ETISALAT Iran mobile licence

[sharewadi]

Etisalat has won the third Iran mobile licence according to an "unnamed source". Perhaps some good news for Etisalat shareholders? Then again, building pipes and doing business with Iran can be tricky, as Dana Gas (DANA) have found out. Should be plenty of potential though. I don't know what the current network operators are like now but a few years ago when I was there, I struggled to get my roaming connected. Etisalat shares fell 3% today - about in line with the market average (although market average is usually close to Etisalat movement due to market cap). More indicative is perhaps the change in price relative to other actively traded stocks, many of which fell twice as much as Etisalat both yesterday and today.

Reuters 22 December 2008:

Emirates Telecoms wins Iran licence bid - agency TEHRAN - Iran said on Monday Emirates Telecommunications Corp (ETISALAT) has won a tendering for the country's third mobile phone licence, the semi-official Fars news agency said. "The Emirates Telecommunications Corp won the third operator licence tender in Iran," an unnamed source at the telecommunications ministry was quoted as telling Fars. There are currently two mobile service providers in Iran -- state-controlled Iran Telecommunication Company (ITC) and MTN Group , sub-Saharan Africa's biggest cellphone operator. The Abu Dhabi-listed Etisalat bid to tap a market with a mobile market penetration of less than 60 percent, where about half of the population of some 70 million people are under 25 years of age. Iran has over 28 million mobile phone users. Fars said the result of the tender needed to be approved by Iran's minister of telecommunications.

[edit] Removed "wins" from title - Etisalat won bid, not licence ... yet. See next post [/edit]
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[sharewadi]

Oops , it looks like I might have been a bit premature in saying Etisalat had won the third mobile licence in Iran ... Etisalat had the highest bid, but they haven't been awarded the licence yet.

ADX 23 December 2008:

(ETISALAT) Etisalat : Auction for Third Mobile network Licence in Iran

Etisalat disclosure 23 December 2008:

Ref: HO/CFO/152/708 Date: 23rd December 2008 Director General Abu Dhabi Securities Market P.O. Box 54500 Abu Dhabi-UAE Fax: 02-6128787 Dear Sir, Subject: Auction for Third Mobile Network Licence in Iran A consortium of Emirates Telecommunications Corporation­ - Etisalat and Tamin Telecom, a company owned by Social Security Organization (SSO) in the Islamic Republic of Iran, was the highest bidder in the tender opening of the third mobile network license in the country. This came following a thorough evaluation by the Communications Regulatory Authority of in the Islamic Republic of Iran of bids submitted by the competing consortiums, placing Etisalat consortium first among others in terms of financial offer. Final announcement of the winner will be made following official approvals. Telecom market in the Islamic Republic of Iran has a very promising future, mainly due to its rapidly growing population estimated at 73 million and the low penetration rate of mobile telephony. Salem Ali Al Sharhan Chief Financial Officer Cc : Chief Executive Securities & Commodities Authority P.O.Box 30744, Abu Dhabi-UAE Fax: 02 6273332

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[sharewadi]

Ok, so now we can say Etisalat has won the Iran mobile licence, along with other telecom companies.

Reuters 12 January 2009:

