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Edited Transcript of ORDS.OM earnings conference call or presentation 1-May-17 12:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Omani Qatari Telecommunications Co SAOG Earnings Call

May 1, 2017 (Thomson StreetEvents) -- Edited Transcript of Omani Qatari Telecommunications Co SAOG earnings conference call or presentation Monday, May 1, 2017 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ahmed Al-Khuzairi

Omani Qatari Telecommunications Co SAOG - IR Manager

* Ian Dench

Omani Qatari Telecommunications Co SAOG - CEO

* Abdul Razzaq

Omani Qatari Telecommunications Co SAOG - CFO

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Conference Call Participants

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* Ammar Salim

Oman Arab Bank - Analyst

* Marc Hammoud

Deutsche Bank - Analyst

* Kanaga Sundar

Gulf Baader Capital - Analyst

* Vijay Harpalani

Al Mal Capital PSC - Analyst

* Ziad Itani

Arqaam Capital - Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Q1 2017 results conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today Monday, May 1, 2017. I would now like to hand the conference over to your first speaker today, Ahmed Al-Khuzairi. Thank you. Please go ahead, sir.

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Ahmed Al-Khuzairi, Omani Qatari Telecommunications Co SAOG - IR Manager [2]

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Thank you, Melissa. Salaam-Alaikum. Hello and welcome everyone. I am Ahmed Al-Khuzairi, Investor Relations Manager of [Omani]. I would like to thank you all for joining us today to discuss Ooredoo financial results for Q1 2017. As part of today's discussion, I am pleased to welcome Mr. Ian Dench, the CEO; and Mr. Abdul Razzaq Al-Balushi, the CFO; Mr. Khorshed, Director of Strategic Business. We will start obviously with an overview of the recent results followed by a question-and-answer-session. But before we start, I would like to refer you to slide number 2, a few necessary disclaimer points. In the course of today's discussion, we may refer to some forward-looking statements. Therefore in future we are not responsible to keep the same view as our views are changing. So to begin now, I will hand the call to Ian. Ian?

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [3]

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Good afternoon, everyone. I'll just quickly go through the presentation I believe most of you have in front of you. We sent out a short while ago just to give an overview of the Q1 results. So starting with revenue, our revenue for the first three months of 2017 grew by 2.6% over the same period in 2016 so that's OMR67.8 million compared to OMR66.1 million The growth is driven by an increase in both the mobile and fixed data revenue. EBITDA for the first three months of the year stood at OMR37 million in Q1 of 2017 compared to OMR37.3 million in the same period. EBITDA for the first quarter has been marginally impacted by the increased cost of acquisition, but that's associated with an increased customer base which has grown 9% in overall and 23% for fixed and we hope that these higher rates will yield results going forward. Turning to net profit, net profit for the three months 2017 was OMR7 million compared to OMR12.6 million in the same period of 2016.

Net profit for the quarter is of course impacted by the increase in the royalty fees from 7% to 12% and the increase in the income tax rate from 12% to 15% as well as higher depreciation due to the increased investment in network modernization as you would expect as the network grows and expands. Customer base, some good growth. Total number of customers grew by 9.2% to just over 3 million at the end of the first three months of 2017 compared to 2.8 million in the same period of 2016. The fixed customer base has shown some very good growth in terms of numbers up by 22.9% to over 93,000 customers in Q1 of 2017 compared to 75,700 in the same period in 2016. Mobile postpaid customer base grew by 6.5% to 223,000 compared to 209,000 in Q1 of 2016. The prepaid base for Q1 2017 increased by 9% to just over 2,700 compared to 2,500 for the same period last year.

Looking at the market, mobile market segment. The mobile penetration in Q1 was 152%. Ooredoo share of the market are currently the market leaders and the 42.2% in terms of customers compared to a reported share of 40.8% and the NPL is at 17%. In terms of the prepaid base, we've already mentioned that that grew by 9% from 2,500 to 2,700 and I already mentioned the postpaid base. The mobile ARPU, there are some movements in ARPU. The mobile ARPU is impacted by lower voice, both national and international revenue, but of course there is underlying growth in the data ARPU. And overall our customer bases remain strong and has grown, which has helped to achieve the continuous growth in revenues. And now slide 5. Turning to just at the end of just concluding on slide 5, as I just mentioned mobile data. Mobile revenue, mobile data revenue is 55.3% of total mobile revenues.

