Land of opportunity

The UAE’s telecoms sector has grown to epitomise the positive results that can be achieved through the deregulation of a market and introduction of competition. Given the country’s relatively small yet wealthy population, together with the high proportion of expatriates present, the UAE offers the two national operators every opportunity to innovate while learning to appreciate the value of building strong customer relationships.

Mohammad Omran, Etisalat’s chairman has spearheaded the  telco’s foreign expansion

One need only browse recent financial earnings releases announced by the UAE’s two national operators Etisalat and du to see that the market is characterised by strong operational fundamentals that are translated into positive business results.

In the first three months of the year Etisalat posted a record first quarter profit as it increased its mobile subscriber base to 6.63 million, or four per cent from the end of last year.
Net income in the three months to end-March increased 15.5 per cent to AED2.12 billion (US$577.3m), compared to AED1.84bn in the same period a year ago.

The operator is estimated to still be acquiring about one million new mobile subscribers a year, while fixed-line and Internet connections stood at 1.33m and 940,000 respectively.

“Foreign countries will contribute more this year,” Etisalat CEO Mohammed Al Qamzi told Reuters following the release of the company’s Q1 results. “Saudi Arabia will lead.”

On a full-year basis, Etisalat expects profit growth to exceed what was witnessed during the first quarter, and having reported proceeds amounting to AED2.33bn through the sale of 43.75 million shares in its Saudi affiliate Etihad Etisalat (Mobily), and which will be included in the telco’s Q2 results, there does not appear any reason for earnings growth not to accelerate.

The UAE’s second placed operator du reported an 18 per cent increase in revenues from the previous quarter to AED756.5m, and an increase of 313 per cent from the comparable quarter in 2007.
While mobile customer numbers reached more than 1.76m subscribers at the end of March, 20 per cent of those are described as inactive.

The Telecommunications Regulatory Authority (TRA) now requires operators to distinguish active subscribers from inactive ones, the former being described as those who have completed a billable transaction in the last 90 days.

Despite the large share of inactive subscribers, du CEO Osman Sultan said he was pleased with the operator’s growth to date, counting more than 1.4m active customers.

“We are on track to achieve our target market share of 30 per cent earlier than the declared three years, as can be seen by the excellent growth of our customer base and the performance of our company,” Osman commented.

However, Etisalat does not appear overly daunted by the progress being achieved by its smaller domestic competitor. “Etisalat was competing outside of the UAE before competition arrived in the country,” Etisalat CEO Al Qamzi states plainly. “So we have experience, we know how to act in a competitive environment and we were ready for the entry of competition in the UAE.”

Indeed, like other monopolies faced with the threat of the imminent entry of competition in their domestic markets, Etisalat decided to diversify its portfolio by pursuing investment opportunities outside of the UAE. Etisalat International was established in March 2005 with the aim of spearheading and consolidating the UAE operator’s activities into the international arena.

In August 2004 Etisalat led a winning consortium for the second mobile licence in Saudi Arabia, paying a licence fee in excess of US$3bn. After acquiring a 50 per cent stake (which has since risen to 70 per cent) in West African mobile operator Atlantique Telecom for US$130m in April 2005, Etisalat was then awarded a nationwide operating licence in Tanzania. In June that year Etisalat won the auction for a 26 per cent stake in Pakistan Telecommunications Company Limited (PTCL) with a US$2.6bn bid.

The UAE telco went on to be awarded Egypt’s third GSM licence and Afghanistan’s fourth, and has expressed interest in the forthcoming second fixed licence award in Egypt.

The experience gained by being a later entrant in many of the international markets it has entered has fed back into Etisalat’s operational life in the UAE, making it more aware of the dynamics of competition.

In Saudi Arabia, Etisalat was faced with a massive challenge of taking on the well-entrenched former monopoly Saudi Telecom Company (STC), but has waged a successful campaign of offering transparent pricing and providing quality network services.

Having missed out on the award of one of three fixed-line concessions in Saudi Arabia last year, Etisalat-backed Saudi mobile operator Mobily went on to acquire a 99.9 per cent stake in local Saudi data provider Bayanat al-Oula.

Bayanat is one of two firms licensed to deploy a WiMAX wireless Internet access network in the kingdom, and will aid in Mobily’s development of its fixed broadband service.

Mobily CEO Khaled Al Kaf says the complete convergence concept is important to Mobily and the operator plans to achieve this by providing a fixed-mobile convergence solution.

Etisalat’s experience in building greenfield businesses was put on display in Egypt, where in May 2007 Etisalat-Misr launched commercial services as the third GSM provider and the first 3G operator in Egypt. The operator went on to add one million subscribers in its first seven weeks of operation.