UAE's Etisalat wins Iran mobile phone licence -ISNA by Hossein Jaseb and Hashem Kalantari TEHRAN - A consortium including Emirates Telecommunications (ETISALAT) has won an international tender for Iran's third mobile phone licence, Iranian media reported on Monday. Etisalat, the Arab world's second-largest telecommunications company by market value, said in December it was part of a consortium that had made the highest bid for the licence. Iran's nuclear row with the West has made foreign companies more wary of investing in the country, but analysts say the size of the market and its energy riches still make it an attractive investment prospect. The ISNA news agency, which did not give financial details, cited the public relations office of Iran's telecommunications regulatory office as saying Etisalat had landed the deal. "In view of the assessment done at the tender commission, the best proposal belonged to the Etisalat procurement consortium and the consortium was consequently confirmed as the winner in the tender," ISNA said. Other media, including the official IRNA news agency, also reported Etisalat had won the bidding. The consortium also includes Iran's Tamin Telecom. Iranian state radio said last month the non-Iranian company would have a 49 percent stake in the project. Among other consortiums that bid for the licence were Oman Telecommunications Co (Omantel) and a Malaysian company, TM International. Another Iranian news agency, Fars, said on Dec. 22 that Etisalat had secured the license, citing an unnamed source, but that the result still needed ministerial approval. The two existing operators in Iran are the state telephone company and Irancell, a company that is 49 percent owned by MTN Group, sub-Saharan Africa's biggest mobile phone company. Iran has a mobile penetration rate of less than 60 percent in a market where about half of its 70 million population are under 25 years of age. Etisalat, which operates in 18 countries, is part of a wave of Gulf Arab telecom operators that have launched overseas operations after losing their monopolies at home. Iran's long-running dispute with the West over its nuclear ambitions has led to three rounds of limited U.N. sanctions and mounting international pressure, deterring many Western firms in particular from investing or expanding business in Iran. The West accuses Iran, the world's fourth-largest crude producer, of trying to covertly build nuclear bombs. Iran insists its nuclear work is aimed at generating electricity.

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[Bimcnorth]

Potentially this is a very important business for ETISALAT, the growth prospects in Iran are mouthwatering..

But as some on here have already pointed out there´s the political dimension to consider as well.
Plenty of potential stumbling blocks ahead.

[Fran]

In general, relations with Iran are very important to UAE. Recently, I noticed few government initiatives.

Press Release 14 December 2009:

The United Arab Emirates General Civil Aviation Authority (GCAA) has signed a Memorandum of Understanding (MoU) with the Civil Aviation Organization of Islamic Republic of Iran (CAOIRI) for regulating air flights. ... The two bodies agreed to designate the Emirates Airline, Etihad Airways, Air Arabia, RAK Airways and Fly Dubai as national carriers from UAE and Iran Air, Mahan Airlines, Asseman Airlines, Caspian Airlines, Kish Airlines and Taban Air as national carriers from Iran. Under the agreement, Etihad Airways will run 43 flights weekly between Abu Dhabi and five major Iranian cities, Emirates and Fly Dubai will jointly operate 84 flights weekly between Dubai and Iranian cities, Air Arabia will have 49 flights weekly from Sharjah to Iranian cities while Rak Airways will run 39 flights weekly between Ras Al Khaimah and Iranian cities. The flights will be run between UAE cities of Abu Dhabi, Dubai, Sharjah and Ras Al Khaimah and five major Iranian cities (Tehran, Shiraz, Mashhad, Esfahan, Kish and Bandar Abbas). These flights will be run gradually up to 2011. Cargo services will be run between the two countries without restrictions.

[sharewadi]

Etisalat Telecom (ETISALAT) is going to pay $402m (AED 1.475 billion) for the Iran mobile licence according to Reuters. They don't say where they got the figure from, presumably Mr Al Jarwan from Etisalat International Investments. The disclosure on the Abu Dhabi stock market website (ADX) doesn't give the amount (doesn't give much of anything really).

Etisalat apparently hope to be operational within 9 months (they should talk to Dana about Iran) and get a million customers in their first year.

Iran sounds like a much cheaper place to go shopping for a mobile licence - Etisalat Egypt mobile licence cost them over AED 10 billion, and that was in 2006. Hopefully Iran won't change their minds and think they should have charged more for the licence, like they did with their gas to Dana Gas .

Reuters 13 January 2009:

Emirates Telecom to pay $402 mln for Iran licence by John Irish Dubai - Emirates Telecommunications Corp (ETISALAT) said on Tuesday a consortium it is part of would pay 300 million euros ($402.1 million) to acquire a mobile phone licence in Iran and was in talks to buy an operator in Iraq. The group would invest at least $1 billion into building infrastructure in Iran and was looking to begin operations within nine months, possibly earlier, said Jamal al-Jarwan, chief executive of Etisalat International Investments. The firm hopes to get at least 1 million subscribers in the first year of operations, Jarwan told Reuters in an interview. "Mobile penetration is 60 percent and we see Iran as a growing market," Jarwan said. Etisalat Chief Financial Officer Salem Ali al-Sharhan added that the operator was also in discussions to acquire an existing operator in Iraq.

