VoIP calling, lower spending to weigh on Saudi telcos: Al Rajhi Capital
Saudi telecom operators are expected to see a challenging year ahead, as more VoIP-based calling and lower consumer spending weigh on earnings, although competition in the sector has eased a bit, Al Rajhi Capital said in a recent report.
Telecom firms have been seeing a decrease in high-margin international calls, which account for about 10 percent of topline.
“As consumers are getting more and more acquainted with unencrypted VoIP services, we could expect international segment to continue witness erosion in revenues,” the research firm said.
A decline in the number of subscribers may also continue as the expatriate population continues to drop and consumers are likely to be more cautious in their spending, Al Rajhi added.
In order for the sector to recover, increase in data prices and revenues will be the main driver, and a must, the report said. The potential for further cost cutting will be limited, as Saudi telecom firms have already undertaken major cost reductions in 2017.
However, given the sensitivity of raising data prices in Saudi Arabia, companies would need to introduce hikes indirectly by providing higher value-based services or through newer bundles or packages.
“If data prices do not improve, bottom-line improvement is likely to come mainly from lower financing expenses, as companies deleverage and lower depreciation expenses, as capex declines,” Al Rajhi Capital said.
In terms of capital expenditure, Zain and Mobily are likely to keep capex at around 15-18 percent of revenue, with their main priorities being lowering debt.
“STC on the other hand will look to continue investing at its past rate of capex, at around SAR 8.7 billion/year, substantially more than its peers and gaining further network advantage,” Al Rajhi Capital said.
Saudi Telecom Co. (STC) beat the firm’s estimates in the last two quarters while Etihad Etisalat Co. (Mobily) showed resilience in its top-line performance in the last few quarters. Meanwhile, Mobile Telecommunications Co. (Zain Saudi) reported weak Q4 earnings, despite making its first set of annual profits.