Good, but could be better: Telecoms giants rely on local lines

June 17, 2025, 3:16 PM

Both Gulf telcos STC and e& make a majority of their income from the domestic mobile and fixed line businesses — Both STC and e& make a majority of their income from the domestic mobile and fixed line businesses

STC and e& primarily domestic
Had pledged to expand
Both still profitable

The Gulf’s two biggest telecom operators by market capitalisation, Saudi Telecom Co (STC) and Abu Dhabi-listed e&, remain persistently reliant on their legacy domestic businesses despite long-stated pledges to become tech conglomerates.

Investors seem little impressed by their efforts – e&’s stock is trading 57 percent below an April 2022 all-time high and STC is down 39 percent on its record high that was achieved nearly two decades ago.

Such milestones obscure the reality that both companies remain highly profitable, despite ongoing geopolitical tensions in the region, which have escalated with the outbreak of the Iran-Israel conflict. The issue is that the telcos promised so much more.

In 2022, e&, previously known as Etisalat, launched its 2030 strategy in which it would become “a global technology group”, rebranding the company and vowing “to change its business composition from being UAE telco centric to a more balanced geographic profile with higher revenue contribution outside the UAE and from the non-telco verticals”.

Three years on it has made little progress, with 72 percent of its first quarter operating profit of AED5.06 billion ($1.4 billion) coming from its UAE mobile and fixed-line business.

Its operations and investments in 37 other territories as well as its various non-telecoms domestic units generated only 28 percent of quarterly operating profit.

The company has bought into adjacent industries, acquiring a Turkish IT services company for $60 million last year while in 2019 it bought an Abu Dhabi cyber security business for $71 million.

Yet its most significant tech deal was the sale in February of its 40 percent stake in Abu Dhabi data centre Khazna.

A pre-tax sales gain of $1.4 billion at e& helped its first quarter net profit rise 130 percent to $1.5 billion, according to its financial statements.

Excluding this sale its performance was less impressive, a 19 percent increase in quarterly revenue translating into only a 5 percent rise in operating profit as expenses grew faster than income and earnings from affiliates fell 96 percent.

In 2022, e& paid $400 million for a 50.03 percent stake in Careem Technologies, which owns ride hailing company Careem’s so-called super-app.

Its first quarter earnings declaration has no details on Careem Technologies but its 2024 annual report shows the unit made a loss of $88 million that year.

It is also nursing a multi-billion-dollar paper loss on its investment in London-listed Vodafone, while last October it bought a €2.15 billion controlling stake in Eastern Europe’s PPF Telecom Group.

These investments should be value accretive for e& shareholders and the companies themselves are well run and operate at “good” margins, says Omar Maher, a telecoms analyst at EFG Hermes in Cairo.

However, the acquisitions run counter to e&’s ambition to become a global tech company, Maher says.

STC is attempting something similar in Saudi Arabia, having retrenched mostly to the Gulf following ill-fated acquisitions in wider Asia.

In 2022, STC’s chairman said the company would transition to a “TechCo”. STC has invested in tech startups, co-founded a cloud computing subsidiary and bought a near-10 percent stake in Spain’s former telecom monopoly Telefonica.

Earlier this year, STC Bank launched in Saudi Arabia.

“It’s a growth opportunity given STC’s existing subscriber base,” says Nishit Lakhotia, head of research at Bahrain’s Sico Bank.

“Mobile banking is an easy way of monetising your client base and your relationship with customers. It’s a good business so long as STC can manage loan defaults well.”

STC’s reliance on its domestic mobile and fixed line business is increasing. This generated 57 percent of its first quarter revenue, up from 56 percent a year earlier, according to AGBI calculations based on the company’s financial statements.

A subsidiary selling handsets, recharge and other devices provided 18 percent, while 13 percent came from its internet services unit.

Other domestic businesses including its data centre, internet-of-things and cloud computing subsidiaries made negligible contributions.

STC allocated some of the proceeds from selling a stake in a telecom tower subsidiary last year to increase funding for an early retirement programme. These layoffs were slated to lead to higher margins from the first quarter onwards but these have yet to increase.

“The various new subsidiaries STC launched in recent years in adjacent businesses are a drag on its margins,” Maher says.

“These nascent companies were expected to be loss-making initially, but STC hoped they’d become profitable in one or two years. That’s proving too ambitious.”