Etisalat is also preparing to launch commercial activities in Nigeria, in cooperation with its strategic partner Mubadala Development Company, an investment vehicle owned by Abu Dhabi’s ruling family.
Etisalat will be the operating partner for the Nigerian telecommunications company established by Mubadala to own and operate its business in the populous west African country.

Etisalat holds a 40 per cent interest in the company, Mubadala controls 30 per cent with the remaining shares held by Nigerian investors.

The 15-year unified licence permits the licensee to operate a mobile network in GSM 900MHz and 1800MHz spectrum bands. The Nigerian Communication Commission introduced the unified licensing regime in March 2006, for the first time allowing operators of wireless local loop operations to roam across wide licence areas. Four unified licences were awarded in May 2006, with around two-dozen companies having applied for the concessions. Mubadala was subsequently awarded 3G spectrum as well.

Despite the experience Etisalat has gained at home as well as abroad, together with the significant challenges of entering a domestic market in which Etisalat has been able to establish such a dominant position, du continues to develop its own business and operations as best as it can, and is consistently arranging the financial support in order for it to be able to continue to do so.
In the middle of May du announced committed financing arrangements to drive increased network investments, detailing an AED3bn medium term syndicated loan facility to finance its network expansion over the coming years.

Omran on the Nigerian investment

Etisalat chairman Mohammad Hassan Omran answers questions about the telco’s plans in Nigeria

When will Etisalat actually commence operations in Nigeria?

Etisalat’s network in Nigeria is in the final stages of testing prior to public launch. In March, we demonstrated the quality of our network to the Nigerian regulator by making our first telephone call. We are now preparing for commercial launch which will happen soon.

Will Etisalat offer nationwide geographic coverage from the start of its operations? Etisalat’s coverage will be far reaching. This is one of the benchmarks on which the operator is renowned in every country in which it operates. As such, we will be present in some major population centres when we launch and subsequently we will continue to roll out our services.

How does Etisalat hope to compete against the incumbent players?

Etisalat always adds value when it enters a new market. It does this by improving the quality of network coverage and the general voice network, and also by introducing new services and innovative pricing schemes, which address the market’s needs. This is the same strategy we will follow in Nigeria, bringing a highly reliable and innovative service to the country.

What number of subscribers are you looking to add in the first year of operations?

We are confident that our Nigerian operations will grow quickly, especially given the low penetration, large population and strengthening economy in Nigeria.

What are ARPU levels currently like in Nigeria?

ARPU levels are promising, and higher than many other African countries. We expect a blended ARPU (including voice and data) of around US$10.

On top of this, we are gaining a strategic foothold in Africa’s most exciting market. Nigeria also shares a land border with our existing operations in West Africa and is separated by only one country from our subsidiary in Sudan. This provides greater connectivity options for Etislalat Nigeria – increasing the resilience of our network, and also allowing us to access competitive services from Etisalat’s Carrier and Wholesale division.

Du appointed Mashreq to lead the transaction on its behalf. “The faster acquisition of subscribers, and consequently increased revenue, over and above that included in our initial business plan has led us to pull forward certain capital expenditure,” commented Sultan. “This financing facility will enable us to roll out our network infrastructure faster so that we have the increased capability and capacity required to deliver our services to more customers across the emirates.” It is expected that the facility will be syndicated to local and international financial institutions over the coming three months.

Du’s move to develop its network further reflects Etisalat’s own unrelenting deployment of communications services across access technologies, which has turned the UAE into one of the most connected countries in the entire region. “We were amongst the pioneers of telephony services in the region in the 1980s,” recounts Al Qamzi. “We have now achieved the highest level of Internet penetration and have become a leading provider of telecoms technology,” he adds.

Al Qamzi says one of the changes taking place at Etisalat is the development in mentality away from being a technology focussed organisation, to a customer-oriented one. Thus while technology and the provision of leading-edge technology remains an integral part of its strategy, emphasising the benefits of the technology and drawing closer to the subscriber will no doubt become a central theme.

The vibrant telecoms environment that has been created in the UAE has undoubtedly been aided by the creation and maturity of an independent telecoms regulator, charged with driving the market towards efficiency, while still protecting the positions of all stakeholders involved.

The TRA began operations in November 2004, and at the time it was formed, its immediate task was to facilitate the creation of regulatory frameworks in order to usher in the introduction of competition. Having constructed the legal framework for the operation of competition in the UAE, the TRA’s role has continued to advance now that both players are fully operational.