Mobile broadband customers grew by 6% in Q1 2016 to 2017. That's driven by a big focus on our mobile data packages and products as well as the migration and the rollout of 4G on our network. Smartphone penetration in the networks bandwidth over or approaching 80%. Slide 6, fixed segment. Fixed broadband growth. At the end of Q4, fixed broadband the penetration in Oman reached 46%. Our share of the market is around 31%. Ooredoo's LTE fixed network now covers 86% of households in the country. The market is moving towards extra competition not only from existing players, but also OTT services. However, we're working towards partnerships with these providers to reduce the impact and create new revenue streams. Fixed service customers, I've already mentioned the growth, but we're seeing growth in both home broadband fast and superfast which is our fiber connectivity.

Just looking now at slide 7, looking at the network, some interesting update here. We've been trialing LTE on the 900-megahertz spectrum. That trial is looking very good for us to expand our LTE footprint in the future. Traffic is growing. Total Internet traffic crossed 50 Gbps landmark, which is a 56% increase year-on-year and the data core reached 1 million active data sessions. So, we're seeing as you would expect significant growth in data, Lots of activities on the network too in terms of tiering and caching to improve the customer experience. Also a focus on the customer experience when it comes to roaming, both voice and data. In terms of coverage, we now have at this stage 99% 2G population coverage, 95% 3G population coverage, Mobile LTE or 4G coverage stand with around 55%, and the wireless TD LTE home broadband stands at around 90%. Just looking at some operational issues on slide 8.

Big focus on the customer experience and in particular pushing some of the self-care channel so a lot of focus on IVR, on mobile app, on reducing cost to call center including operational efficiencies, but at the same time driving an improved customer experience. And you can see some of the numbers in there with our cost to the call center dropping and moving towards some of our digital channels. Just turning to slide 9, we see the NPS for Ooredoo amount standing at 21%, which is actually above competition. CSAT also is above competition and the net promoter score of Ooredoo Oman is the highest in the country. Just another achievement on slide 10 around some of the awards in terms of customer experience, digital experience, and some of the partner programs that we have. Again just recognition of our focus on customer experience and extending our reach and experience to customers and the two gives us a focus on operational efficiencies. So now turning to the financial highlights, I hand over to Abdul Razzaq.

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [4]

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Hi. This is Abdul Razzaq, CFO. Just to quickly take you through the detailed income statement for first quarter. As you can see, the revenue grew 2.6%. OpEx is actually slightly marginally gone up mainly driven by the lower interconnection expense due to growth in national and international traffic though we achieved minor savings in repair and maintenance. OpEx is mainly driven by postpaid customer, commercial CPEs, mobile handsets. This is mainly because of the higher acquisition, we have to give some more watches and handsets to the clients. The GA expenses are impacted by minor NPs which are forced, which we are actually also planning to manage. The other expenses increased some were offset by the savings achieved in sales and marketing. EBITDA remained somehow flat with minor changes, very minor changes to (inaudible) due to CPE costs as we mentioned earlier.

The depreciation NPs mainly related to upgrades on expansion of core network that's related to the new transmission tax. The net profit is very obvious. It's impacted by the royalty and the corporate tax and depreciation. Just to take you through the detailed revenue analysis. Mobile revenue impacted by lower voice mainly driven by lower traffic, but the data growth is somewhat offsetting this impact. Mobile prepaid revenue is impacted by lower voice revenue. This is partially offset by higher data and VAC revenue. Mobile postpaid revenue is lower due to lower voice revenue, partially offset by higher subscription revenue and higher VAS revenue. The main driver for growth for both corporate and consumer segments were the fixed and LTE services, which have grown by 36.9% and 80% for consumer and corporate segments.

