Economic Update
As a new competitor enters the market, Etisalat, the leading telecommunications operator in the UAE, continues its aggressive expansion both at home and abroad this week.

With the arrival of the new operator, the Emirates Integrated Telecommunications Company (EITC) offering services under the brand name “du”, the established operator, Etisalat, has announced new technologies and services aimed at strengthening its position in the UAE and the Middle East.

Although Public Sector Development Minister Sultan bin Saeed al-Mansouri told the Arab daily al-Hayat that no foreign investment in the telecoms sector would be allowed until 2010, Etisalat’s monopoly of the market is coming to an end. The company is bracing itself for this new state of duopoly and is seeking to expand its operations overseas in a bid to offset any losses in the UAE caused by the introduction of the du brand. EITC is 40% government-owned and will be Etisalat’s sole competitor.

In a press release coinciding with the oversubscription of du’s initial public offering (IPO) by 167 times, the EITC chairman, Ahmad bin Bayat said, “du will play an important role in the economy of the UAE. We aim to have 30% of the telecommunications market within three years.” Etisalat is bracing itself for the potential impact of this on its domestic market share. Essa al-Haddad, Etisalat’s chief marketing officer admitted just as much to the Khaleej Times, “We recognise that our market share will reduce.”

As a result of these implications, the company announced its successful purchase of the rights to be the third operator in Egypt at a reputed cost of $2.9bn. This consortium-led purchase has cost six times the amount the two existing telecoms operators, MobiNil and Vodafone, paid for their respective mobile licences in Egypt. Etisalat already has substantial international interests and investments; it has a significant presence in Europe, the Middle East and Asia operating in 10 other countries including Pakistan and Saudi Arabia. In a Financial Times survey published in June, Etisalat came 278th out of the top 500 global companies with a market value of $25.32bn.

However, Etisalat is also eager to consolidate its position in the UAE and prevent customer defection. It hopes to protect its market share by offering improved internet and mobile services so as to generate a loyal customer base.

The intent to improve its services for internet users was signalled with the announcement of plans to improve bandwidth and provide greater broadband access to its customers. Speaking at the “Submarine Networks 2006” conference in Dubai last week, Etisalat’s executive vice president for carrier and wholesale, Ali Amiri, said, “New technologies are pushing for a combination of various services and thereby increasing the need for an ever increasing provision of bandwidth from the telecom operators. Etisalat is committed to provide its customers with cost-effective and high-quality broadband access.”

The UAE already has the fourth-highest internet usage in the Middle East behind Iran, Israel and Saudi Arabia. However, there is still scope for greater market penetration. As of September 2005, there were almost 1.4m internet users in the UAE which constituted a market penetration of 35.8% and a growth rate of 88.4% over the last 5 years.

Etisalat believes it can increase internet usage substantially in the UAE through greater access to broadband and services related to it. The Gulf News reported that Etisalat has also looked into offering VoIP services, which allow customers to make telephone calls over the internet. The Telecommunication Regulatory Authority (TRA) is currently working on a regulatory framework for VoIP services. These are expected to be completed in early 2007. Etisalat is set on taking advantage of these developments.

The company is also looking for ways to increase revenues through its mobile phone provision. The UAE’s mobile penetration stands at 99%, second only to Bahrain in the region whose mobile teledensity is 105.4%, according to figures released by the Arab Advisors Group at the end of May. Etisalat has a domestic subscriber base of 4.7m and is looking for new strategies to win customers in a saturated market.

To this end, the company has announced a partnership with Spacetoon Channel, a children’s television channel that is part of the Spacetoon Media Group. Etisalat will launch the Spacetoon mobile service that will enable customers to download logos, ring tones and video clips as well as merging personal pictures with characters. Etisalat is the first regional operator to launch this service and the company hopes it will help them to capture the new and emerging market of 6-14 year old children.

Al-Haddad from Etisalat stated that this is not an isolated venture but rather part of a broader company strategy. In a press release last week, he stated, “The Spacetoon mobile service comes in line with Etisalat’s new strategy of providing tailor-made services to targeted segments. We expect that this service will be well received by customers as Spacetoon is one of the most popular TV channels for children.”

With this recent flurry of activity in the telecoms sector, it would seem that the increased competition and liberalisation of the telecommunications industry in the UAE will lead to further development and an increase of products offered to internet and mobile phone users.