October 18, 2011 / 5:48 AM / 8 years ago

UPDATE 2-Domestic dip takes toll on UAE's Etisalat

* Q3 profit 1.72 bln dirhams vs 1.74 bln dirhams a year ago

* Nine-month domestic revenue falls 1.3 pct

* Group costs up 22 pct in Q3 from year earlier (Adds analyst comments, details)

By Matt Smith

DUBAI, Oct 18 (Reuters) - UAE’s Etisalat said on Tuesday that third-quarter profit fell 1 percent, a sixth decline in seven quarters for the telecoms operator, as operating costs rose faster than income.

Analysts said it must address falling home revenue.

Etisalat’s shares are at a 13-month low and investors seem unconvinced it will soon return to profit growth. Rival du has a 44 percent share of the UAE’s mobile subscribers, having ended Etisalat’s monopoly in 2007.

Now operating in 18 countries, its home revenue in the nine months to September 30 fell 1.3 percent to 18.04 billion dirhams ($4.91 billion), providing three-quarters of the group total.

“Etisalat is losing focus on its core market — it’s a contest between some Gulf operators to say who has the highest number of subscribers,” said Shrouk Diab, a telecoms analyst at investment bank Rasmala in Cairo.

“Etisalat is focusing on its international operations. It may have stretched itself too far in terms of management and resources,” she added.

The Gulf’s largest operator by market value unveiled its domestic long-term evolution (LTE) high-speed network in September.

“It’s ahead of du (in LTE), so Etisalat should be able to capture and retain high-value subscribers — who can spend two or three times more than the average customer,” added Diab.

The company made a third-quarter profit of 1.72 billion dirhams ($468 million), against 1.74 billion in the same period a year ago. Analysts had forecast 1.71 billion.

“The subdued performance was mainly due to intense competitive pressure in its home market,” Global Investment House wrote in a note to clients. “Both revenue and profitability from UAE are likely to remain under pressure.”

Group revenue was up 8.6 percent to 8.04 billion dirhams in the quarter, but this was more than wiped out by a 22.3 percent rise in operating expenses.

“Etisalat must become leaner and more efficient because its operating expenses are too high,” said Rasmala’s Diab.

“Etisalat has a government-orientated management style that might make it difficult to cut staff, but its profit started to decline more than a year ago and it should have done more to reduce costs by now.”

Annual profit is likely to fall around 8.5 percent in 2011, she added.

The operator’s shares were down 0.1 percent at 0715 GMT and ended Monday at a 13-month low.

$1 = 3.673 UAE Dirhams Reporting by Matt Smith, Editing by Dinesh Nair and David Hulmes

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