According to the World Economic Forum the United Arab Emirates are one of the most competitive economies in the Middle East and North Africa. The ongoing liberalization of the telecommunication market in the region is rapidly changing the nature of the mobile sector.
Definition / Scope
The telecommunication market in Dubai has grown at an annual rate of 20% over the past few years, and the increasing life standard has boosted the demand for digital lifestyle products. The number of new services and features is expected to increase over the next few years while the prices in the market should shrink.
Until recently, the telecommunication market in Dubai had been dominated by the state monopoly Etisalat. Although Etisalat is still the market leader, new competitors like DU have successfully gained market share (in 2010 DU controlled 30% of the market).
DU offers voice, data, video and content services using fixed and mobile networks. At the moment DU’s network covers 85% of the UAE and the rest is covered under an agreement with Etisalat. A new company called Al Yah Satellite Communications has received a license to provide satellite telecom services. With the entrance of additional operators, competition will probably increase further and prices are expected to drop.
Telecommunications in the United Arab Emirates. Telecommunications Regulatory Authority (UAE). Telecommunication service providers in UAE. Competitive Market. Future of telecommunication market in UAE.
Telecommunications in the United Arab Emirates is under the control and supervision of the Telecommunications Regulatory Authority (TRA) which was established under UAE Federal Law by Decree No. 3 of 2003. From 1976 to 2006 the Emirates Telecommunications Corporation (Etisalat) was the soletelephone and telecommunications provider for the UAE.
And while there were exceptions for free zones and modern housing developments, for the majority of the UAE, Etisalat held a monopoly on business and personal telecommunications services. In February 2006 this monopoly became a duopoly when a new telephone company and Internet Service Provider, DU was established to offer mobile services across the UAE and Internet and TV services to some free zone areas. Earlier DU provided triple play services to free zone areas under the name Emirates Integrated Telecommunications Company (EITC), which is still its legal name.
The UAE telecommunications sector is among the strongest and advanced in the Arab world. Operators are well-supported by the government’s initiatives and established policies. The sector’s expansion is being fueled by the sustained growth of its customer base (the UAE posted a five-year population CAGR of 15 per cent), rising consumer purchasing power, and advanced infrastructure.
Industry is evolving due to changing technology and consumer patterns. Voice services (landline and mobile), the traditional income generators of the sector, have been on a downtrend in the last six years. Other services including internet and data services, on the other hand, have persistently increased their share of the business.
The telecoms sector has evolved from a growth play to semi-defensive play, in response to heightened competition, financial risk and consumer sophistication. Earnings are still steady but not as dynamic as they used to be; dividend yields remain attractive, nevertheless.
Top Market Opportunities
Long-term Evolution (LTE) Networks Taking a cue from the success of mobile broadband, local players are now moving towards superfast broadband connections. The Global Mobile Suppliers Association foresees a 200 per cent rise in online mobile demand for voice, data and video services. HSPA Evolution, which has become mainstream in the Middle East with the region’s operators pioneering its introduction, currently provides the capacity and performance to support a good user experience of mobile broadband. Some countries in the region offer the highest data throughput speeds and lowest latency that can be experienced anywhere in the world today.
The Long-term Evolution (LTE) network is the next step to deliver an even better mobile broadband experience to the mass market. It offers new spectrum in potentially larger and contiguous blocks, in 2.6 GHz for capacity in the cities, and sub-1 GHz for the most economic area coverage and improved building penetration. Many governments are already allowing the shift of existing spectrum to support LTE deployments.
The 1800 MHz will very likely be a prime band for LTE deployments, especially in Europe, the Middle East, and Asia Pacific. The first LTE1800 systems have already been commercially launched, with several others in the deployment or planning stages.
DU and Etisalat have been conducting LTE trials and just this week, Etisalat has launched its 4G network. LTE will allow them to re-use many existing resources and follow a single global standard for communications interoperability. These will drive down costs and deployment times, raise economies of scale, and simplify roaming.
