Saudi telcos settle disputes and agree to new royalties
Saudi Arabia’s telecom operators signed an agreement with the government to settle all old disputes and define a new investment framework and mechanism for the calculation of service and licence royalties.
The deal signed with the Ministry of Finance, Ministry of Telecommunications and Information Technology and the Communications and Information Technology Commission will see annual royalty for commercial service drop retroactively to 10 per cent from 15 per cent of net revenues, starting January 1, 2018, the three operators said in separate regulatory filings to the Saudi stock exchange.
Shares of Zain Saudi Arabia surged 5.8 per cent and Saudi Telecom Company climbed 1.3 per cent after both companies said the agreements will impact their financial results positively.
Stocks of Etihad Etisalat (Mobily), a unit of UAE’s operator Etisalat, fell 3 per cent after it said the new royalty mechanism is not expected to have a material effect on its 2018 financials.
Starting from 2019, the company will have to bear additional costs estimated between 450 to 600 million riyals per year over the next few years, it added.
“The new investment framework is already largely included in the company future investment plans and may lead to incremental investments depending on the evolution of the market from a pricing and customer behaviour perspectives,” the company said.
Zain KSA, which is a part of Kuwait’s Zain Group, however expects to save 220m riyals in royalty fees for the first nine months of this year and expects the reduction in annual royalty fees will positively affect the company’s financial results going forward.
The agreement with the government also includes the settlement of disputed amounts related to the payment of annual royalty fees by Zain KSA to the CITC for the period between 2009 and 2017.
The positive bump of this settlement is expected to reach 1.7 billion riyals over the next three years, which will enable the company to invest further in improving its services, the company said.
“Linking our settlement agreement on the primary condition to further investment in infrastructure is an insightful move by the kingdom’s authorities as it enables us to develop in a higher quality network and service for the benefit of the digital-savvy Saudi community,” said Bader Al Kharafi, Zain vice chairman and group chief executive.
The agreement will further boost Zain KSA’s liquidity position as it will reduce financial obligations the company faces, and will enable the company to allot additional liquidity to expand its 4G and
5G networks and fibre expansion to meet the growing demand for broadband in the kingdom, he added.
STC, the government backed operator, also expects the agreement to improve its fourth quarter earnings taking into account the provisions allocated for the royalties.
Part of those provisions will be used to cover the differences resulting from the modified mechanism and the remaining part, which is about 500m riyals, will be reversed on the books, it said.
The company will use provisions already allocated in its financial statements over the past few years to meet a large part of the capital investments planned under the settlement agreement, it added.