAE’s subscriber base carried on with the strong growth momentum increasing by 4.3%QoQ in 2Q13.

Subscriber base increased by 3.9%QoQ and 4.0%QoQ in 1Q13 and 4Q12 respectively. With the UAE economy

in the recovery phase after the global financial crisis, the mobile subscriber growth is likely to remain steady as

population increases on the back of increase in expatriate population.


1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

7.0 7.1 7.07 7.42

8.01

5.73 5.966.46 6.64 6.65

Etisalat DU



-

100.0

200.0

300.0

400.0

500.0

600.0

Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

5070

20

350

590

196227

497

183

14

Etisalat DU


In 2Q13, Etisalat’s mobile subscribers breached the

8.0mn mark. Over the past 4 quarters the company has

managed to add 1.0 million customers to its network.

In 2Q13, Etisalat added an impressive 590,000

subscribers. Meanwhile, managed to add only

14,000 subscribers to its network.


54.2%

45.8%

3Q12

Etisalat DU

52.3%

47.7%

4Q12

Etisalat DU

52.8%

47.2%

1Q13

Etisalat DU

54.6%

45.4%

2Q13

Etisalat DU

Etisalat managed to increase its market share significantly to 54.6% in 2Q13. Etisalat has indicated that it is not

willing to lose its market leader position to DU and thus is likely to resort to aggressive marketing and promotions.


August 2013 8

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Documents

Global - GCC Telecom Sector 26-Aug 2013.pdf