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Omani Government Invites Submission of Expressions of Interest for 25% Stake in Oman Telecom
7 Jul 08
The Omani government has taken a further step in the sale of 25% of Oman Telecom by inviting expressions of interest from qualified investors, according to Reuters.
Global Insight Perspective | | Significance | The sale of a stake is one of the few operator investment opportunities available in the Middle East and is expected to be snapped up by another Middle Eastern operator. | Implications | Mobile communication has been the operator's strongest form of growth in recent years; however, the government is inviting bids for a third mobile licence and second fixed-line licence which will massively impact the operator's position in the long term. | Outlook | The operator provides services in a good economic environment and has demonstrated good growth in the past few years. Further growth is expected from broadband services in the next few years which have typically overtaken growth rates of mobile services throughout the majority of the Middle East. |
Following the government’s first announcement of a sale of a stake in the Omani operator Omantel in May this year, the government has commenced the process by inviting investors to submit expressions of interest for the purchase of a 25% stake in the operator. Currently the government owns a 70% stake in Omantel, 21% of the remaining shares are held by private investors, and 9% held by charitable organisations and Omani pension funds. Omantel is the incumbent operator in the country and provides a full range of telecom services, including fixed-line, mobile, and internet. The operator has a monopoly for fixed-line services with 270,000 subscribers in 2007, and leads the market share for mobile communications in the country, with 60% equating to 1.49m subscribers, at the end of 2007. ARPU for fixed-lines is US$44 and for internet US$37. At the end of 2007, fixed-line and internet services accounted for 44% of Omantel's revenue and 48% of EBITDA.
Due to the operator's monopolistic position for fixed-line and limited competition for mobile, competing only with the Qtel owned Nawras, it has experienced strong growth in the last few years. The operator has experienced strong growth between 2005 and 2007, with subscribers growing by 14% compound annual growth rate (CAGR), revenues by 16% CAGR to US$950 million, EBITDA by 21% CAGR to US$502 million and net income by 29% CAGR to US$293 million and also announced solid results for the first quarter of this year (see Oman: 30 April 2008: Omantel Revenue Up 15% to US$255.6 mil.). Omantel underwent partial privatisation in 2005 when it was listed on the Muscat Securities Market (see Oman: 12 July 2005: Omantel IPO Closes, Nearly 2.5 Times Oversubscribed). The operator has also started to follow suit of other larger Middle Eastern operators by expanding internationally. In February 2008, it acquired a 60% stake in Worldcall, Pakistan (see Oman: 19 February 2008: Omantel Acquires 60% of Pakistani Operator, Worldcall, for US$193 mil.) and currently has licenses to operate long distance and international (LDI), wireless local loop (WLL) and broadband services across Pakistan. Revenues for Worldcall for the 12 months ended June 2007 were US$71 million, EBITDA was US$25 million, and the EBITDA margin was 34% for the same period.
Although Omantel has maintained leadership across all telecom segments in Oman, the government is seeking a strategic partner to further strengthen Omantel’s market position and establish Omantel as a world-class provider of telecommunications services both in the sultanate and internationally. Secretary General of the Ministry of Finance, H.E. Darwish Ismail al-Bulushi said: "The further privatisation of Omantel is another example of the government’s commitment to liberalising the economy and seeking to support the creation of world-class Omani companies. The Omani telecom market still has excellent growth potential and Oman offers an attractive economic environment which we are certain will appeal to bidders." Outlook and Implications - Omantel Performance: The operator has shown a solid financial performance over the last few years. The operator has continued to do well through its mobile services in Oman which accounted for 64% of its total revenue even though it has faced tough competition from Nawras.
- Competition: The operator currently has a monopoly for fixed-line services and only one competitor for mobile services. The telecoms regulator has announced that it seeks to introduce a second fixed-line licence and third mobile licence by the end of this year (see Oman: 5 March 2008: Omani TRA Invites Firms to Submit Proposals for Second Fixed-Line and Third Mobile Licences). The added competition would severely slow the operator's current levels of growth.
- Interested Buyers: The region's two largest mobile phone operators by market value, Etisalat and STC, have said they would be interested in the Omantel stake as they expand abroad amid growing domestic competition. With very few other opportunities available in the Middle East, Omantel looks to be a favourable choice.
- Growth Outlook: Although fixed-line and internet service growth has remained relatively low and showed slow growth over the past few years, mobile has tripled since 2004; at end 2007 it was 96%. Although Omantel currently has few international investments, its stake in Worldcall will give it significant opportunity for growth as it is Pakistan's largest private telecom operator with the most extensive and diversified telecom businesses including wireless local loop (WLL) through CDMA 2000 1X technology in over 40 cities, nationwide presence of long distance & international (LDI) network with 44 POPs, over 70,000 payphones, and largest broadband HFC networks in Pakistan.
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