Global Research Sector-Telecommunication 28 November 2012

GCC Telecom Sector Quarterly - 3Q12

Saudi regulator stops Mobily from selling pre-paid Sims Qtel increases its stake in Wataniya to 92.1%; delisting unlikely Batelco seeking USD185mn from Indian partner

GCC Telecom
Faisal Hasan, CFA Head of Research fhasan@global.com.kw Tel: (965) 22951270

Mobily barred from selling pre-paid Sim cards by Saudi regulator In a surprising move, Saudi telecom regulator has stopped Mobily from selling pre-paid Sim cards until it meets the prepaid service registration requirements. It is unclear when the ban will be lifted or whether the other two operators will face similar action. Assuming the matter is resolved quickly, we believe, the impact on Mobily will be limited as the company already has a high pre-paid subscriber base and is now focused on increasing its share of higher-margin users such as post-paid and data users. In addition, the mobile growth rate in Saudi Arabia has come down to 0.4%QoQ in 2Q12. Thus, the loss of incremental subscribers is likely to be insignificant in the short-term. Qtel increases its exposure to Wataniya after regulatory approval Qtel increased its stake in Wataniya Telecom to 92.1% from 52.5% after receiving approval from the regulator. The move was part of Qtels strategy to increase stake in operations which have been performing well. Qtel paid KWD2.6/share for a further 39.6% stake. The deal was valued at USD1.8bn. According to media reports, Qtel is unlikely to buy rest of the stake in Wataniya and de-list the stock. Etisalat plans to expand 4G to the whole of UAE by 2015 According to media reports, Etisalat plans to cover the whole of UAE by 4G LTE network by 2015. The company has successfully tested speeds up to 300 Mbps which is twice as much as the current speed of 150 Mbps offered on its network. Batelco retains its stable ratings; seeks USD185mn from erstwhile Indian partner There were several developments related to Batelco during the quarter. Fitch kept Batelcos rating at BBB- with a stable outlook in view of the strategic importance of the company and healthy free cash flows and leverage position. Batelco has initiated legal proceedings through its BMIC unit against its former Indian joint venture partner for failing to adhere to the settlement agreement. Batelco is seeking an amount of USD185mn. This is in the backdrop of Indian Supreme Court order to cancel licenses of many telecom companies due to irregularities in the awarding process. Meanwhile, Batelco has indicated that it is open to increasing its stake in existing operations given a good opportunity. We believe the company is unlikely to go for a Greenfield operation after its experience in India. Batelco recently expressed interest in Monaco and Islands unit of Cable and Wireless communications and is open to again entering the Indian market. Global Research Telecom Coverage
Ticker Country Mkt Cap (USD mn) Price* (in LC) Stock Performance 1m 3m 12m Div. Yield 2013E P/E (x) 2012E 2013E P/BV (x) 2012E 2012E

Umar Faruqui, CFA, ACCA Financial Analyst ufaruqui@global.com.kw Tel.: (965) 22951438 Global Investment House www.globalinv.net

Zain Wataniya Telecom Saudi Telecom Mobily Etisalat Qtel Vodafone Qatar Omantel Batelco

Kuwait Kuwait KSA KSA UAE Qatar Qatar Oman Bahrain

12,539 4,223 21,600 13,440 21,402 9,196 1,992 2,773 1,498

0.82 2.36 40.50 72.00 9.94 104.50 8.60 1.42 0.40

10.8% 4.4% -2.9% 0.7% 2.2% -0.6% -4.1% -2.7% -4.8%

17.1% -7.1% 1.0% 3.2% 4.7% -4.1% -4.3% 7.6% -2.4%

-8.9% 25.4% 22.0% 42.6% 1.1% 4.6% 13.2% 17.7% 1.5%

7.9% 2.5% 4.9% 6.3% 6.0% 5.3% 7.0% 8.9%

12.1 11.6 9.3 9.1 10.7 11.4 nm 8.8 6.4

11.6 10.9 9.7 8.6 10.2 10.7 nm 8.5 7.8

1.5 1.3 1.5 2.4 1.8 1.4 1.2 2.0 1.0

1.5 1.2 1.4 2.1 1.7 1.3 1.2 1.8 1.0

Source: Global Research, Zawya & Bloomberg * Market Price as of 26th November 2012. Note: Vodafone Qatar financial year ends in March.

