CAIRO: Egypt's Orascom Telecom, which may tie up with Russia's Vimpelcom to create the world's fifth-biggest mobile operator by subscribers, said on Sunday it returned to profit in the third quarter. But Orascom said government restrictions in Algeria were causing its local unit Djezzy — the parent firm's biggest source of revenue — to lose subscribers and market share. A one-off gain involving Orascom's jointly-owned Egyptian operator Mobinil boosted bottom line to $934 million. Excluding that, net profit from continuing operations was $112 million, about in line with an average analyst estimate. Naeem Brokerage analyst Ahmed Adel said Orascom's top line and net income excluding one-off gains was within expectations, but that Djezzy's performance was a more immediate concern. "I think they are facing a hard business environment there (in Algeria) which will keep squeezing the business there," he said, adding that Djezzy's numbers for the quarter were not as bad as they might have been. Orascom said the unit's total number of mobile subscribers fell to 14.9 million at end-September from 15.1 million at end-June and its market share dipped from about 59 percent to about 58 percent owing largely to pressure from the state. Algiers has asked Djezzy for hundreds of millions of dollars in back-taxes and penalties, which Orascom disputes, and blocked an earlier plan to sell the unit to South Africa's MTN. It is now preparing to nationalize the unit. Analysts say a low offer could threaten billionaire Naguib Sawiris's $6.6 billion deal to sell majority stakes in Orascom and Italian operator Wind to Vimpelcom. Algeria denies pressuring Orascom and says its actions are within the law. Sawiris, also Orascom's chairman, told Norwegian newspaper Dagens Naerinsliv he only gave the deal a 50 percent chance at best of going through. He added that Norway's Telenor — which owns nearly 40 percent of Vimpelcom — was "not motivated" to see out the merger, which faces hurdles in Algeria as well as regulatory issues in other countries. "Now, I doubt anything will come from the merger. Telenor is not motivated, as I see it. It's 50-50 at best that anything will come of it," Sawiris told the newspaper. A spokeswoman at Orascom's headquarters in Cairo confirmed the comments to Reuters on Sunday. Telenor said it had no further comment until the merger issue returned to Vimpelcom's board. Orascom has assets in Bangladesh and Pakistan where Telenor also has mobile operations, raising worries a deal with Vimpelcom could face regulatory hurdles in those countries. Telenor has repeatedly aired doubts over the Vimpelcom-Orascom deal. Late last month it asked for clarification of the merger parameters before Vimpelcom's board makes a final decision on the deal. Within expectations Orascom said Wind Canada, a start-up which it funds, raised its number of subscribers to 140,000 at end-September from about 94,000 at end-June. Subscribers at Orascom's North Korean operation also rose, to about 302,000 from about 185,000. The firm said its third-quarter revenues were $1.07 billion, down about a fifth from a year earlier, but in line with market expectations. Total subscribers rose to over 103 million. Six brokers and bankers polled by Reuters gave an average net profit estimate of $135 million, with estimates ranging from $48 million to $289 million. Orascom previously said it made a net profit of $181 million in the third quarter of 2009 and a $108 million net loss from continuing operations in the second quarter of 2010. The Cairo-based firm reached a broad deal last April to end an acrimonious legal dispute with France Telecom, its partner in Mobinil. The deal included $300 million in cash for Orascom and changes to the way it accounts for the unit. – Additional reporting by Wojciech Moskwa.
