UAE telecom market grows with competition

In 2006 the UAE's telecom market was still a monopoly, with government owned operator Etisalat the loan choice. But the entrance of telecom operator du in February marked a vital shift.

In less than a year du has managed to grab a 15 per cent of the mobile telecom market and analysts predict that it will continue to grow in the years to come. "Du is a start-up in a mature market, but because of the commercially driven management, we expect du's market share to reach 30 per cent in 2010," said Marise Ananian, telecom research analyst at investment banking firm EFG-Hermes.

For now, Etisalat will continue to dominate the market, having both a strong foundation and infrastructure which dates back to 1976. "One of the biggest challenges was competing with a company that already had infrastructure set up for more than a decade," admits Osman Sultan, CEO of du.

Another challenge du faced is not having a sister company in the market to guide the way. "Unlike other telecom companies in the region we didn't have a back to rely on, like Mobinil in Egypt had Orascom and Vodafone Egypt had Vodafone International," he added. Being a "stand alone" company du had to rely entirely on finding its own niche in the market and to attract both existing and new subscribers.

There were initial reports of unhappy customers struggling to get a connection when they wanted to make calls. Sultan told AME Info that "bad connection" problems are no longer an issue for customers.

"The stage of being a new-comer network is now behind us," he said. Currently du covers 85 per cent of its population on its own network, while the remaining 15 per cent is covered under a National Roaming Agreement with Etisalat.

Du currently claims it has more than one million mobile subscribers, while Etisalat registered 6.3 million subscriptions, which put the rate of penetration at an all time high of 150 per cent, telecom officials said. Sultan expects further growth by year end.

According to government statistics in 2006, the UAE's population is 4.6 million, which means that there are about 178 mobile numbers in circulation per 100 people, or about two sim cards per person. "With [this] penetration rate, the UAE is among the world's most technologically advanced countries in the world," Mohammad Hasan Omran, Etisalat chairman told a telecom conference last month.

But Andrawes Snobar, Senior Research Analyst at Jordan-based telecoms consultancy Arab Advisors Group, believes that these rates are "over inflated" by the companies, as no definition was set by the country's Telecommunications Regulatory Authority (TRA).

"The penetration rate is inflated because companies just lump active, non-active and prepaid subscribers together without any set definition from the TRA," he told AME Info.

Wael Ziada, telecom analyst at Egypt's EFG Hermes agrees. "Due to the lack of an active subscriber definition, I believe that about 25 per cent or less of du's reported mobile subscribers are non-active," he said.

Sultan admitted that du counts both active and non-active subscribers in its numbers. "We do follow the international definition of an active subscriber, which is basically an individual who makes at least one call over a period of 90 days," he said.

But he was not prepared to reveal the true active users figure unless competing telecom giant Etisalat does the same. "Both companies have to reveal these numbers together so people would be able to compare apples with apples," he said.

"I am in favour of disclosing the number of active users, but the decision has to be taken from the Regulatory Telecom Authority for both companies to do so," added Sultan.

Snobar suggested that going forward operators should abide with what the three months rule. "This means that if subscribers don't use their lines for three months they would be considered non-active," explained Snobar.

Seemly mobile saturated the UAE has a relatively high standard of living in comparison to other Middle Eastern countries, so many people could afford to have more than one mobile line. "People in the UAE market are always attracted to new products and services, so when du was launched they wanted to benefit from the price difference," said Snobar.

As a result of the public's sheer curiosity and desire for added benefits about 300,000 customers subscribed to du on the day it launched. "There is no magic recipe for success...people just want more value for money and that's were we came in by introducing per second billing, mobile TV, e-shopping and other services," said Sultan.

But it is not expected to turn a profit until 2009. "You have to understand that profits don't happen over months, it takes time and I believe that in 2009 we will start acquiring profit," said Sultan.

Forced to du

Earlier this year the World Economic Forum ranked the UAE the most competitive economy in the Middle East and North Africa, based on IT resources. But many analysts today are becoming more skeptical about the TRA's intension towards liberalising the telecom sector. "The government owns about 40 per cent in the stakes of both operators so there is a vested interest in both as they are not independent companies," said Snobar.

He felt this might lead du to become a carbon copy of Etisalat. "The two companies might end up being exactly the same in everything which cancels about diversity in the market," he said.

So this "muzzled" competition still leaves the UAE a few steps back from being WTO compliant. "I think that there is room in the market for added competition, in other words du should yield positive results for everyone," said EFG's Ananian.

Sultan said he welcomes competition, even if at the moment the TRA faces a few obstacles in terms of distributing telecom towers in the country. "It's true that in some areas users are forced to use one of the operators without having any other choice, but this is because of technical issues with regards to sharing infrastructure which the TRA is working on," said Sultan.

"At the end of the day, we want people to have a choice in what operator to use and I have confidence that the regulator's regime will give full competition to the nation," he added.

In the meantime, full liberalisation of the telecom sector remains a mirage. "Liberalising the telecom market at this point is difficult and will take time," said Sultan. Analysts have there own doubts about the real intension of the TRA. "The government knows that this a strong revenue generating sector so that's why they will find it hard to let go," said Snobar.

Last year alone, Etisalat revenues hit Dhs16.2m ($4.4m) versus Dhs12.8m last year "So maybe in 2013 we will start to see a more liberal telecom sector in the UAE," Snobar added.

Moving across borders

While competition is sizzling at home Etisalat has already moved across the borders by operating in 14 countries in Africa and Asia with a total of 28 million international subscribers. It's most recent licence win was in Egypt in July 2006, costing LE16.7bn ($3bn), plus six per cent of annual revenues paid to the government as licence fees.

"I think that we will be seeing a slow down in EBITDA for Etisalat next year, due to losses at the level of the Egyptian start-up," said Ananian.

Overall forecasts for the coming five years are positive and indicate that the UAE will still remain ahead of the game as further growth in population and number of expats moving in will boost telecom profits. And in terms of mobile tele-density, the UEA still tops MENA charts. "This is a time for growth and making a difference," said Sultan.

Despite several attempts made by AME Info no one from Etisalat was available to comment.