Wholesale partially offset by lower lease revenue and a growing base, which was somehow offset by the growth in wholesale international transit. Ooredoo's revenue split between consumer and corporate, those segments was 83% and 44% respectively. Corporate segment had the greatest growth of 8% followed by consumer segment grew by 2% and wholesale. Just to take you through the OpEx analysis. The cost of sales for Q1 has been managed as follows. Domestic interconnect, international interconnect mostly down due to lower voice traffic. Equipment cost including app sales is higher and driven by higher costs related to sharing CPE promotion and other factors that is driven by higher commissions post related into FTTH acquisition as the franchise (inaudible). The G&A expenses savings are mainly marketing and communication costs driven mainly by lower advertising and lower marketing expenses.

Billing & collection cost is higher mainly due to higher bad debt provisions related to business and consumer driven by higher outstanding balance falling under 18 categories, which attracts higher provisions. Employee related cost is lower due to lower staff costs. Other G&A is lower and driven mainly by provision relating to shareholding items. Adjusted EBITDA had increased by 16% from 47% to 38% in Q1 2017 compared to Q1 2016 due to increase in the royalty charged from 7% to 12% and branding. CapEx is mainly related to submarine cables and core investments. 2017 is expected to be less than 2016 level as we completed our network modernization program as well as due to savings through renegotiation. However, the investment related to supporting data development continues. The cash flow is impacted by lower profit tax mainly by the increased royalty and corporate tax.

As you can see, the debt level is quite low and we have a big level of further [credit] if we wish to do that. So in summary, the first quarter 2017 revenue basically grown by 2.6% is driven by both mobile and fixed asset revenue of which 9.2% growth in total number of customers, healthy cash flow in terms of the commercial and operational mobile data represent future growth percent of overall mobile revenue increase in customer base, ongoing investment in modernization and expanding our network. We are still mobile leadership, doing quite well on mobile and business broadband and fully converged managed services, new ICT and cloud managed services, OTC partnership, and we have a strong operating leverage of fixed line businesses. Overall cost optimization and quality improvement is continued and customer care is always at excellent level.

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Ahmed Al-Khuzairi, Omani Qatari Telecommunications Co SAOG - IR Manager [5]

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Thank you, Abdul Razzaq and Ian. So now, operator, could you please remind the participants how to ask questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Ammar Salim.

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Ammar Salim, Oman Arab Bank - Analyst [2]

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Although actually the voice wasn't that great, but I managed to get whatever information I can, which is obviously stated in your presentation itself. I just would like to ask a couple of questions because actually one of the reasons that my analysis is regarding your ARPUs. I expected better ARPUs actually which weren't that much. So, the first question is regarding what is your view on the ARPUs as they are declining? The other question is regarding your investments such that the CapEx, one of them is regarding your submarine cable so are you planning to be in this business like your local peer? And the last question is actually two parts. The first part is in the Board of Directors report, it was mentioned that the reasons behind the decline in net profit is mainly regarding the royalty and taxes. There was not talk about the branding fees, which has actually played a role in this, which is coming under the general and administrative expenses. So, branding fees if I'm not mistaken still at 1.5% of total revenue so this is a factor. The second part of the third question is regarding the outlook on the business itself not only for Ooredoo, for Oman itself especially when it comes to the expectation of the third operator to come. We know that it might be late this year or something like that, but still. So, are we expecting more questions in this regard or not? Thank you.

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [3]

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On the outlook, yes, there are two factors. So ARPU is a little bit lower, but remember that of course the customer base is growing quite healthily. But I guess we are seeing some decline in the use of international and local voice revenue so our focus of course is on growing the percentage of the ARPU coming from (inaudible) and that's our focus going forward. Of course we want to protect our voice revenue, but it's all about data monetization going forward. And with that healthier customer base, we believe that there is a good opportunity for monetization going forward.

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Ammar Salim, Oman Arab Bank - Analyst [4]

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Voice revenue, is that much impact of your ARPUs as we said because I don't know, I mean because then we must keep expecting lower ARPUs because voices will keep going down like all other players in the market.