Global Research

GCC Telecom Quarterly

Bahrain GSM Sector Indicators

Bahrain Cellular Subscriber base (in mn)
1.76
1.72

Bahrain Quarterly Customer Additions (in 000)

3.0%
35.0 30.0 25.0 20.0 15.0 10.0 5.0 (5.0) (10.0) (15.0)
31.3 28.6

1.6%
1.66

1.9% 1.69

1.72 1.69 1.7%

26.5

1.71

2.0%

1.68 1.64

1.0% -0.7% 0.0% -1.0%

0.1% 1.60 Q2-2011 Q3-2011 Q4-2011 Q1-2012

1.2

Q2-2012 Q-o-Q growth

Bahrain Cellular Subscriber base (in mn) - LHS

Q2-2011

Q3-2011

Q4-2011

Q1-2012

(11.6) Q2-2012

Source: Industry Sources & Global Research

Source: Industry Sources & Global Research

Bahrain saw a decline in its subscriber since the first time since 3Q10. Subscriber base declined by 0.7%QoQ to 1.71mn The slow growth is not surprising as Bahrain has a mobile penetration rate of above 200.0%. Operator-wise Subscriber Base (in 000)
760
752

Operator-wise Customer Additions (in 000)

30.0 20.0 14.9

800 600

739
508 454 446

738.0
528

695 548

20.6

20.9 18.0

23.0
20.0 9.8

20.0 11.4

467 433

485

10.0

455

467

(10.0) (20.0)

400 200
-

(9.0) (7.5)
(13.2) (8.6)

(1.2)

(30.0)

(40.0)

Q2-2011

Q3-2011

Q4-2011
Batelco Zain

Q1-2012
Viva

Q2-2012

(50.0)

(43.0)

Q2-2011

Q3-2011

Q4-2011
Batelco Zain

Q1-2012
Viva

Q2-2012

Source: Industry Sources & Global Research

Source: Industry Sources & Global Research

Batelco subscribers declined significantly for the fourth consecutive quarter by 5.8% to 695,000 reflecting the competitive environment in the domestic market. Quarterly Market Share based on Subscribers
Q3-2011

On the other hand, Zain and Viva continued to add to their subscriber base, which increased by 3.8%QoQ and 2.5%QoQ respectively.

Q4-2011

Q1-2012

Q2-2012

26.9% 44.5%

27.3%
43.1%

26.5%
42.9%

27.3% 40.6%

28.7%

29.6%

30.7%

32.1%

Batelco

Zain

Viva

Batelco

Zain

Viva

Batelco

Zain

Viva

Batelco

Zain

Viva

STC (Viva) has managed to increase its market share to 27.3% since it started operations in 1Q10. Since the entry of Viva, Batelco has seen its market share come down to 40.6% in 2Q12 from 54.6%.

November 2012

Global Research

GCC Telecom Quarterly

Kuwait GSM Sector Indicators

Kuwait Cellular Subscriber base (in mn)
5.25
5.10 4.95 4.80

Kuwait Quarterly Customer Additions (in mn)

5.21 5.4%

0.25 0.21
0.20

4.6% 5.02 4.92

5.10

3.9%

0.15
2.0% 2.5% 1.7%
2.4%

4.80 4.65 4.50

Q2-2011 Q3-2011

0.12

0.10
0.10

0.10 0.09

2.0% 0.9%

0.05
0.00

Q4-2011

Q1-2012

Q2-2012
Q-o-Q growth

Kuwait Cellular Subscriber base (in mn) - LHS

Q2-2011

Q3-2011

Q4-2011

Q1-2012

Q2-2012

Source: Industry Sources & Global Research

Source: Industry Sources & Global Research

Kuwaits total GSM subscriber base grew by 2.0%QoQ to 5.21mn in 2Q12. The subscriber growth rate has increased slightly after declining steadily since the past four quarters. With mobile penetration above 150.0%, the growth rate reflects the population growth rate in the country. Operator-wise Subscriber Base (in mn)
2.02

Operator-wise Customer Additions (in 000)

140.0
120.0 100.0 133.0

2.00
1.50

1.92

2.06

2.10 1.96 2.15 2.19 1.94 1.93 1.94

1.00 0.50
-

0.86

0.92

0.96

1.02

1.08

80.0 60.0 40.0 20.0 (20.0) (40.0)

60.2 48.3 39.0 45.0 46.0 35.9 29.6 18.4 19.7

67.7
36.0

57.2

10.0

Q2-2011

Q3-2011
Zain

Q4-2011
Wataniya

Q1-2012
Viva

Q2-2012

Q2-2011

Q3-2011
Zain

Q4-2011
Wataniya

(27.7) Q1-2012
Viva

Q2-2012

Source: Industry Sources & Global Research

Source: Industry Sources & Global Research

All the mobile service providers added to their subscriber base during 2Q12. Wataniya recorded growth again after a decline in the previous quarter. Quarterly Market Share based on Subscribers
Q4-2011
3Q-2011

Viva saw the largest percentage increase of 5.6%QoQ reflecting the success of its marketing and promotional packages.

