Oman's telecoms providers show steady growth despite hurdles

The sultanate’s economic growth remained under pressure in 2017 due to a global decline in oil prices and lower government spending. As a result, the telecoms sector faced challenges such as stiff competition, regulatory reforms and changes in consumer spending behaviour. Furthermore, an increase in government royalty charges from 7% to 12%, accompanied by a rise in income taxes, significantly impacted operators’ profitability in 2017. However, total revenue in the sector increased by 1.7% year-on-year (y-o-y) from OR430.9m ($1.12bn) in the first half of 2017 to OR438.2m ($1.14bn). In the first half of 2018, mobile services accounted for around 65% of total revenue in the sector, followed by fixed telephone services at 20% and fixed internet services at 15%.

In the second quarter of 2018 fixed telephone subscriptions stood at 536,335, increasing by 15.3% y-o-y. The penetration rate per inhabitant of fixed telephone subscriptions remained the same for the first two quarters of 2018 at 11.8%. In the first half of 2018 fixed residential and business lines were split at 74.6% and 25.4%, respectively. Conversely, total mobile subscriptions declined by 6.5% y-o-y in the second quarter of 2018 to stand at 6.7m. Accordingly, mobile penetration dropped by 7.9 percentage points to 146.1%. Meanwhile, total fixed internet subscriptions increased by 23.6% y-o-y to 389,434 and the fixed internet penetration rate per household reached 66.6%, up from 53.8%.

Omantel

The mobile market is led by Omantel, which had a 43% share of total subscriptions at the end of the second quarter of 2018, while Ooredoo and FRiENDi held shares of 42% and 15%, respectively. Omantel’s revenues grew y-o-y from OR133.9m ($347.7m) in the second quarter of 2017 to OR444.2m ($1.2bn). The 332% boost in revenue over that period can be largely accounted for by the acquisition of a 12.1% stake in Zain in late 2017. In the first half of 2018 Omantel parent company revenues increased by 6.9% to OR282m ($732.4m). Omantel’s net profit was OR125.4m ($325.7m) in the first half of 2018, while the net profit of its parent company was OR43.8m ($113.7m).

In April 2018 Omantel issued bonds worth $1.5bn in two tranches, making it the largest-ever corporate offering in the sultanate. The first tranche, to mature after 5.5 years in 2023, is valued at $600m and will pay an annual coupon of 5.6%. The second tranche, which will mature after 10 years in 2028, is worth $900m and will pay an annual coupon of 6.6%. The proceeds of the issuance will be used to repay the bridge loan facility taken for Omantel’s investment in Zain, a Kuwaiti telecoms company. After the acquisition of a 12.1% stake in Zain, Omantel became the third largest telecoms provider in the MENA region, serving 10 markets and a total of over 51m customers.

Ooredoo

Ooredoo Oman revenues grew by 3% y-o-y from OR135m ($350.6m) in the first half of 2017 to OR139m ($361m), driven by an increase in both mobile and fixed data revenue. The company’s net profits also expanded by 28.4% to OR17.6m ($45.7m), supported by growth in earnings before interest, tax, amortisation and lower depreciation. Ooredoo’s balance sheet for the first half of 2018 remained strong, with a satisfactory level of liquidity and lower debt levels compared to local and regional players.

Looking Ahead

The telecoms sector in Oman bears a unique set of obstacles, such as limited market size, an extensive regulatory framework and an expanding list of operators in an already saturated market. One of the main challenges for operators going forward will be to manage capital allocation against the backdrop of declining profitability margins. A possible solution would be to roll out 5G mobile technology, which is rapidly gaining popularity; however, operators have not yet been able to fully recover their investments in the 4G network. Broadband services are also gaining momentum and Oman is considering investments in fibre optics, as video services such as Netflix and internet protocol television are growing in popularity.