For mobile users, a shift from 3G to 4G LTE will facilitate an enhanced mobile broadband experience as LTE technology is optimized for data. Depending on network configuration and device availability, average throughput speeds can exceed 3G by up to 10 times. Marked improvements in uplink data speeds and latency can also be achieved.
Telecommunications Regulatory Authority (UAE)
The Telecommunications Regulatory Authority (TRA) of the United Arab Emirates (UAE) has been established according to the UAE Federal Law by Decree No. 3 of 2003 – Telecom Law. TRA is responsible for the management of every aspect of the telecommunications and information technology industries in the UAE. Despite its relatively short life-span, TRA has exceeded expectations by achieving its projected goals in record time.
The organizational objectives of TRA are derived from the UAE Telecommunications Law, its Executive Order and the UAE National Telecommunications Policy. These objectives include:
- ensuring adequacy of telecommunications services throughout the UAE
- achieving enhancement of services, both in terms of quality and variety
- ensuring quality of service and adherence to terms of licenses by licensees
- encouraging telecommunications and IT services within the UAE
- promoting and enhancing the telecommunications sector within the UAE
- resolving disputes between the licensed operators
- establishing and implementing a regulatory and policy framework
- promoting new technologies
- ensuring that the UAE becomes the regional ICT hub developing the country´s human capital
- encouraging research and development.
TRA, and as determined by its mandate, is entrusted with a wide range of responsibilities related to the Telecommunications and Information Technology Sector, both within and outside the UAE. According to the UAE Federal Telecom Law No. (3) For the Year 2003 and its amendments, TRA is to exercise its functions and powers and under this Law and its Executive Order to:
- Ensure that the telecommunications services provided throughout the state are sufficient to satisfy the public demands of those who wish to make use of such services.
- Enhance the level of service provided by the telecommunications sector in order to promote the interests of such services.
- Ensure that licensees meet quality standards of performance and adhere to the terms and conditions of the licenses granted to them.
- Ensure that licensees meet quality standards of performance and adhere to the terms and conditions of the licenses granted to them.
- Encourage, promote, and develop the telecommunications and information technology industries in the state.
- Promote and enhance the telecommunications system in the state as indicated by the development and the establishment of industry related training institutions and through the availability of the latest apparatus, equipment, and facilities provided by telecommunications technologies.
Market Size and Forecast
‘Mobile’ services accounted for 56 per cent of industry revenue in 2010, with ‘Other’ services such as internet and data taking in 35 per cent and ‘Fixed Line’ coming in last at 9 per cent. The average revenue shares of the Mobile, Others and Fixed Line segments from 2005 to 2010 were at 58.68%, 26.42% and 14.90%, respectively.
Service price reductions resulting from stiff competition between local carriers Etisalat and DU have favored consumers. The operators, however, have sustained declines in their overall average revenue per user (ARPU) due to lower charges per service (voice call, SMS, etc.) and discounts. This has been particularly true for mobile ARPU, which appears to have remained flat in the last three years. For Fixed Line ARPU, the decline could be partially explained by the popularity of mobile phones over traditional landlines.
Since 2008, the number of Fixed Line subscriptions has been growing at slower rates. Total subscribers in 2010 increased by less than 5 per cent, in contrast to the double-digit growth common during the earlier part of the decade. Most of the increase came from new DU subscribers, with the company’s market share of the sub-sector improving from 24 per cent in 2009 to 31 per cent in 2010. Overall Fixed Line ARPU is dropping ahead of the infrastructure sharing between Etisalat and DU scheduled by the end of the year. Consumers prefer the convenience of mobile phones and internet telephony (VoIP), and increasing competition between the operators has been putting pressure on margins because of discount service rate offerings. The slide is expected to continue in line with regional and global trends.
National mobile penetration rates – at more than 146 per cent as of June 2011 – are one of the highest not only in the region but in the world. The figure is artificially skewed, though, as it includes inactive users. The propensity of consumers to use multiple SIM cards for business, personal and other lifestyle purpose is a main contributor to the unusually high rate. Another factor is the high traffic of temporary residents such as tourists and businessmen. However, the high level of teledensity is also indicative of a saturating market.