Q1-2012

Q2-2012

18.7% 41.9% 39.4%

19.1%
41.9%

20.1% 42.1%

20.8% 42.0%

39.0%

37.8%
37.3%

Zain

Wataniya

Viva

Zain

Wataniya

Viva

Zain

Wataniya

Viva

Zain

Wataniya

Viva

Viva managed to increase its market share slightly to 20.8% at the expense of the other two operators. Zain and Wataniya market share decreased to 42.0% and 37.3% respectively.

November 2012

Global Research

GCC Telecom Quarterly

Oman GSM Sector Indicators

Oman Cellular Subscriber base (in mn)
5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.00 5.04 6.0%

Oman Quarterly Customer Additions (in mn)

0.20 0.16 0.15 0.14
0.12

4.50

4.62

4.75

4.91

0.12

0.13

2.7%

2.6%

3.0%

3.3% 2.7%

3.0%
0.10

0.0% Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q-o-Q growth

0.05

Oman Cellular Subscriber base (in mn) - LHS

Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012

Source: Industry Sources & Global Research

Source: Industry Sources & Global Research

Oman subscriber base continued to increase at a steady pace. The subscriber base increased by 2.7%QoQ in 2Q12. Around 0.13mn customers were added during 2Q12 and around 0.54mn have been added in the last four quarters. Operator-wise Subscriber Base (in mn) Operator-wise Customer Additions (in 000)

3.50 3.00
2.50 2.00

2.57 1.93

2.69 1.93

2.82

2.95
1.96

3.05 1.99

150.0 130.0

133.0

134.1

120.9

116.8
96.0

1.93

110.0 90.0
70.0 50.0 30.0 10.0 22.6

1.50 1.00
0.50

35.7

0.00 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012

0.9 (4.6) Q2-2011 Q3-2011

3.2

(10.0)

Q4-2011

Q1-2012

Q2-2012

Nawras

Omantel

Nawras

Omantel

Source: Industry Sources & Global Research

Source: Industry Sources & Global Research

In 2Q12, Omantels mobile subscriber base increased by around 96,000 subscribers which accounted for 72.9% of total mobile growth in Oman. Quarterly Market Share based on Subscribers
Q3-2011

Omantel has benefited from its enhanced network and effective promotions. Meanwhile, Nawars is facing a difficult challenge with the entry of re-sellers.

Q4-2011

Q1-2012

Q2-2012

42.7% 57.3%

41.4%

39.8%

39.5%

58.6%

60.2%

60.5%

Nawras

Omantel

Nawras

Omantel

Nawras

Omantel

Nawras

Omantel

Omantel continued on with the march increasing its market share further to 60.5% at the end of 2Q12. The company has seen an increase in its subscriber base since 4Q09. The movement in subscriber market share is also getting influenced by ongoing clean-up of subscriber base mandated by the Regulator.

November 2012

Global Research

GCC Telecom Quarterly

Qatar GSM Sector Indicators

Qatar Cellular Subscriber base (in mn)
2.99 2.94
2.95 2.84

Qatar Quarterly Customer Additions (in 000)

3.5% 2.5% 1.5%
80.0 70.0 60.0
50.0 56.9

2.87 1.2%

2.87

1.9% 2.5%

70.7 35.2

2.85 2.75
2.65

40.0 30.0 20.0

10.0

0.2%

-0.2%

0.5%
-0.5%

5.0
Q2-2011 Q3-2011

Q2-2011

Q3-2011

Q4-2011

Q1-2012

Q2-2012 Q-o-Q growth

-7.0
Q4-2011 Q1-2012 Q2-2012

0.0 -10.0

Qatar Cellular Subscriber base (in mn) - LHS

Source: Industry Sources & Global Research

Source: Industry Sources & Global Research

Mobile subscribers grew by 1.9%QoQ in 2Q12. Qatars total GSM subscriber base is at a touching distance of the 3.0mn mark implying a mobile penetration rate of around 170%. Despite the high penetration rate, we believe the potential for growth still remains due to forecasted economic and population growth. Operator-wise Subscriber Base (in mn) Operator-wise Customer Additions (in 000)

2.50 2.00

2.08

2.09

2.07

2.10

2.12

50.00 40.00 30.4 21.0 14.2 4.2

40.2

41.0

30.00
20.00

1.50 1.00 0.50 Q2-2011 Q3-2011 Qtel Q4-2011 Q1-2012 Q2-2012

0.76 0.78

15.0

15.9

0.797

0.84

0.88

10.00

0.77

(10.00) (20.00) (30.00) Q2-2011 Q3-2011 Qtel Q4-2011 Q1-2012 Q2-2012 (22.0)

Vodaf one

Vodaf one

Source: Industry Sources & Global Research

Source: Industry Sources & Global Research

Vodafone Qatar continued with the strong growth momentum adding 41,000 subscribers in 2Q12. Quarterly Market Share based on Subscribers

The increase in Vodafone subscriber base has been helped by the launch of post-paid services.