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [5]

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There is pressure there. In the past, I think what differs in our markets to maybe others is that there have been some limitations on the use of web services, which customers are now increasingly finding ways to bypass. So the reduction in voice revenues is maybe a little bit accelerated because it's been held back in the past, but again, we've got plans in place to monetize where we can and at the end of the day now it's more about a bundle of voice and data services and that's our focus going forward with a particular emphasis around the data component of the packages and that's how we'll monetize the increased customer base going forward.

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Ammar Salim, Oman Arab Bank - Analyst [6]

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And about the other questions, please.

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [7]

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Regarding the submarine cable, this is an investment that we've made as a core investment as part of our --

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [8]

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The investment in the cable is just [to get a resilient] to our already existing cable we have through Tata. This is just to again channel our network and to ensure that availability is 100%. At the same time, we do have a capacity and as and when required, yes, we are also looking at some wholesale business opportunity as and when that situation would arise.

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Ammar Salim, Oman Arab Bank - Analyst [9]

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Okay, so basically it's a regular business, it's not like an enter for -- into a new category or something like -- because your competitor is heavy invested in such business.

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [10]

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We understand they have a different business requirement where our business requirement in cable is driven happens to the existing cable.

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [11]

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It's driven by our business needs rather than an investment in a new business area at this stage although as mentioned, if there are wholesale opportunities out there, then of course, we will always consider those, particular as part of the Group as well.

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Ammar Salim, Oman Arab Bank - Analyst [12]

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And the third question about the two parts -- the branding fee and the outlook.

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [13]

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The brand licensing fee, I think on slide 12, we think given the numbers and you can see the --

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Ammar Salim, Oman Arab Bank - Analyst [14]

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Yes, about OMR3 million I believe, I mean the increase, right? Something like that.

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [15]

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Yes, the branding license fee actually because if you look at from the benefit side because we are getting -- if you look from the cost side yes, it is a cost but we need to think also from the other support we are getting for the branding, Ooredoo and your money markets actually basically we Ooredoo are benefiting being part of the bigger wider family plan and we are leveraging on this brand and also indirectly getting revenues and branding position as well.

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Ammar Salim, Oman Arab Bank - Analyst [16]

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(multiple speakers). No, no sorry, I mean what do you mean in total, whatever the [asset ratio you are getting on benefits], they are going to offset this increase right in cost.

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [17]

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In the long-term, we foresee [inside the domestic] out do or outnumber the expense, which is at the moment it stands because we need to also understand that when we are part of a big family brand like Ooredoo, we get a benefit of cost efficiency in bulk power procurement, cost market agreement and et cetera, which at the moment, Group has initiated this and we will be seeing soon the benefit of those also.

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [18]

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No, I think it's clear you know, as part of a Group, the Ooredoo brand -- we've seen in the market, the Ooredoo brand is a very strong brand both regionally and now increasingly internationally and has a good strong value and we get benefits from that in the market. That's reflected in our NPS, its reflected in our brand equity scores, its reflected in CSAT and customer sentiment. It's also reflected in the performance of the business I think, but there are of course other benefits in this area as you'd expect through Group sourcing, et cetera, et cetera. So, of course, we would see that as being of great value or greater value than the cost that is in the business.

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [19]

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I think you have to see it from the bigger picture, yes, and that you evaluate all the benefits mainly in particular the procurement and purchasing power, we are gaining a lot on that area as well.

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Ammar Salim, Oman Arab Bank - Analyst [20]

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Yes, sure. I mean I can see your number of subscribers increased, but again this was unfortunately offset by a lower ARPU. So in total, you have -- you get lower revenue, but I mean if number of subscribers will be increasing, yes, after all what you are saying will be translated, yes, you're right.

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [21]

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But you're also forgetting the third envelope or picture, which is this cost optimization, which we're also going to benefit from part of the Ooredoo brand, which in the near future will also showing us the benefit in the P&L profit and loss numbers.

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Operator [22]

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[Kareem Riyadh].

