Rising operating costs cut into etisalat profit

Profits fell for etisalat in the third quarter by one per cent as higher revenues were offset by increased operating costs, performance figures reveal. In its report, etisalat posted a three month profit ending September 30 of Dh1.723 billion, down from Dh1.739 billion in the same period last year. Profits for the first nine months also declined to Dh5.134 billion ($1.397 billion) from Dh5.502 billion reported for the first three quarters of 2010. Etisalat or Emirates Telecommunications Corporation is listed under the services sector and posts its quarterly results to the Abu Dhabi Securities Exchange (ADX). Mohammad Omran, etisalat chairman, said in a statement: "Our performance has improved due to our ongoing initiatives to add new revenue streams and optimise our costs. "Etisalat has shown a positive operational performance trend in the local UAE market during the last quarter, while delivering continued revenue and earnings growth in our international operations. We are confident that we will see this trend continue as the year goes on." The company said yesterday that it is well positioned for capital projects with a "cash position of Dh10.5 billion in the third quarter." Third-quarter figures released yesterday, meanwhile, come after a strong quarter for etisalat in terms of revenues which rose to Dh8.041 billion in the third quarter this year compared to Dh7.404 billion in 2010. The higher revenue stream, however, was diluted by almost Dh1 billion in increased operating expenses or roughly 22 per cent. Costs rose to Dh5.142 billion compared to 4.204 billion for the third quarter of 2010. Etisalat senior officials say the telecom has spent as much as Dh6 billion upgrading its new fourth-generation network (4G) to meet higher demand by mobile customers for faster broadband services. International revenue Matthew Reed, a Dubai-based analyst with Informa, a telecoms information firm, said the new third quarter filing revealed interesting details about the predominant source of losses for etisalat. The telecom operator lost revenues in the UAE but gained revenue from its international operations, Reed said. For the first nine months of this year, etisalat's revenue in the UAE declined by Dh244.1 million to Dh18.043 billion, down from the Dh18.287 billion for the same period last year. International revenue, meanwhile, jumped Dh937 million to Dh6.184 billion for the first nine months of this year, up from Dh5.246 billion for the same period last year. "The market in the UAE is becoming more challenging and increasingly saturated," Reed told Gulf News. "Revenue growth is all coming from the international market." Reed pointed out that etisalat reported that it spent Dh455.8 million more in "other operating expenses" racking up Dh1.807 billion for the third quarter compared to Dh1.351 billion spent during the same period in 2010. "My feeling is that it might reflect things like bundling gadgets with deals, fees paid to Research in Motion (Rim) to cover the network and perhaps, marketing costs," Reed said. Higher "other operating expenses" for the first nine months of 2011 amounted to Dh4.829 billion or Dh934.8 million higher than the Dh3.894 billion spent in the same category in 2010. Chandresh Bhatt, vice president Research & Publications at Global Investment House said etisalat's earnings were in line with industry expectations. "The company's profit for the third quarter came in line with our estimate. The subdued performance was mainly due to intense competitive pressures in its home market."