Like the UAE as a whole, Dubai has one of the most advanced telecoms and IT markets in the Middle East, boasting high levels of smartphone and internet penetration, fast mobile internet speeds and a rapidly growing start-up scene. While prices in the sector – and the fixed-line market in particular – are relatively high, both the fixed-line and mobile segments are expected to see increasing competition in the coming years. A 2015 infrastructure-sharing agreement, as well as technological advances, should allow more customers to switch between the two main operators for fixed-line services. Meanwhile, one of the major players, the Emirates Integrated Telecommunications Company (du), is moving to launch a new mobile sub-brand (see analysis).
Beyond the retail customer sphere, ICT-related projects are a pillar of government efforts to develop the economy, boost efficiency and improve quality of life. The main goals are to achieve smart city initiatives and harness new technologies such as blockchain and artificial intelligence (AI). The roll-out of 5G mobile internet networks, set to begin in 2019, will further facilitate the emergence of smart services and related segments, such as machine-to-machine communication and connected transport.
Dubai’s ICT sector generated turnover of Dh15.6bn ($4.2bn) in 2016, equal to 3.9% of GDP, according to the Dubai Statistics Centre (DSC), up from 3.7% in 2014 and 3.8% in 2015. Despite its rising share of GDP, ICT growth has eased in recent years, from 8.1% in 2014 to 7% in 2015 and 4.8% in 2016. While DSC figures do not include a breakdown by segment, in late 2016 the International Data Corporation, an ICT advisory firm, forecast telecoms services would account for just over half (51%) of total UAE ICT spending, followed by hardware (27%), IT services (15%) and packaged software (7%). The firm expects the national IT market to grow at an average of 5% a year between 2017 and 2022.
According to the UN International Telecommunications Union, levels of connectivity are high, with 90.6% of UAE residents using the internet. This was the 19th-highest level in the world and third-highest in the GCC, behind Bahrain and Qatar. According to the October 2017 Speedtest Global Index, a ranking of internet performance, the UAE has the world’s eighth-fastest mobile internet in the – and the fastest in the Middle East – with download speeds of 46.04 Mbps. However, its fixed-line broadband ranked 54th, with speeds of 25.28 Mbps.
In its “Global Information Technology Report 2016”, the World Economic Forum ranked the UAE 26th out of 139 countries on its networked readiness index, making it the top performer among Arab countries, with an overall score of 5.3 out of 7. The country scored well in government usage (2nd), social impacts (2nd), environment for business and innovation (13th), and individual usage (19th), and it was among the top 30 in eight out of nine categories. However, this generally strong performance was somewhat offset in the index by lack of affordability: Dubai ranked 116th on this metric, due to high prices in the fixed-line segment in particular. Although the industry has historically been characterised by relatively little competition, change is under way. The two domestic telecoms operators are implementing an infrastructure-sharing agreement, which will allow customers to choose between the operators in some regions, rather than being compelled to use one or the other (see analysis).
There were a total of 6.35m active mobile phone subscriptions in 2016, up from 5.7m the previous year though down from 6.43m in 2014, according to the DSC. Penetration rates are not available for Dubai specifically, but in July 2017 there were 226.4 subscriptions per 100 inhabitants in the UAE, according to figures from the Telecommunications Regulatory Authority (TRA), the national sector regulator. According to the DSC, there were 1.38m fixed-line subscriptions in Dubai in 2016, up from 1.35m in 2015 and 1.30m in 2014.
The UAE has two mobile network operators, the Emirates Telecommunications Corporation (Etisalat) and du, both of which are effectively majority-owned by government authorities. The Emirates Investment Authority (EIA), the federal sovereign wealth fund, owns a 60% stake in Etisalat, with the remaining 40% floated on the Abu Dhabi Securities Exchange. The EIA also owns a 39.5% stake in du, while the Abu Dhabi government holds a 20.1% share through its investment fund Mubadala. The Dubai government also has a 19.5% stake in du through Emirates International Telecommunications, a unit of Dubai Holding, whose main shareholder is Sheikh Mohammed bin Rashid Al Maktoum, vice-president and prime minister of the UAE, and ruler of Dubai. The remainder of du’s shares are listed on the Dubai Financial Market, the emirate’s primary equities bourse.
Both operators offer mobile services throughout the UAE, though only Etisalat offers fixed-line services nationwide; du’s offering is largely focused in Dubai. Etisalat is also active throughout the MENA region, with stakes in telecoms operators in Morocco, Egypt and Pakistan. In the second quarter of 2017 du had 8.22m active UAE mobile subscribers, up 1.5% year-on-year (y-o-y), and 714,000 fixed-line subscriptions, up 4% y-o-y. Meanwhile, Etisalat had 10.52m mobile customers in the second quarter of 2017, up 2.9% y-o-y, and 1.12m fixed-line connections, up 2.8% from a year earlier.
In the first half of 2017 du’s revenue grew 4.3% y-o-y to Dh6.42bn ($1.7bn). Dh4.53bn ($1.2bn) of this was from mobile subscriptions, up 2.6% y-o-y, and Dh1.39bn ($378.4m) was from fixed-line services, up 8.6%. However, net profits after royalty were down 12.3% to Dh812m ($221m), occurring alongside a 5.1% decrease in mobile average revenue per user (ARPU) from Dh82 ($22.32) in the second quarter of 2016 to Dh78 ($21.23) for the same period of 2017.
