* Need to regain lost ground in prepaid market - CEO
* Q2 profit 445.4 mln dhs, down 11.3 pct y-o-y
* Seventh successive quarter of falling profit
* Revenue flat despite higher data usage, revenue (Recasts, adds detail, context)
By David French
DUBAI, July 31 (Reuters) - Du needs to regain momentum in the prepaid mobile market if it is to counteract higher government taxes and halt an earnings slump, the chief executive of the United Arab Emirates' No.2 telecom operator said on Sunday.
Osman Sultan's remarks came after the company reported an 11.3 percent fall in its second-quarter net profit to 445.4 million dirhams ($121.3 million), its seventh successive quarter of declining earnings.
The drop sent its shares down 2.9 percent at 0840 GMT.
Its results have been under pressure since late 2014, with the growth of the mobile market unable to keep up with an increase in the royalty - or tax - paid to the government, which has increased steadily since 2012.
A campaign to remove unregistered SIM cards by the UAE government forced du to cancel more than 10 percent of subscribers in the first quarter of 2015, including a number of heavy-using customers, which du was still recovering from, Sultan said on a conference call with reporters.
"We will have to look at our prepaid market and regain momentum. We are seeing some signs that certain indicators are moving in the right direction and I hope these will remain sustainable," he said.
"I cannot say we will start to see this in the first quarter or the fourth quarter, but we are on the right track to regain the traction again."
Prepaid mobile phones are more widely used by low-income workers, and this job segment has been pressured across the Gulf as state spending on construction projects has been trimmed in the wake of lower oil prices, forcing such schemes and wages to employees to be delayed.
In total, mobile revenue fell 2.8 percent year on year in the second quarter to 2.17 billion dirhams, despite a 4.5 percent increase in data revenue.
Like telecom operators around the world, du was working on ensuring the growth in data services -- consumption jumped 46 percent on the same quarter of 2015 -- was better reflected in its earnings, Sultan said.
Overall revenue was flat at 3.07 billion dirhams, but the higher royalty payment meant net profit after taxes declined in the three months to June 30.
Analysts at EFG Hermes and SICO Bahrain forecast du would make a quarterly profit of 433.8 million dirhams and 487.1 million dirhams, respectively.
Sultan said the operator had not yet been told at what level royalties would be set at for 2017.
Du's chairman, Ahmed bin Byat, said in February that he expected them to be unchanged from this year's 15 percent of regulated revenue - which excludes the likes of handset sales - and 30 percent of regulated profit.
($1 = 3.6724 UAE dirham) (Editing by Himani Sarkar and Adrian Croft)