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Unidentified Participant [23]

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Thank you for the call. My question got answered. My question regarding the -- how the competitive environment is shaping the movement got asked, but if you could please repeat it because it was really hard for me to hear. Thank you.

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [24]

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Sorry, could you repeat the question? We didn't hear it very well.

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [25]

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Can you repeat please your question?

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Unidentified Participant [26]

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If you could just give us some updates or an outlook on how the competitive environment is shaping right before the potential launch of the third operator? I know this was asked -- this has just been asked but it was really hard for me to hear. If you could just repeat it please.

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [27]

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So I think in terms of the competitive movement in the market, I think we've described in the presentation and in the presentation that's distributed to you have the market share moving, both in fixed and in mobile, in B2B and in consumer. So I think you can see how things are moving there. In terms of -- if you're referring to the third operator, we understand that the date for submission is today, it's May 1 and we are looking forward to hearing how that progresses. We're working on the basis that a third operator would enter the market around Q1 next year, Q1, Q2 next year that would be our time horizon for planning. Of course, there's also I forgot to mention the MVNOs in the market, but again, we presented the data on the market share movement in the presentation.

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Unidentified Participant [28]

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Have you already seeing any significant price discount or data offers instigated by the competitor Omantel or by Ooredoo for that matter?

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [29]

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I mean, well, just overall, of course the market is very competitive in terms of pricing and packaging, but what we -- our approach is to try and maintain -- is around value for customers. So looking at within those bundled prices, the value that they get in terms of data, SMS, voice, and other value-added services. So that's our approach to the market.

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Operator [30]

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[Nasser Mommen].

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Unidentified Participant [31]

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I have one question about the operating expenses. So, the breakdown equipment and other services have doubled, can you please explain why is that? Thank you.

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [32]

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Can you repeat again?

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Unidentified Participant [33]

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Sure, in operating expenses, the line of equipment and other services have doubled year-on-year. Could you explain that please?

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [34]

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Yes, this is related with the customer acquisition cost because most of the growth which we had in the last quarter was in the FTTH for which we had to give the CPE part of the bundle and this expense though at the moment is directly also linked with the increase in the ARPU business or in the revenue of -- overall revenue.

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Operator [35]

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(Operator Instructions) Marc Hammoud.

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Marc Hammoud, Deutsche Bank - Analyst [36]

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Two follow-up questions on the cost front. On the equipment and other services, so the OMR2 million increase is for customer acquisition cost, is that a one-off that we have to look at? And the second one is on the branding license fee, can you remind us what was the structure before and what's the structure today to justify the increase?

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [37]

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So on the structure, so there was a -- I don't have the details in front of me, but there is a big report.

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [38]

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Please you need to let me search this, (inaudible) became part of the Ooredoo brand in last year, which is a global brand and for which we also agreed to have branding and licensing fees. This is started from the mid of the last year or Q4 of the last year. We have already highlighted the benefit that being part of the Ooredoo brand we are expecting --

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Marc Hammoud, Deutsche Bank - Analyst [39]

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No, I understand the benefit part, I just want to understand how is it linked, is it linked to revenue, is it a fixed fee, is it a percentage of profitability?

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [40]

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It is linked with the revenue. It is linked with the revenue, a certain percentage of revenue. When it reach to certain value, then it just [applies].

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Marc Hammoud, Deutsche Bank - Analyst [41]

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Okay (multiple speakers). I'm sorry.

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Ahmed Al-Khuzairi, Omani Qatari Telecommunications Co SAOG - IR Manager [42]

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Marc, this is Ahmed speaking, I will tell you the details after the call.

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Marc Hammoud, Deutsche Bank - Analyst [43]

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Okay and on the customer acquisition cost of additional OMR2 million, can we expect the equipment and other services to go back to [about OMR1.82 million after the Q1].

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [44]

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The answer see, there is that potential to grow in FTTH and well, yes there will be some, but then the expected benefit to derive from this expense [from] years to come before the average life of this kind of customers to stay with us are in the range of two years and more.

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Operator [45]

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(Operator Instructions) Vijay Harpalani.

