The reduction in roaming rates for voice calls across GCC countries will have a negative impact on all telecoms operators in the region, says Moody's Investors Service.

Given that competition for market share is likely to remain intense, the policy will likely result in further margin compression in the operators' respective domestic markets, which have historically been highly cash-generative. This is especially relevant for incumbent telco operators such as Etisalat, Qtel and STC, said Moody's.

The comment by Moody's addresses the February 1 deadline for the implementation of the required reduction in roaming rates for voice calls across all GCC countries, as decided by GCC telecoms ministers in June 2011 in collaboration with regional telecommunication regulators.

In response to the policy, Etisalat, the main telecoms operator in the UAE announced on January 31 that it would cut its roaming rates within the GCC by up to 26 per cent. This brings Etisalat's roaming rates more into line with those of du, its only competitor in the UAE. Separately, the Qatari regulator (ict Qatar) has announced that its local operators already comply with this policy.

Many Gulf telecoms operators, including the rated incumbents, have set up cost efficiency programmes to stem the margin erosion that is likely to result from the GCC-wide policy. In view of increasing competition as well as ongoing deregulation, Moody's believes that measures to protect profitability levels will increasingly become more challenging, as has been evident in recent reported results, the report said.

For the first nine months of 2011, Etisalat reported a margin decline of 5.6 per cent for its UAE segment (specifically, it reported a 47.8 per cent segment margin in the first nine months of 2011 vs. 53.4 per cent for the same period in 2010). For the same period, Qatar's incumbent telecoms operator, Qtel, reported a decline in its segment profit-before-tax margin for Qatar to 27.5 per cent from 44.2 per cent, compared with the same period in 2010, Moody's said. - TradeArabia News Service