Dubai’s Du Shifting Jobs Overseas Amid Rise in Royalty Fees

Du, the United Arab Emirates’ No. 2 phone operator, is outsourcing jobs and restructuring operations to boost profit, the chief executive officer said.

The company will shift jobs overseas this year and next as it seeks to improve earnings before interest, tax, depreciation, and amortization, CEO Osman Sultan said today in a phone interview from Dubai. He declined to say how many jobs would be lost after the reorganization started on Jan. 1.

The United Arab Emirates government last month raised royalty fees on Du, prompting speculation its earnings may suffer. The phone company, which derives all of its revenue from the U.A.E., said in May it may seek to expand in Saudi Arabia. Mobile phone penetration in the U.A.E. reached 200 percent in 2010, according to the communications regulator. Du has gained 47 percent of the mobile-phone market share in the second-largest Arab economy since it started operations in 2007.

The outsourcing and reorganization are part of a “strategy to increase profits by reducing cost and expanding product line,” Nabil Farhat, a partner at Abu Dhabi-based Al Fajer Securities, said by e-mail today. “Over the medium to long term this is positive for the company.”

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Du is outsourcing roles at some call centers and in the company’s information technology department, a move that is unrelated to the restructuring of operations, Sultan said, declining to provide more information on the proposed changes.

Du’s 2012 net income is expected to rise 47 percent to 1.61 billion dirhams ($438 million) after royalty, according to the mean estimate of eight analysts on Bloomberg. The company’s shares have outpaced its competitor’s, gaining 21 percent in 2012 compared with a drop of 0.7 percent for Emirates Telecommunications Corp., which is listed in Abu Dhabi.

Shares of Du, which has a market value of about 16.2 billion dirhams, fell 0.8 percent to 3.54 dirhams at the close in Dubai today.

The company said it obtained a $100 million loan from Standard Chartered Plc on Jan. 2, the third raised in a month, as it seeks funding to upgrade its network and for capital expenditure. The loans came as the new royalty payment terms stipulated Du will pay 17.5 percent of 2012 profit to the government, in addition to 5 percent of revenue. That’s up from 15 percent of profit and the same amount of revenue a year earlier.

“We’re entering a new phase in the life of this company, and that requires that the company shapes itself,” Sultan said. “We have to do certain things like restructuring operations in the most optimal manner,” he said.

The company is formally called Emirates Integrated Telecommunications Co.

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