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[sharewadi]

Etisalat could earn AED 5.9 billion ($1.6 bn) in Revenue from Iran over the next 5 years according to ING. Etisalat's profit margin for the past 3 years has been steady at about 33-36%, so if we use that, and ING's revenue estimate then we get about AED 2 billion of profit in 5 years. I'd be worried that Etisalat won't generate such good margins in Iran though but anyway, we'll go with that for the moment, which is about AED 400 million per year.

The cost of the licence was $400 million, or AED 1.47 billion. So can I say that Etisalat's Return on Investment is AED 400m / AED 1.47 bn = 27% on an annualised basis? That sounds ok, but not great for investment in a country with some significant risk factors. So maybe that licence price isn't "too good to be true" after all? Unless ING or Bloomberg meant to say $1.6 bn Profit, not Revenue?

Then there's also the infrastructure costs. In the previous post, Etisalat said they'd invest $1 billion, or AED 3.67 billion. Perhaps what I should have done is taken that off the Revenue first, leaving $600 million or AED 2.2 billion of revenue to apply the profit margin to, leaving us with $200 million or AED 700 million profit overt 5 years, or about AED 150 million per year. I know that's not correct either since Etisalat's overall profit margin from last year takes into account the infrastructure costs in its new adventures in Egypt and Africa but I'm trying to get some ball park numbers, not do a detailed analysis.

Conclusion is that Etisalat could generate between AED 150m and 400m of profit per year from the Iranian licence. That's about 2.5 to 6.7 fils per share, and using current PE of about 7, means an additional AED 0.17 to 0.45 on the share price (6 billion shares outstanding).

Etisalat shares rose 25 fils (AED 0.25) today so perhaps my back-of-the-envelope calculation isn't so far off.

I've just seen a further comment in the report below that assumes a minumum network investment of $4 billion (AED 14.7 billion). Cough cough, that's a bit more than the $1 billion in the previous report . Just how much does it cost to build a mobile telephone network? Last time I was in Carrefour I didn't see any DIY build-a-countrywide-mobile-phone-network-kits for sale but I'll have another look next time I'm there

Anyway, that figure makes a mess of my previous calculations so I'll give up and go and buy shares in Carrefour instead ...

Bloomberg 14 January 2009:

Etisalat will be Able to Earn $1.6b Revenue from Iran Deal, Says ING Dubai - Etisalat (ETISALAT), the United Arab Emirates’ largest telephone company, will be able to earn as much as $1.6 billion in revenue from its Iranian mobile-phone operations in five years, ING Groep NV said. The price of $398 million paid by the company and the local partner “seems too good to be true,” Dubai-based Sarwat Hassan wrote in an e-mailed statement on Wednesday. Assuming a minimum network investment of $4 billion, “Etisalat can gain about 20 per cent to 25 per cent market share over five years of its operations.” Abu Dhabi-based Etisalat and Tamin Telecom, the telecommunications investment arm of Iran’s social security and pensions department, will gain exclusive rights for two years to offer second- and third-generation services in Iran. The shares of Etisalat rose 2.4 per cent, the most since January 5, to Dh10.9 at the close in Dubai on Wednesday, giving the company a market value of Dh65.3 billion ($17.8 billion).

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[sharewadi]

[ixtira]

Etisalat’s P-E ration similar to other phone companies on the ADX, however based on price to book value Etisalat is already expensive at 2.5x (compared with Sudatel at 0.7x and QTEL at 1.3 x). Abnormally high price / book value creates a big downside risks.

Given that the company is facing competition (albeit mild and strictly regulated) and is now having problems with its Iran venture it may not be as safe a play as it’s cracked up to be! … looks like Bimcnorth was bang-on with his comments back in November!