Higher royalty, tax, competition to impact bottom-line: Omantel

Rising telecom royalties and corporate tax levies, coupled with the advent of a third mobile operator in an already crowded market, have the potential to impact Oman Telecommunications Company’s (Omantel) financial performance going forward, top officials of the majority government-owned telecom services provider have revealed.

Telecom sector royalties are poised to jump from 7 per cent to 12 per cent effective from 2017 — an increase that equates to 17 per cent of net profit, according to the company. Similarly, the corporate income tax rate has increased from 12 per cent to 15 per cent — part of measures by the government to offset a steep slide in oil-based export revenues.

“This is expected to conclude (with) a negative impact on Omantel’s net profitability in 2017,” warned Eng Sultan Hamdoon al Harthi, Chairman — Omantel Board of Directors, in the Chairman’s Report for the year ended December 31, 2017.

The telecom sector, he further cautioned, is braced for the “impact of several fundamental regulatory changes”, most notable being the advent of a new licensed mobile operator likely during the course of this year. This is evident from the Telecommunications Regulatory Authority’s (TRA) decision, last November, to invite bids for a third Class-1 license, the Chairman noted.

Also adding to what promises to be “hyper competition” in Oman’s increasingly liberalised telecom landscape is the expected introduction of Access & Interconnection (A&I) regulations by the TRA, according to the operator. When officially rolled, the regulations will require existing operators to make available their infrastructure to competitors at cost.

“This will put tremendous pressure on Omantel’s revenue growth in the coming years. A&I regulations will also reduce interconnection and access wholesale rates, wholesale margins and reduce the entry barriers in wholesale arena,” warned Talal Said al Maamari, CEO, and Martial Caratti, Chief Financial Officer, in the Management Discussion & Analysis published yesterday.

The looming developments, which threaten to further fuel telecom sector competition, come in the wake of the launch, in Q2 2016, of a new fixed broadband operator (Awasr). “This new competition is expected to further intensify competition during 2017 and Omantel may face a lesser than expected uptake of its fixed broadband services. Furthermore, the same operator has also been permitted to roll out its fixed and international telephony services. This will impact Omantel’s international calling revenues going forward,” the executives stated.

At the same time, over-the-top (OTT) players in the domains of voice, messaging and content are further putting pressure on the traditional markets in the telecom sector, the Chairman lamented. “Combined, these market dynamics will likely pose challenges for the growth opportunities as well as the capability for operators to maintain their current levels of investment and profitability,” he stressed.

The Omantel group posted a posttax profit of RO 116.7 million for 2016, compared to net earnings of RO 48.5 million in 2015, an increase of 141 per cent. Group revenues grew to RO 523.6 million in 2016, an increase of 3.2 per cent compared to RO 507.3 million in 2015. The Group’s net profit margin increased from 9.6 per cent in 2015 to 22.3 per cent in 2016.