JEDDAH: Gulf telecoms firms need to consolidate to generate greater income in the long run, analysts said. Slumping earnings, stiff competition and ever more disgruntled minority shareholders characterize the Gulf telecoms sector. "Middle East operators are facing an erosion of their traditional revenues, with prices falling in most countries," said Marc Biosca, principal at A.T. Kearney. "Telecoms is seen more and more as a yield industry, rather than a growth industry. "Shareholders will realize operators will gain competitive edge and therefore deliver higher profitability levels by being part of a larger telecom group." Regional telcos serve about 39 million people in the six Gulf Cooperation Council (GCC) states – two-thirds of whom are in Saudi Arabia. Annual profits at four of the Gulf's six former monopolies - UAE's Etisalat , Saudi Telecom Co. (STC), Omantel and Bahrain's Batelco – fell by more than 10 percent last year and first-quarter earnings were also downbeat. "The ultimate trigger (for consolidation) will be the absolute necessity to cut costs in an industry with revenues and margins under pressure from different angles," said Pedro Oliveira, partner at consultants Oliver Wyman. Mobile penetration rates in the Gulf are among the highest in the world, ranging from 130 percent in Kuwait to more than 230 percent in the UAE. While Gulf telcos have sought licenses in other Gulf markets – STC has licenses in Bahrain and Kuwait, Etisalat is in Saudi and Qatar Telecom is in Oman and Kuwait – there have been few mergers. Outside of the Gulf, STC, Etisalat and Qtel operate in more than 30 countries combined. Etisalat, the Gulf's largest operator by value, withdrew a $12 billion bid for Kuwait's Zain in March and analysts forecast Etisalat, Qtel and STC will likely be acquirers in any consolidation. "Companies that don't have a big footprint or operate in a single market could be potential takeover targets," said Irfan Ellam, telecoms analyst at Al Mal Capital. "What's up for grabs? Maybe Omantel and du , while Batelco is not that big." Rising dissent from minority shareholders will be another trigger for consolidation, together with a shift away from a public sector culture at incumbent players.
