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Is Etisalat about to go ex-growth?

 For many years profits at UAE telephone giant Etisalat have been on an upward trajectory. But in the first half of 2009 profits growth slowed to 11 per cent with the company ringing up $1.25 billion.

Going forward Etisalat faces the challenges of a falling population base as expatriates go home, very high levels of mobile penetration and mounting competition from rival Du. It could be that this once powerful emerging market stock is entering a more mature phase.

Geographic diversification

However, diversification into emerging markets is intended to offset the less dynamic growth prospects in the UAE, and this could be a powerful counterbalance and source of profit in future years.

A statement from the company said that Etisalat provides services to more than 85 million subscribers worldwide of which only 7.5 million mobile subscribers are in the UAE where mobile penetration has reached 200 per cent. The company expects that number to top 100 million during 2010.

Meanwhile, its domestic rival Du continues to make headway, although how many mobile phone subscribers do you know with the telltale 055 number?

But Du has been a big spender in the advertising space and must be taking some new subscribers from Etisalat, even if existing users are reluctant to go to the trouble of shifting account for no obvious financial benefit.

Switching this argument back on itself, is it not more likely that the UAE will prove to be the bedrock for Etisalat over the next few difficult years for the global economy. Investments overseas may not shine or even prove disappointing, while the oil exports of the Emirates will carry on and the government is committed to domestic infrastructure investments.

Ex-growth phase?

That will still make growth difficult to achieve and a fair assessment might be that Etisalat is entering a period of stagnation or modest decline. Then the only strategy for safeguarding or raising profits is to cut the cost-base.

Internationally many large corporations are currently going through this painful process, and after a long period of high growth it would be surprising if useful economies could not be found in any company. Staffing levels are the most obvious focal point for any strategic review, and a review of operational efficiency.