UAE telecoms deregulation

In many ways, the UAE is a textbook example of lukewarm deregulation. First, the fact that the monopoly has survived for so long suggests a lack of commitment at the highest level.

Second, although the government announced that it would allow competition, the terms of that competition are not known. Sources close to the telecoms sector suggest it will be on the same terms as Etisalat currently operates - that is, with the government retaining a 60 percent stake in any operator.

Furthermore, the government will effectively control the independent regulator. 'I don't think the reform of the telecoms sector in the UAE could be described as 'full deregulation,'' says lawyer Robert Swade, a telecom specialist with Clyde & Co. in Dubai.

'What we are seeing are the building blocks of reform, with the establishment of a policy committee and a regulatory authority, and the introduction of a limited form of competition. The details of how the new law will work in practice are still to be announced, probably in executive regulations that will be published shortly.'

But it is already clear that the process falls well short of full liberalization. 'What we are not seeing is deregulation in the form of the full opening up of the market to foreign investors,' says Swade.

'The market is in the initial stages of reforms. Although entirely foreign-owned operators may enter the market at some stage in the future, I don't think we will see that in the immediate future in the UAE.

'If you compare it [the UAE] to Saudi Arabia, it is a different form of liberalization. What we have seen in Saudi Arabia is a commitment from the government to amend the companies law to change the restrictions of foreign investment rules that allow foreign investors to own shares in public joint stock companies. . . . If reports about the UAE government wanting to retain the same stake in a new operators as it does in Etisalat - 60 percent - there is likely to be limited interest from foreign investors to enter the market.'

There are also fears about the independence of regulation in the UAE, as in some of its neighbors. 'The regulatory models in Saudi Arabia and the UAE are similar in that the members of both regulatory authorities are appointed and can be removed from office by government officials,' says Swade.

'Some of these government officials perform a function in the incumbent operator as well, which raises questions about the structural separation of the regulatory function from activities associated with ownership or control of the incumbent operator.'

But it would be wrong to be overly negative. In effect, the UAE already has a second operator, in the form of TECOM, the holding company behind Dubai Internet City and Dubai Media City. The 1,000 or so companies based in these zones, including Microsoft, Reuters and CNN, lease their telecom services direct from TECOM, not Etisalat.

As such, Booz Allen Hamilton's Karim Sabbagh is confident that the UAE is serious about change. 'The question is not whether they are committed to opening up. They have a commitment. The question is what form will it take.'