Q3-2011

Q4-2011

Q1-2012

Q2-2012

27.2%

27.8%

28.5%

29.3%

72.8%

72.2%

71.5%

70.7%

Qtel

Vodaf one

Qtel

Vodafone

Qtel

Vodafone

Qtel

Vodaf one

Vodafone Qatar has increased its market share to 29.3% in a span of three years. The company made its entry in the Qatari market in Q1-2009. Meanwhile, Qtel market share has come down to 70.7% at the end of 2Q12.

November 2012

Global Research

GCC Telecom Quarterly

Saudi GSM Sector Indicators

Saudi Cellular Subscriber base (in mn)
56.5 56.0 55.5 55.0 54.5 54.0 53.5 53.0 52.5 2.4% 2.8% 54.8
53.7 54.3

Saudi Quarterly Customer Additions (in mn)

4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0%

2.0 1.0 0.0

1.5

1.3

56.1

1.0%

0.4%

0.5

0.2 Q2-2012

Q2-2011 -1.0
-2.0

Q3-2011

Q4-2011

Q1-2012

-4.2% Q2-2011 Q3-2011 Q4-2011 Q1-2012

54.5 Q2-2012 Growth

-3.0

-2.3

Saudi Cellular subscriber base

Source: Industry Sources & Global Research

Source: Industry Sources & Global Research

Saudi cellular subscriber base increased by 0.4%QoQ to 54.5mn in 2Q12. The slowdown in subscriber growth rate is understandable considering a high mobile penetration rate of around 184.0%. The subscriber growth numbers are off a higher quality now as some operators have accounted for in-active subscribers. Operator-wise Subscriber Base (in mn)
30.00
25.00 20.51

Operator-wise Customer Additions (in mn)

0.57 0.82
0.68

0.93 0.64 0.05 0.04

0.01

24.96 20.76

25.18 20.81

25.22 21.45

26.15 21.50

25.45

1.00

0.50 -

0.00 0.25
Q2-2011

0.25 0.00

0.22

0.05 Q1-2012 (0.00) Q2-2012 (0.70) (1.05)

0.88

20.00 15.00 10.00 5.00

0.21 9.13 9.95

7.57 0.17 Q1-2012 Zain

6.52 0.17

7.40

(0.50)
(1.00) (1.50)

Q3-2011

Q4-2011 (0.05)

0.21 Q3-2011 Bravo

0.16 Q4-2011 Mobily STC

Q2-2011

Q2-2012

(2.00) (2.50)
Bravo Mobily

(2.38)
STC Zain

Source: Industry Sources & Global Research

Source: Industry Sources & Global Research

Zain KSA saw a big jump in its subscriber by 0.88mn in 2Q12 to 7.4mn after an adjustment to its numbers in 1Q12 which saw its subscriber base coming down by 13.8%QoQ to 6.52mn in 1Q12. Quarterly Market Share based on Subscribers
Q3-2011
0.4% 17.7% 37.0%

We have estimated Mobilys subscribers to have increased slightly while Saudi Telecoms subscriber base to have declined to 25.45mn. We have made these estimates in light of total Saudi subscriber base

Q1-2012
0.3% 12.0%

Q2-2012
0.3%

13.6%

39.5%

39.4%

44.9%

48.2%

46.7%

Bravo

Mobily

Saudi Telecom

Zain

Bravo

Mobily

Saudi Telecom

Zain

Bravo

Mobily

Saudi T elecom

Zain

STC remains the market leader with an estimated market share of 46.7% followed by Mobily with a market share of 39.4%. Meanwhile, Zain KSA has managed to increase its share to13.6% in 2Q12.

