Middle East and African operator Zain Group reported earnings for the first half of the year that reflect a subscriber base surpassing the 50 million mark as the carrier invests in expansion across the region.

As Zain reported during the weekend, revenues for the first half increased by 26 percent from a year ago, to $3.49 billion, while the subscriber base grew to 50.74 million from 32.15 million. Net profit was 7 percent higher at $551.5 million. (See Zain Reports H1.)

Based on the carrier's first quarter results, revenues in the second quarter were $1.82 billion, up 29 percent from $1.41 billion in the second quarter last year. Net income was $281.2 million, up 4.85 percent from $268 million last year, but it was down 4.14 percent in local currency terms, at 74.77 billion Kuwaiti Dinar from KWD78 billion.

The drop in profits comes as Zain, which operates in 22 countries, ramps up its expansion in Africa through its Celtel International B.V. subsidiary. It's also expanding in Saudi Arabia, having invested more than $1.5 billion in building a network scheduled to launch at the end of August. Zain, formerly known as Mobile Telecommunications Co. (MTC) paid $6.1 billion last year for Saudi Arabia's third mobile license. (See MTC Bids $6.1B for Saudi Mobile License .)

Zain's imminent entry into the Saudi market has operators Saudi Telecom Co. (STC) and Etihad Etisalat Co. (Mobily) preparing themselves for increased competition.

In a recent report on the Saudi telecom sector, investment bank EFG-Hermes noted: "Both STC and Mobily have sped up efforts to snap up subscribers by introducing new packages and promotions ahead of Zain’s entrance... We believe an important factor driving subscriber additions has been a decline in prepaid tariffs, which dropped by a minimum 15 percent and helped spur further growth in the mobile market."

STC announced over the weekend it's cutting international mobile call rates to 30 countries by 69 percent. Its mobile unit, Al Jawal, also introduced incentives for consumers to switch to its service while keeping the same number, including free monthly subscription for a year, free minutes, free local or international SMS, and free MMS.

EFG Hermes expects most of Zain's growth in Saudi Arabia to come at the expense of STC:

"According to our estimates and based on management indication, STC ended 2007 with a 64 percent market share,down from 69 percent in 2006, while Mobily ended the year at 36 percent, up from 31 percent.

"For 2008, we forecast that Zain Saudi, with 1.3 million subscribers, will be able to capture a 4.0 percent marketshare in its first year of operation. We expect that most of the incumbents’ market share loss will come fromSTC, whose market share we forecast will fall to 59 percent. Mobily’s market share, on the other hand, will remainat the 37% level."

Looking to expand abroad to counteract that loss, STC last week expressed interest in bidding on the 25 percent stake in Omantel that's up for grabs. (See Competition Drives Mideast M&A.) The carrier has shelled out more than $6.5 million since last June on foreign acquisitions, taking stakes in Malaysian operator Maxis and Turkey's Oger Telecom, as well as acquiring the third mobile license in Kuwait, where it'll be invading Zain's home turf. (See Saudi Telecom Buys $2.6B Oger Stake and Saudi Telecom Invests $3B in Maxis.)

Zain is gearing up for further expansion abroad, planning a capital increase from Aug. 17 to Sept. 18 that will raise around $4.4 billion. "Zain aspires to be a top-ten global telecom company by 2011," said Saad Al-Barrak, the carrier's CEO, in a statement, "and increasing the company’s capital will provide the company with the liquidity necessary to continue its ambitious expansion strategy, while reducing the borrowing costs of the company’s operations and increasing shareholder value in the long term."

Zain isn't the only Middle Eastern carrier raising funds for expansion. United Arab Emirates-based Emirates Integrated Telecommunications Co. (du) finalized a 3 billion Dirham ($816.55 million) loan yesterday to finance expansion of its fixed and mobile networks. Du, which last week reported a drop in net loss from AED76.48 million to AED44 million ($11.98 million) as revenues grew 200 percent to AED908 million ($247.14 million), has spent $241.8 million on its networks so far this year.

The UAE's state-run incumbent, Etisalat , last week received Aa2, A+, and AA- credit ratings from Moody's Investors Service , Standard & Poor’s , and Fitch Ratings Ltd. respectively, that it had solicited as it prepares to raise some cash for at least one acquisition worth $500 million.

Back in April, Egypt-based Orascom Telecom secured a $2.5 billion five-year senior secured debt facility to reduce its funding costs and finance growth.

— Nicole Willing, Reporter, Light Reading