Ringing in change

The strategic sale of Omantel stake is seen as a turning point in the growth not only of the company but also of the telecom scene in Oman and the region

Oman’s telecommunications sector is at an exciting point in its development. Announcements in recent weeks that a further tranche of the government’s stake in market leader Oman Telecommunications Company (Omantel) will be privatised, its structure overhauled and royalties to the government cut have come as both Omantel and its rival Nawras look to boost revenues by moving into less explored niches. The cash raised by Omantel’s public offering should help support its moves to acquire firms abroad, a key part of its diversification strategy.

The Omani government announced in October that it would be selling part of its 70 per cent stake in Omantel, which includes both the country’s eponymous sole fixed line operator and its leading mobile company, Oman Mobile. The state had previously sold 30 per cent in 2005 through an initial public offering that raised US$729.5 million. Under the firm’s current statutes, a maximum of a further 19 per cent can be sold by the state. However, with shareholder approval, this cap can be lifted and a greater proportion privatised.

It is hoped that private investors will help provide the capital and expertise needed for Omantel to develop operations outside Oman. Analysts have said that a major regional player, or even one from the Indian subcontinent, could become a strategic investor, taking advantage of synergies and economies of scale in its operations. It is also likely that Omantel will buy some of its own newly offered shares. The government also announced that it will be cutting the royalty payments – essentially a tax – that Omantel has to pay from its annual revenue.

Adding to the bottom line
The proposed royalty cuts will alone add around US$36.37 million to Omantel’s profits in 2007. “Based on the first-half results, the benefit to the group (both Omantel and its wholly owned subsidiary Oman Mobile) is RO7.15 million,” said an Omantel official on the condition of anonymity. “If we assume the same revenue for the second half, the gain will be RO14.3 million.”

The royalty rates paid to the government were cut to 7 per cent from 10 per cent of revenue for fixed line services and to 7 per cent from 12 per cent from mobile services, under its daughter company Oman Mobile. It is not expected that the government will suffer significant revenue losses, as the cuts will be fed through to the end consumer, increasing revenues. Omantel’s shares surged 9.99 per cent to hit a 16-month high of US$3.66 after the government’s announcement. Earlier, the stock had tumbled 26 per cent this year.

As part of the reform process, the government has established a committee to look into a restructuring of the company as it looks to expand overseas. The firm lost its mobile monopoly in 2005 and has lost 40 per cent of its domestic market share. Its fixed line monopoly will be rescinded at the end of this year. These changes make developing operations abroad central to securing future growth. Having said that, the stellar growth of the Omani telecom market has meant that it is still taking on new customers at a steady clip. Omantel’s subscriber base grew 12.3 per cent to 1.73 million in the 12 months to June end.

Overall mobile penetration rates in the Sultanate have soared from 34 per cent in 2004 to around 70 per cent now. But mobile penetration is still the lowest of any of the GCC member states, leaving quite a lot of scope for further growth domestically. The UAE and Bahrain both boast triple-digit percentages. Oman Mobile’s US$20.5 million deal with Siemens Communication to boost GSM coverage in the Sharqiya, Dakhliya, Dharia and Wusta regions should help it improve services for existing customers and reach new ones in remote areas.

Widening the subscriber base
There is also scope for boosting revenues from shifting users from pre-pay to post-pay subscriptions. As of last year, 85 per cent of mobile telephones in Oman were operated on a pre-pay basis. Post-pay contracts move customers up the value chain, creating greater customer loyalty and the opportunity to offer more products and services to the client.

In the fixed line segment, there have been some problems on the supply side, with lines taking up to three months to install. Thus, fixed line growth has been relatively low compared to the galloping rate of mobile take up.

Omantel is already actively seeking to invest outside the Sultanate. In fact, in September, it made a provisional deal to purchase a majority stake in World Call, a Pakistani telecom operator. The acquisition of a reported 65 per cent share of World Call is pending approval from Omantel’s shareholders and regulatory authorities in Pakistan (at the time of going to the press). “We see the potential there,” Omantel CEO Mohammed Ali Al Wohabi said of Pakistan. “The broadband market is still in the early stages.”

World Call operations include local loop wireless, long distance telephone lines and payphones and it is one of the largest telecom companies in Pakistan, the third fastest-growing telecom market in the world. Mobile penetration there is around 33 per cent compared to 65 per cent in Oman.

Omantel is not the first telecom company in the region to be drawn to Pakistan. Abu Dhabi’s Etisalat bought a minority share of Pakistan Telecommunications Company Ltd in 2005. The changes at Omantel also involve a structural shake-up. The committee appointed to look into the reform of Omantel has agreed on the reorganisation of the firm’s board of directors, with the inclusion of government officials with wide experience in the telecommunications sector.

The boards of Omantel and Oman Mobile will be combined to make an overall board for the group. The aim of the involvement of the new members and the merger is to enhance its professional and technical expertise, improving its financial and administrative capacity as well as to improve efficiency, announced Ahmed bin Abdulnabi Macki, minister of national economy and deputy chairman of the Financial Affairs and Energy Resources Council. Overall, the leaner, expert-led company will be able to deliver growth and a wider, better range of products and services, Macki said.

The committee has announced that Omantel must be able to set its own prices to remain competitive, offer deals to large customers and that the fixed line network will be further expanded. Additional developments will be made in partnership with the Telecommunications Regulating Authority and auditors at Oman’s Capital Markets Authority (CMA).

Competition hots up
The rival telecommunications company on the Omani market is Nawras, which is 70 per cent owned by Qatar Telecommunications Company, has also been vigorously involved in purchasing foreign assets. The other shareholders in Nawras are Omani investors and Danish firm TDC. Nawras had a 27 per cent market share after its first 18 months of operating. The company has invested US$140 million in infrastructure development, with US$1.5 billion in the pipeline over the next eight years.

Nawras will need these investments in order to build its network coverage, which currently lag behind the 95 per cent population coverage that Oman Mobile claims – though company officials proudly report that the network experienced no outages during run up to the holy month of Ramadan and its concluding festival, Eid, when phone use is particularly high. They said that despite a 25 per cent increase in voice calls and a 19 per cent rise in the volume of text messages (SMS) sent, there had been no interruptions to service.

Like Oman Mobile, Nawras is of course looking to boost revenues by extending its services to those residents who are yet to obtain a mobile, as well as offering more high tech products to the upwardly mobile. Nawras won Oman’s first 3G licence at the same time as the contract to set up the country’s second mobile operator, and started to roll out the service to selected cities at the beginning of last year.

Oman’s telecom sector gives ample scope for expansion for both Omantel and Nawras. Omantel’s part-privatisation should provide capital and greater autonomy, and the cut in royalty payments an immediate boost in revenues, which the firms need to expand at home and abroad. Meanwhile, Nawras’ impressive growth from scratch looks set to continue, with further investments in infrastructure and high-margin technology. For the consumer in the Sultanate, this can only be good news.
 

Top^