The regulator is now on course to introduce policy guidelines that seek to give all participants in the UAE’s telecoms sector a level of confidence and sense of security.

The first phase of the TRA’s programme was the creation of regulatory instruments, which gave rise to the introduction of competition, and has thus already been completed. The second phase relates to the preparation of the market for further competition, beyond the level that exists today. Other classes of licence are set to become available over time, and as the TRA director general, Mohammed Al Ghanim pointed out during GULFCOMMS 2007, the entrance of a third player into the UAE telecoms sector is inevitable.

 
CEO of du, Osman Sultan, has led the telco’s
competitive campaign since launch in 2006.

Independent service providers as well as mobile satellite communication operators are not yet licensed in the UAE, and Al Ghanim sees scope for them to be in due course.

The third phase of the TRA’s programme will focus on the evolution of the regulatory body, in which it will strive to introduce best practices and seek to promote sustainable development of the sector.

The fourth phase will deal with the wider issue of convergence, at which point communications, broadcasting and content delivery overlap. Already the TRA is studying the requirements needed for effective regulation of Next Generation Networks (NGN).
“In the last five years, telecommunications technology has changed dramatically. Almost all operators around the world have started the deployment of the NGN, which is a broadband network that will carry voice and data over Internet Protocol (IP),” said Al Ghanim. “NGN will be the base and framework for future technologies and services,” he adds.

Al Ghanim points out that with the introduction of NGN the TRA believes a new regulatory framework, other than the existing regulations, needs to be developed to facilitate and simplify the roll out of NGN. “The TRA will ensure that there is clarity as to the regulatory policy requirement necessary to support effective competition and guarantee consumer protection.”

In the lead-up to further competition beyond the two licensed operators, the TRA is already making sure the interaction between the existing operators produces the best results for end-users. Last year the regulator announced a Carrier Selection Service, meaning fixed-line subscribers are able to choose between the two UAE telecoms providers for calls from their homes and offices to national and international numbers.

“The UAE has become the third country in the Arab world to have competition in the fixed-line market, after less than three years of the inception of the regulator, and after less than one year from the introduction of competition,” Al Ghanim said.

The TRA has continued to take its role in maintaining a dialogue with the two operators and offering market-focussed guidance over time very seriously. In April, for example, the regulator requested the operators’ consumer related codes of practice to be made available on their websites and in their business centres. The initiative made telecoms consumers in the UAE amongst the first in the region to be able to refer to a code of practice.

“Serving the interests of consumers, the TRA obliges the telecoms operators to comply with policies and procedures that are related to transparency and consumer welfare,” commented Al Ghanim. “Hence, the TRA has instructed the UAE telecoms operators to publish consumer related codes of practice for customers to be aware of all the services that their operator provides with regards to consumer interests, such as billing method and cycle, cancellation and restoration of service policies, handling of complaints, and so forth.”

Al Ghanim and the TRA believe that such actions will lead to better informed customers who will, in turn, lead to more consumer-oriented operators, which will end up as a healthier and more vibrant competitive sector.

The regulator has also been busying itself with a number of other programmes aimed at improving the operational development of the sector in the country. Last year it announced the signing of a turnkey contract with infrastructure software company Symantec to establish the UAE Computer Emergency Response Team (aeCERT).

“The aeCERT constitutes a cyber security coordination centre in the UAE. This initiative will facilitate the detection, prevention and response to the broader set of cyber security incidents on the Internet,” stated Al Ghanim. “The aeCERT also provides a central trusted point of contact for cyber security incident reporting in the UAE and will establish a national centre to disseminate information about threats, vulnerabilities and cyber security incidents.”

A programme is also in place to establish the .ae domain as the defacto address for all businesses and individuals conducting business inside the UAE, and the TRA is currently reviewing the framework, governance and administration of .ae.

The establishment of a new structure calls for the establishment of the .ae Domain Administration under the auspices of the TRA, as an independent self-funding legal entity. The administrator would be focussed on educating the public as well as delivering and promoting the .ae domain.

The regulator is also pushing through Type Approval initiatives, which are aimed at requiring radio and telecoms terminal equipment to comply with the technical specifications and be registered with the TRA before they can be supplied nationally.

Last June the TRA announced the launch of the UAE National Telecom Recycling Campaign in collaboration with the UAE Ministry of Environment & Water Resources, EnviroFone, Etisalat, du and Gulf for Good.

The initiative is aimed at the responsible disposal of mobile devices and the TRA is seeking support in the collection and recycling of old or damaged mobile phones that contain material that may be harmful to the environment. For every mobile phone collected to be recycled, AED5 (US$1.35) will be paid to charity; in addition to instant awards.