Wired up: Moving to network sharing to establish a more level playing field

As part of its plan to end its reliance on oil and gas, Abu Dhabi is looking to become a business centre on a world scale, based on high-end manufacturing, tourism and the knowledge economy. An essential part of doing this is connectivity, both in terms of transport links and of telecommunications. To this end, the emirate has been investing heavily in upgrading its physical telecoms network.

Abu Dhabi is alone in the Gulf in possessing its own sovereign communications satellite system. Al Yah Satellite Communications Company (Yahsat), which is a subsidiary of government-owned investment company Mubadala, launched its first communications satellite, Y1A, in April 2011, using Europe’s Ariane launcher. This was followed by its second, Y1B, which was launched from Kazakhstan using Russian-American Proton Breez M Launcher in April 2012.

The satellites were built in Europe in partnership with a consortium consisting of EADS Astrium and Thales Alenia. While much of the original impetus behind launching was to provide secure and resilient communications for the UAE government, Yahsat also carries considerable capacity for commercial services, carrying direct-to-home television channels to the MENA region, as well as delivering satellite broadband services to homes and offices via its Yahclick brand. The company has also found a great deal of interest from regional television networks interested in high-definition broadcasts.

ACCESS ALL AREAS: Yahclick serves 28 countries across Africa, the Middle East and Asia, bringing the option of broadband internet connectivity to millions of un-served and underserved people. “The price of satellite services has come down significantly as more operators have entered in the market,” Tareq Abdul Raheem Al Hosani, the CEO of Yahsat, told OBG. “That said, there are still enormous opportunities to serve emerging markets in the MENA and sub-Saharan regions, as well as parts of Asia. Additionally, more and more services are being offered to consumers aside from the existing corporate clients.” For satellite broadband, the company utilises the Ka-band to deploy focused spot beams using frequency re-use technology to maximise capacity and allow for smaller and lower-cost ground terminals. This enables significant cost savings to be passed on to the consumer.

In addition to the satellite system, the UAE’s two telecoms operators, Etisalat and du, have been investing heavily in their fixed-line networks. In April 2012, for instance, Etisalat finished installing its fibre-tothe-home (FTTH) network in Abu Dhabi, making it the first capital city in the world where each household has its own direct fibre link (as opposed to copper cables carrying calls to an exchange, where they enter the fibre network). In 2011 total capital expenditure amounted to 13.3% of group revenues, or Dh4.3bn ($1.2bn), compared to 18.5% of group revenues, Dh5.9bn ($1.6bn), in 2010, reflecting the costs of installing the network. For its part, du stated in October 2011 that it had spent more than $1.9bn over the past five years of its operation, and expected to spend $436m on upgrades alone in that year. The company also said it had spent more than $82m on its own FTTH network.

BROADBAND PROVIDERS: However, while both providers may maintain high-quality networks, fixedline services remain a virtual monopoly, with the ability to switch between Etisalat and du available only in a few dedicated office parks and free zones.

A 2011 survey of businesses undertaken by the Telecoms Regulatory Authority (TRA), a federal body, found that while 87% were satisfied with the quality of fixed-line services overall, only 58% were satisfied with the price of calls from fixed lines, while just 73% expressed satisfaction with the speed of fixed internet connections and only 44% with the price. For mobile broadband, only 40% were satisfied overall, and just 18% were satisfied with the price. Over half of all businesses were on speeds of less than 2 Mbps, while 17% of businesses surveyed said they would switch from dial-up to broadband if the price were to fall. Some 93% of business internet subscriptions were with Etisalat, 4% with du, and 3% of businesses used both. The international gateway remains a government monopoly, and only 9% of businesses surveyed attempted to use carrier selection to reduce the cost of international calls, which accounted for 9% of fixed-line traffic but 18% of total phone bills. Given that local calls are free from fixed lines, international rates are even more expensive than this figure would suggest.

If the UAE is not to lose its competitive edge, then greater competition is necessary to bring down the price of broadband to more satisfactory levels. So far, the main stumbling block has been the unwillingness of both operators to share their networks. Partly this is understandable as both parties have invested a great deal of cash over the past few years, and do not wish to see their rival reap the benefit.

ROYALTIES: The process is complicated by the royalties system that currently prevails, in which fees are paid to the federal government. Etisalat, the incumbent, pays a royalty of 50% of group revenues, while in recent years du has only been required to pay a fraction of this rate. In 2008 and 2009, as the operator found its feet, the government charged no royalty at all. Subsequently, du was charged 15% of net profit, rising in 2011 to a royalty of 15% of net profits, plus 5% of group revenues. The government says this disparity is compensation for continued costs incurred by the operator in installing its own fixed and mobile networks. However, both operators are now at around parity in the mobile market, with du claiming 46% to Etisalat’s 54% market share. As a result, Etisalat has recently called for its own royalty rate to be lowered, or at least equalised with its competitor’s rate. However, Etisalat continues to dominate the fixed-line market, claiming 87% of business fixed-line subscriptions, according to the TRA, compared to 5% of businesses that subscribe to du and 8% that maintain a line with both providers.

INTERCONNECTION: The TRA is keen to establish wholesale rates for both bit-stream access and dark fibre. Bit-stream access is a technology that allows for sharing of data access to networks, while dark fibre refers to underused capacity in the fibre network. Both bit-stream access and the elimination of dark fibre would allow the network to be used at full capacity and lower operating costs, savings which could be passed on to the consumer, while helping to create a more level playing field. Although network sharing has been on the agenda for some time, with dark fibre originally due to be opened up in 2011, technical issues have delayed its introduction. These issues have now largely been resolved and the TRA told OBG that it expected bit-stream interconnection services to be implemented soon. Sharing networks for voice services was activated in March 2012, but these do not constitute a profitable segment as local calls are already free.

As has generally been the case with mobile voice services, the regulatory authorities are keen to avoid an all-out price war that would damage revenues and operators’ ability to reinvest in the network. That said, once bit-stream and dark fibre access are introduced, consumers will gain the ability to switch fixedline providers, meaning that customers are likely to benefit from better service, while the price of both broadband and data services is expected to fall.

Competition in the mobile market generally comes down to offers and promotions, with many consumers keeping both an Etisalat and a du subscription so as to take advantage of whichever offers the best value at any given time. In broadband and data, operators will likely compete on a similar model, perhaps offering greater speeds for the same price or advantageous triple-play deals (bundling fixedline, broadband and cable television in one package) rather than cutting broadband prices to the bone. Businesses are likely to benefit from more tailored packages, particularly the smaller businesses, which may be able to afford to upgrade to broadband.

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The Report: Abu Dhabi 2013

Telecoms & IT chapter from The Report: Abu Dhabi 2013

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