For Free Headlines Submit Your Email
Sunday, September 8, 2024 2:48 GMT
Investments in digital services and information and communication technology (ICT) are driving diversification and growth for telecom operators in Oman and other GCC countries, while the sale of non-core assets supports the efficient use of capital, according to Moody’s Investor Service. In its new telecommunications sector report, Moody’s noted that GCC operators are investing in digital consumer services and technology enterprise solutions in parallel with their expansion into new markets. It said, ‘These are complementary to operators’ core connectivity offerings and leverage the existing customer base while diversifying from their traditional telecom businesses.’ As stated by Moody’s, Saudi Telecom Company (STC) and Omantel are actively building their ICT capabilities, with a focus on corporate and government customers and the wholesale business. The companies are developing these businesses through organic growth, new startup ventures, and small bolt-on acquisitions, the rating agency said. ‘As a result, Omantel’s revenue share of ICT, wholesale, and other services increased to 39% in 2022 from 22% in 2018’, Moody’s noted. This expansion of products and services should support further business growth. Moody’s expects the GCC telecom operators’ annual revenue to increase by an average of 3% during 2023-2024. ‘However, UAE’s e& will experience much higher growth in 2024 due to the consolidation of the PPF Telecom assets. In contrast, Omantel’s revenue growth will be low because expansion in its other businesses is offset by lackluster performance in its core market, where it faces fierce competition,’ the rating agency said.Tower infrastructure divestmentThe GCC telecom operators, as noted by Moody’s, are following the global trend of divesting tower infrastructure. The rating agency said that the sale of tower infrastructure has the potential to help the companies unlock monetary value and provide cash for deleveraging or capital spending, maximizing shareholder value and improving return on capital employed. ‘Tower sales will also help the GCC telecom operators optimize operating costs and capital spending thanks to the sharing of infrastructure. Additionally, as the GCC operators progress with their 5G rollout, collocation arrangements should be strongly beneficial because of the high density of towers on the surface required for this technology. However, depending on tower lease arrangements, increased inflation may temporarily curtail the expected benefits due to higher indexation of lease costs,’ Moody’s said. In December 2022, Omantel completed the sale of its 2,519 towers to Helios Towers for a total cash consideration of US$494 million. Omantel subsequently entered into a long-term master service agreement to continue to use the towers and used the cash proceeds to repay debt. ‘The company (Omantel) may also sell an additional 226 towers for US$53 million over the next 12-18 months. However, deleveraging was modest because we added back around US$440 million of Moody’s-adjusted capitalized lease to our debt calculation,’ Moody’s said. In July 2023, Qatar’s Ooredoo, Kuwait’s Mobile Telecommunications Company (Zain), and TASC Towers Holding entered exclusive negotiations to create an independent tower company comprising up to 30,000 towers in Qatar, Kuwait, Algeria, Tunisia, Iraq, and Jordan. Moody’s said this partnership, if it succeeds, will form the largest independent tower company in the Middle East and North Africa region.International acquisitions boomingGCC telecom operators are actively seeking and investing in telecommunications enterprises in Europe and potentially in Africa and Asia. This increased market activity, which has been evident since 2022, follows several quiet years. ‘Thanks to the buoyant macroeconomic environment in their domestic markets, the GCC telecom companies demonstrate solid financial performance and benefit from robust balance sheets. Now, they are eager to deploy their significant resources, diversify from oil-dependent or emerging market economies, increase their buying power over vendors, and preserve growth in consolidated revenue and earnings,’ Moody’s said. Europe, as Moody’s said, is likely to be the primary region for expansion by GCC telecom operators. It complements the GCC companies’ existing footprint and provides diversification into more developed jurisdictions. ‘The recently announced deals confirm this direction. However, European governments will be cautious in approving acquisitions of strategic telecom assets by foreign investors. This makes the acquisition of sizeable minority shareholdings a potentially attractive option,’ the rating agency added.