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Vijay Harpalani, Al Mal Capital PSC - Analyst [46]

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I think the voice quality is not very great. So I may have missed question on increase in equipment and other services cost. So I appreciate if you can probably elaborate on that. Thank you.

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [47]

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This is -- actually [customer payment of equipment] this is related with the mobile handsets. Actually, this is basically, is the launching promotion we normally give to our clients, that's why and also it's related to the FTTH as well.

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Vijay Harpalani, Al Mal Capital PSC - Analyst [48]

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And is it like a one-off kind of cost or it will be like recurring?

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [49]

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I can answer that with a bit more detail. So when it comes to FTTH, which is the in-house GPE, I mean that's a part of the business that we're trying to grow. So as that grows, you can expect the associated cost to grow with it. However, when it comes to handsets for postpaid customers for example which some of that is, so it's just with an acquisition cost for postpaid customers. That is something that will move depending on market conditions. So while it's been a little bit higher in Q1, that will reflect some of the -- [that's] in line with the increase in our postpaid customers. So that will fluctuate a little bit depending on the marketing activities, but FTTH associated GPE will grow in line with the growth in FTTH base going forward. So there's two elements to it.

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [50]

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Anyway, we will try to manage this cost to our cost optimization program as well to bring it down.

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Operator [51]

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Ziad Itani.

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Ziad Itani, Arqaam Capital - Analyst [52]

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I just have one question on CapEx, basically. So if you look at the financials we can see that the CapEx intensity [of 31% and this is inclusive of OMR6.5 million in] intangibles. Can we have an idea what are these intangible investments related to and how much of CapEx actually went to this sea cable project.

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Ahmed Al-Khuzairi, Omani Qatari Telecommunications Co SAOG - IR Manager [53]

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Sorry, which slide you are referring to?

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Ziad Itani, Arqaam Capital - Analyst [54]

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The intangibles. So basically intangibles and cable project.

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Ahmed Al-Khuzairi, Omani Qatari Telecommunications Co SAOG - IR Manager [55]

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I'm sorry, if you should kind enough, will you leave us to the slide and we'll able to give you more --

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [56]

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Because I could not see any intangible CapEx.

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Ziad Itani, Arqaam Capital - Analyst [57]

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In the cash flow statements, you have [OMR6.5 million] intangibles. So, I can see that you have purchase of property, plant, and equipment for [OMR14.7 million and investment in intangibles OMR6.5 million]?

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [58]

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Well, the intangible which we're referring here is related risk, again the CapEx, but related with the software which as you will remember -- you know that most of our network is also dependent upon the periodic upgrade on the software, it requires both in the mobile and fixed side.

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Ziad Itani, Arqaam Capital - Analyst [59]

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And how much of the CapEx was on the core network project and undersea cable?

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [60]

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We can come back to you on that number surely.

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Ziad Itani, Arqaam Capital - Analyst [61]

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Can you give us a guidance on how much you expect the CapEx intensity to be for this year because it was close to 31% for this quarter. So I understand that you mentioned at the beginning of the call, it's going to be below last year. Can you give us like a guidance or a range?

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [62]

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This year our main focus is on the [base and all the CapEx now is really with related activities] and that depends upon the market behavior. However, in terms of the network upgrade modernization that we have more or less completed, which was started in 2000 and now, there is a minor upgrade, what you call, a technology upgrade will take place, which is again as the technology moves, we have to be at par with the technology, which is very hard now to just to sit and give you some sort of a show, but we foresee that within this year it will be within our expectation, manage, control cost.

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Ziad Itani, Arqaam Capital - Analyst [63]

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And the aim is to manage it at a standard level, yes?.

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [64]

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That's the aim.

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Ziad Itani, Arqaam Capital - Analyst [65]

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And what's your view on the overall ICT segment in Oman? So is this an area of growth you're looking into or you think that this usually goes to the incumbent, I mean, what's your view on that?