Overall mobile ARPUs could stagnate or even drop due to the oversold market and intensifying rivalry between Etisalat and DU, which will be further heightened by number portability (The scheduled September launch has been delayed once again and the Telecommunications Regulatory Authority announced it has indefinitely extended the time given to both telecom operators to launch the cellular number exchange service). While subscriptions are forecast to rise further due to population growth and better technologies for mobile Internet, the same cannot be said for ARPUs.
As with Fixed Line ARPUs, Mobile ARPUs could be disrupted in favor of internet and/or data revenues (they could stagnate at the very least and could possibly drop at worst).
Internet and Data Services
The UAE had around 1.37 million internet subscribers as of end-2010, representing an internet user penetration rate of 41.59 per cent. Etisalat and DU thus face various growth opportunities punctuated by the impending implementation of infrastructure sharing. DU has the additional prospect of operating on a national presence.
The overall growth in internet subscription has followed the growing number of broadband subscribers. By end-2010, broadband subscribers made up 57 per cent of the total, boosted by network improvements from operators and a surge in smart and media device usage.
Smart devices, which have become increasingly less expensive, have driven up the popularity of internet and data services. Last year, data subscribers more than doubled to 38,271 with the inclusion of virtual leased line services. The government and the private sector are also leading the demand for data services that enable their organizations for electronic transactions.
On the retail side, the UAE’s young, expat-dominated and affluent population has been demanding more high-tech data and multimedia devices. These devices in turn drive higher yield on internet and data traffic for operators. More growth is expected in light of growing device sophistication and more efficient connectivity, especially when both DU and Etisalat launch their LTE infrastructures.
Emirates Telecommunication Corporation / Etisalat was founded in 1976 as a joint-stock company between International Aeradio Limited, a British Company, and local partners. In 1983 the ownership structure changed – United Arab Emirates government held a 60% share in the company and the remaining 40% were publicly traded.
In 1991 the UAE central government issued Federal Law No. 1, which gave the corporation the right to provide the telecommunications wired and wireless services in the country and between UAE and other countries. It also gave the firm the right to issue licenses for owning, importing, and manufacturing, using or operating telecommunication equipment. This practically gave Etisalat both regulatory and control powers, which completed the monopoly of the telecom giant in the UAE. In order to safeguard the country’s economic development, the law made provisions for the development of the telecommunication sector in the country.
The increase of exchange lines from 36,000 in 1976 to more than 737,000 in 1998 was one of the important indicators of Etisalat network’s growth and development. An important milestone was PTCL’s commencement of cellular operations in January 2001, when under the brand name of Ufone it started operating out of Islamabad. It became the part of Etisalat after the privatization of the PTCL in 2005.
Today Etisalat stands 140th among the Financial Times Top 500 Corporations in the world in terms of market capitalization, and is ranked by The Middle East magazine as the 6th largest company in the Middle East in terms of capitalization and revenues. The Corporation is the largest contributor outside the oil sector to development programs of the UAE Federal Government. Etisalat has also won accolades from across the region for its nationalization program. In July 2013, Vivendi announced it would sell its 53% stake in Maroc Telecom to Etisalat for around $4.2 billion.
Emirates Integrated Telecommunications Company/ DU’s official name is Emirates Integrated Telecommunications Company (EITC). It was commercially branded as DU in February 2006. The company had 4.5 million subscribers as of the end of March 2011. The company launched mobile telecommunication services in February 2007 across the UAE and it reported its 2008 full year results in February, revealing it had added 1.88 million mobile customers over the 12 months. Revenue of $1.08bn was 157% up on the previous year. Before the launch of services in 2006, shareholders offered 20% of their shares in an IPO. Emirates Bank and Emirates Financial services managed the share sale.
