Riyadh – Mubasher: In the recent years, the telecom sector has been in all sorts of turmoil with uneven growth, falling profitability, pricing competition, entry of new players (virtual operators), accounting issues and arbitration related to Zain and Mobily, said Al Rajhi Capital in a report issued Monday.
“However, we believe 2016 could signal the start of an early change in fortunes for the sector for three reasons. Firstly, in a weakened macroeconomic backdrop, telecom sector becomes more attractive given its defensive nature in a relative context. Not just being defensive, there is scope for growth as an increasingly large number of pilgrim tourists are expected to visit the Kingdom, benefitting the telecom players. When companies across the Kingdom are looking to slash budgets, STC committed to invest SAR3.9 billion into its network for H2 2015,” it added.
Secondly, for the past three years, wireless segment revenue has been declining as growth in data revenues was unable to offset the decline in voice revenues. CITC annual report reveals a flat y-o-y performance in wireless revenues for 2014. A simple extrapolation of this trend seen in the past three years points to a growth in the future.
Lastly, post the cuts in voice pricing with domestic call rate now at 19halalas for Mobily and Zain KSA, we think there is less chance for further significant price cuts. Though the telecom sector is unlikely to see a radical transformation soon, we think these are early recovery signs for the sector. In any case, the benefits will accrue the most to STC, which is cushioned with a high dividend yield.