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [66]

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(technical difficulty) I think the ICT opportunity is definitely there, particularly in a climate where business and government are also looking to maintain and manage costs. So it's definitely an opportunity that we are looking at. Our primary focus is still around connectivity in B2B, but where we see opportunities for particularly managed services and -- so very adjacent ICT business, then, of course, we will expand into that area. So, yes, it's an opportunity. You are quite right, it is a very -- it's traditionally dominated by the incumbent, but there's definitely opportunities for us in B2B. B2B is certainly one of our focus areas going forward.

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Ziad Itani, Arqaam Capital - Analyst [67]

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And on the subscriber acquisition, so what's the main reason behind this, because overall I think the population in Oman is not really growing. So you think that these clients are easy to retain especially that the majority is coming at the postpaid segment, the prepaid segment sorry.

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [68]

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Well, again, our focus is, yes, it starts with acquisition, but then it turns to monetization retention, the monetization of course in an upsell, so that's all part of our strategy. There is still some growth in there, but of course, we're also competing in the market for the share of wallet among the customers, not just the sim. Customers have more than one sim, so in some segments in particular, it's a share of wallet game.

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [69]

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Plus, you need to understand that there is a lot of [subscribers available on the fixed broadband where the current penetration is in 40%] overall in Oman and that is where we're also focusing to have our share of the market.

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Operator [70]

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(Operator Instructions) Kanaga Sundar, Gulf Baader Capital.

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Kanaga Sundar, Gulf Baader Capital - Analyst [71]

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I have couple of questions. I think, I want to -- I think I was really recollecting the brand license fee, how it was looked, because it was a percentage of revenues but linked to the relevant calendar year profitability and that's what I remember. When the profitability is higher than OMR42 million you will end up paying 1.5% of your revenue as brand license fee. And if you look at the current quarter, I think you have taken into consideration of 1.5% of revenue as brand licensing fee, but eventually the profitability is much lower, which means to say which calendar year you are looking into it. Is it last calendar year or any -- because it looks like you have taken based on the last year profitability, is it the right I'm looking it, one question on that. And the second question is on the competition on the FTTH (inaudible) is expanding pretty fast and how do you see that competition prevailing out in that space. Thank you.

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [72]

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Okay, in terms of the first question then, yes, correct. Your assessment is correct in terms of how that brand licensing fee is applied. In terms of the outlook for fiber, as my colleague said, we see, if you look at the mobile market as you quite rightly said with the population growth slowing and of course with voice revenues in decline, then of course one area we're focusing base monetization in mobile and I've also mentioned B2B, but the other focus of course is fixed home broadband and in particular fiber.

So as you know we currently provide fiber services in conjunction with OBC. OBC has already opened up a considerable number of homes in the country and they're opening up more areas every quarter going forward and I think you can get those, you can get that from their website. So that is an opportunity for us, it's an opportunity that we are going after because as was already mentioned by my colleague, the penetration is very low and the demand is quite high among our customers for high-speed connectivity in the home.

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Kanaga Sundar, Gulf Baader Capital - Analyst [73]

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Okay, one thing on the brand licensing, which means to say for the current full-year, it can be taken as 1.5% of the revenue?

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Ian Dench, Omani Qatari Telecommunications Co SAOG - CEO [74]

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Yes, correct.

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Kanaga Sundar, Gulf Baader Capital - Analyst [75]

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Okay, which is based on the last year profitability. Maybe, the next year licensing fee can be lower because the estimate for the current year profitability is much lower, correct?

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [76]

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Well, it depends upon the performance of this year. Yes, you're right.

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Kanaga Sundar, Gulf Baader Capital - Analyst [77]

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Correct, okay, which means the last calendar year profitability will be linked to the brand licensing fee calculation for 2017, correct?

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Abdul Razzaq, Omani Qatari Telecommunications Co SAOG - CFO [78]

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Correct.

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Ahmed Al-Khuzairi, Omani Qatari Telecommunications Co SAOG - IR Manager [79]

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Thank you. Thank you all for joining us today to our conference call. For more details, please I refer you to visit our IR page. See you and have a good day. Thank you.

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Operator [80]

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Thank you very much and that does conclude our conference for today. Thank you for participating. You may all disconnect.