The operator, which reports results on March 3, said it would only pay 15 percent of net profits to the government in 2010.

This is far below the 50 percent analysts had expected and which is paid by its main rival, Etisalat, fueling talk that Etisalat may see a similar reduction. Du, which broke Etisalat’s monopoly in 2007, has been setting aside funds since 2008 to provision for the royalty fee. It was not required to pay the fee until it became profitable.

“The good news is that they don’t have to pay for 2008, 2009 and for 2010 instead of 50, it’s 15,” said Simon Simonian, Shuaa Capital telecoms analyst. “It’s definitely positive and I think it leaves room for upside surprises.”

The fee reduction and reversal of provisions for previous years could add as much as 600 million dirhams ($163.4 million) to du’s annual profit, analysts said.

Shuaa Capital now sees annual profit of 1.16 billion dirhams, compared to 527 million dirhams before the royalty reduction.

Analysts said the royalty rate was unlikely to stay at 15 percent in 2011, given Etisalat is paying 50 percent.

Etisalat last year requested a reduction in its royalty fee. The federal government is a majority shareholder in both Etisalat and du.

“We don’t know what royalties du must pay for 2011 and beyond, but this increases the probability that royalty fees could come down for both du and Etisalat,” said Irfan Ellam, Al Mal Capital telecoms analyst.

Du, formally called Emirates Integrated Telecommunications Co, said it would be informed of its future royalty fees “in due course.” Abu Dhabi-based Etisalat was not immediately available for comment.

Ellam said the du news will mean savings of 550 million dirhams in royalty fees from 2008 to 2010, which will likely be added to its fourth-quarter earnings.