November 2012

Global Research

GCC Telecom Quarterly

UAE GSM Sector Indicators

UAE Cellular Subscriber base (in mn)
13.00 12.50
12.00 12.47

UAE Quarterly Customer Additions (in mn)

12.73 6.8% 6.0% 5.3% 4.5% 3.8% 3.0% 2.3% 1.5% 0.8% 0.0%
0.80
0.70

0.74

4.1% 11.73 0.7% 11.18

1.0%

6.3%

0.60 0.50 0.40 0.30

0.20 0.47

11.50
11.00

11.26

2.1%

0.27 0.11 0.08

10.50
10.00

Q2-2011

Q3-2011

Q4-2011

Q1-2012

Q2-2012

0.10 0.00
Q2-2011

UAE Cellular Subscriber base (in mn) - LHS

Q-o-Q growth

Q3-2011

Q4-2011

Q1-2012

Q2-2012

Source: Industry Sources & Global Research

Source: Industry Sources & Global Research

UAEs GSM subscriber growth slowed down to 2.1%QoQ in 2Q12 after a healthy growth of 6.3%QoQ in 1Q12. 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. Operator-wise Subscriber Base (in mn) Operator-wise Customer Additions (in 000)
419 321 278 171 188 70

8.50
7.50 6.40 4.78

6.32
4.94

6.51 5.22

6.93
5.54

7.0

6.50 5.50
4.50

5.73

3.50 2.50
1.50 Q2-2011 Q3-2011 Q4-2011
Etisalat DU

Q1-2012

Q2-2012

450.0 400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 (50.0) (100.0)

196

162

-58

Q2-2011

-80 Q3-2011

Q4-2011
Etisalat DU

Q1-2012

Q2-2012

Source: Industry Sources & Global Research

Source: Industry Sources & Global Research

In 2Q12, Etisalats mobile subscribers grew by 1.0%QoQ while DUs subscribers grew by 3.5%QoQ. Quarterly Market Share based on Subscribers
3Q11
4Q11

In 2Q12, Etisalat carried on the good performance witnessed in 1Q12 by adding 196,000 customers.

1Q12

2Q12

43.8% 56.2%

44.5% 55.5%

44.2% 55.8%

45.0% 55.0%

Etisalat

DU

Etisalat

DU

Etisalat

DU

Etisalat

DU

DU managed to increase its market share slightly to 45.0% in 2Q12 compared to 44.4% in 1Q12. Du has seen a strong growth in its postpaid subscriber base by 39.0%YoY which has helped it to prop up its market share.

November 2012

Global Research

GCC Telecom Quarterly

Disclaimer
This material was produced by Global Investment House KSCC (Global),a firm regulated by the Central Bank of Kuwait. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Global may, from time to time to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities (securities), perform services for or solicit business from such issuer, and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permitted by applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients. Information and opinions contained herein have been compiled or arrived by Global from sources believed to be reliable, but Global has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Global accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgment. Global shall have no responsibility or liability whatsoever in respect of any inaccuracy in or omission from this or any other document prepared by Global for, or sent by Global to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Opinions and estimates constitute our judgment and are subject to change without prior notice. Past performance is not indicative of future results. This document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. Neither this report nor any copy hereof may be distributed in any jurisdiction outside Kuwait where its distribution may be restricted by law. Persons who receive this report should make themselves aware of and adhere to any such restrictions. By accepting this report you agree to be bound by the foregoing limitations.

November 2012

Global Investment House Website: www.globalinv.net Global Tower Sharq, Al-Shuhada Str. Tel. + (965) 2 295 1000 Fax. + (965) 2 295 1005 P.O. Box: 28807 Safat, 13149 Kuwait

Research Faisal Hasan, CFA (965) 2295-1270 fhasan@global.com.kw

Brokerage Fouad Fahmi Darwish (965) 2295-1700 fdarwish@global.com.kw

Wealth Management Rasha Al-Qenaei (965) 2295-1380 alqenaei@global.com.kw

Global Kuwait Tel: (965) 2 295 1000 Fax: (965) 2 295 1005 P.O.Box 28807 Safat, 13149 Kuwait Global Egypt Tel: (202) 24189705/06 Fax: (202) 22905972 24 Cleopatra St., Masr El Gedida, Cairo

Global Bahrain Tel: (973) 17 210011 Fax: (973) 17 210222 P.O.Box 855 Manama, Bahrain Global Saudi Arabia Tel: (966) 1 2994100 Fax: (966) 1 2994199 P.O. Box 66930 Riyadh 11586, Kingdom of Saudi Arabia

Global UAE Tel: (971) 4 4477066 Fax: (971) 4 4477067 P.O.Box 121227 Dubai, UAE Global Jordan Tel: (962) 6 5005060 Fax: (962) 6 5005066 P.O.Box 3268 Amman 11180, Jordan

Global Wealth Manager E-mail: contactus@global.com.kw Tel: (965) 1-804-242