GCC roaming charges cut 'bad for business'

Moody's says enforced move of cheaper calls will have negative impact on telcos
Cuts to roaming tariffs in the GCC could hurt the region's telcos.
Cuts to roaming tariffs in the GCC could hurt the region's telcos.

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The implementation of the required reduction in roaming rates for voice calls across the Gulf region will have a negative impact on all telecoms operators in the region, Moody's Investors Service has said in a new report.

The rating agency said the policy will likely result in further margin compression in the operators' respective domestic markets, which have historically been highly cash-generative.

This will be especially relevant for incumbent telco operators such as Etisalat, Qatar Telecom and Saudi Telecom Company, it added.

A February deadline has been given for the implementation of the reduction in roaming rates for voice calls across all GCC countries, as decided by GCC telecoms ministers in June 2011.

In response, Etisalat, the main telecoms operator in the UAE, announced on January 31 that it would cut its roaming rates within the GCC by up to 26 percent.

This brings Etisalat's roaming rates more into line with those of du, its only competitor in the UAE, Moody's said.

Separately, the Qatari regulator (ictQatar) has announced that its local operators already comply with the policy.

"Many Gulf telecoms operators, including the rated incumbents, have set up cost efficiency programmes to stem the margin erosion that is likely to result from the GCC-wide policy," Moody's added.

In view of increasing competition as well as ongoing deregulation, Moody's said it believes that measures to protect profitability levels will increasingly become more challenging, as has been evident in recent reported results.

For the first nine months of 2011, Etisalat reported a margin decline of 5.6 percent for its UAE business.

For the same period, Qatar's Qtel reported a decline in its segment profit-before-tax margin for Qatar to 27.5 percent from 44.2 percent, compared with the same period in 2010.

Gulf telecom regulators have long campaigned for a reduction in roaming charges in a bid to bring costs in line with those seen in developed markets.

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