Axiom Telecom In 2001, Axiom grew rapidly and introduced its first retail outlet in the UAE. In 2003, Axiom started its regional roll-out, and has since established presence in Kuwait, Bahrain, Qatar, Oman, Saudi Arabia (2006), Egypt (2007), London in 2007 and India (2007). In December 2005, TECOM, a member of Dubai Holding, acquired a 40% share of the Axiom Telecom. Today Axiom owns and operates stores through partner arrangements in the UAE with Spinneys and Union Co-op outlets. Axiom is also the exclusive telecom partner for Adnoc, Emarat, Enoc & Eppco petrol stations where mobile phone accessories are sold in over 350 locations. In June 2011 Dubai Holding sold 14% of Axiom Telecom. In 2013 Axiom Telecom was awarded with MVNO license to operate in Saudi Arabia.
According to the recent news on Forbes Magazine it as reported the trouble may be expected for the Internet in future. For at least another week in Dubai, delegates from 193 nations are at a landmark conference to talk about regulating the telecommunications industry. Some fear that could lead a few countries, particularly Russia and China, moving to more tightly regulate local use of the Internet too. If the final treaty includes text they can use to justify potential acts of censorship, which could well happen.
How to avoid that? According to the head of the U.S. delegation, conference members shouldn’t talk about the Internet at all.
The heart of the current debate is over scope and definition: whether the treaty should apply to “operating agencies” or “recognized operating agencies.” The latter refers to established telecom services providers like AT&T and MCI, and the ITU even has a list of them here.
But take out the word “recognized” and it can refer to a whole lot more.
“Any individual, company, corporation or governmental agency which operates a telecommunication installation intended for an international telecommunication service or capable of causing harmful interference with such a service.” – Official ITU definition of ‘operating agency.’
That could apply to the large and small internet companies – everyone from Google and Facebook to your local online startup, to “amateur radio operators,” according to dot-nxt.com. Yet several countries at the conference are pushing for the new treaty to go this broadly, including Brazil, India, Iran and several countries in Africa and the Middle East. Those who don’t want it to include online activity: the U.S., Canada and Japan.
“The focus should be on the telecom sector, not the internet sector,” said Ambassador Terry Kramer, head of the conference’s U.S. delegation. He hopes to narrow the scope of the conference to just telcos, so that the Internet doesn’t even become part of the debate on regulation, leading to a treaty that allows fuzzy justification of online content censorship by certain countries.
The World Conference on International Telecommunications has been convened by the International Telecommunications Agency, an agency of the United Nations — in fact one of the oldest members — whose role includes allocating satellite orbits and radio spectrums.
As part of the event, international diplomatic representatives have come together to help update the agency’s International Telecommunications Regulations. This is a treaty that was last agreed at the World Administrative Telegraph and Telephone Conference in Melbourne in 1988. Things have moved along quite it since then, like the Internet going mainstream, yet there have been no updates to the treaty’s provisions since then.
The issue of operating agencies is “to be determined,” Kramer said on a conference call with journalists on Thursday. “We’ve been sending quite a bit of time working with countries on bilateral discussion to focus on recognized operating agencies.” The United States is very much against any attempt by delegates of the ITU creating proposals for regulating the internet at the conference. On Wednesday, the U.S. House of Representatives voted unanimously for a resolution to “keep the Internet free from government control,” and Google has launched its own anti-regulation campaign.
“What we are saying is the Internet by itself, which gets into content and applications, is an area that should not be the focus. The core network that proves all the services, broadband, is absolutely the right vision for the conference… Anything that gets into the content or internet… should be part of this treaty. Seemingly harmless proposals can open the door to censorship.”
One upside, he added, was that delegates had agreed to a definition of “telecommunications,” and had not confused the term with information communications technology or ICT. However, the UN agency’s definition of ICT itself is still being worked on, he added. “People are talking about VoIP operations and Skype providing ‘telecommunications services,’ but we don’t feel those are appropriate.”
Kramer’s strategy is to avoid being drawn into discussions about the Internet at all, and he is pushing to bring the debate back to the jurisdiction of the treaty, and recognized operating agencies. “It’s a situation we won’t negotiate on because of scope creep,” he said.
Kramer added that there was a “pretty big gap in points of view of a variety of nations” when it came to including Internet activity in the treaty. “It’s not easy issue to work through because it’s a philosophical one.”