Etisalat’s UAE revenues for the first half of 2017 were worth Dh15.4bn ($4.2bn), a Dh15bn ($4.1bn) increase over the first six months of 2016. Group revenues – combined profits from foreign and domestic operations – were down 3% due to various factors, including the steep depreciation of the Egyptian pound. Mobile ARPU for Etisalat’s UAE operations also fell from Dh112 ($30.49) in the second quarter of 2016 to Dh104 ($28.31) one year later.
The TRA requires that providers of voice-over-internet-protocol (VoIP) services either be locally licensed or establish an agreement with existing licensed providers in the country. As a result, many VoIP voice- and video-calling services, such as WhatsApp, Snapchat and FaceTime, are blocked. As of early 2018 the authorities had given no clear indications of plans to change this.
In 2014 the government launched the Smart Dubai initiative, which seeks to use technology to improve residents’ quality of life and levels of happiness. The initiative, implemented by the Smart Dubai Office, has continued to evolve in recent years. In March 2016 the Smart Dubai Office, together with mobile operator du, launched the Smart Dubai Platform, a central operating system that offers individuals, companies and government entities access to various services and information. The Smart Dubai Platform includes Dubai Pulse, which regularly publishes data on city metrics, such as transport and the economy.
April 2017 saw the launch of the Dubai Plan 2021, which, among other things, seeks to use ICT to render all government services digital, enable a data-driven government and boost productivity in the private sector. In May 2017 the initiative also launched a platform and app called Dubai Now, which gives residents access to 55 smart services – including payment of utility bills and traffic fines, and access to Customs resources – from 24 public and private entities. Dubai’s status as host of Expo 2020 is expected to give further impetus to these efforts in the coming years. “Expo 2020 will give a substantial boost to smart initiatives, such as smart government,” Massimo Cannizzo, managing director and technology strategy lead for the Middle East and North Africa at Accenture Strategy, told OBG. “Furthermore, the wider level of commitment and vision relating to smart initiatives, such as smart government and Smart Dubai, suggest that the emirate is well positioned to become the first truly smart city in the world,” he added.
Blockchain – an emerging technology that allows for efficient and secure sharing of information and registration of transactions – is the foundation of many smart city initiatives. This functions by creating a collective encrypted ledger, to which each user only has partial access by using a personal encryption key. This technology underpins bitcoin and other cryptocurrencies, but has a much wider range of potential applications, including information sharing and automated smart contracts.
In December 2016 Smart Dubai and the Dubai Future Foundation, a research body, launched the Dubai Blockchain Strategy (DBS) with the aim to pioneer uses of the technology and make Dubai have the first blockchain-powered government in the world. In June 2017 Smart Dubai announced plans to achieve the DBS objectives by 2020, at which point all relevant government services and transactions will be moved to the platform. The DBS has three major goals: improve government efficiency, boost business creation and make life easier for incoming travellers through measures such as pre-approved passports and pre-authenticated, temporary digital wallets. The government has hired both IBM and Consensus, a blockchain application developer, as strategic and consultant partners. There are many potential applications for blockchain. According to Alexandar Williams, director of the business development department at the Department of Economic Development (DED), the Dubai Land Department plans to use the technology to register the emirate’s land; Customs services and traders in India are planning to collaborate on blockchain-based projects; and there are even more opportunities for applying blockchain in the private sector. “As in most jurisdictions, the use of blockchain in Dubai is still at the experimentation and pilot programme stage, rather than the extensive adoption phase,” he told OBG. “However, this development is set to have a major impact on the economy.”
AI: In October 2016 Smart Dubai and the DED launched Saad, a new question-answering service based on IBM’s Watson AI technology. Saad, which is the first application of this technology outside of the US, is available on the DED website and the Dubai Now app. Authorities eventually plan to develop it into a concierge-style service that can answer any and all questions about the city that residents or tourists may have. In May 2017 Smart Dubai launched a new AI smart lab that will initially provide AI training to government employees and eventually be opened up to the general public. Amr Refaat, general manager of IBM Middle East, told OBG that the DED is working with IBM to develop products relevant to other government entities, such as the Roads and Transport Authority, and the Dubai Electricity and Water Authority.
As AI continues to develop in the emirate, such technologies will be instrumental in supporting the initiatives of Smart Dubai, especially through smart infrastructure projects. “There is already very strong ICT infrastructure in place and a strong focus on improving it further,” Taha Khalifa, regional director of Intel, told OBG. “Smart Dubai demonstrates the extent to which the emirate values technology.”
The International Data Corporation estimates that the UAE’s domestic IT market is worth around $8bn annually, with hardware purchases accounting for a little more than half of this and services contributing around one-third. Industry figures broadly suggest the market has remained robust despite lower oil prices, partly due to continued government spending in the sector, and wider efforts to improve efficiency by using IT applications and services. “Despite the regional downturn, both private and public institutions in the UAE are still spending on new technologies, though tech spending has become more strategically targeted in recent years,” Refaat told OBG.
Shukri Eid Atari, eastern region managing director at Cisco, said that while some major projects had been put on hold in recent years, the IT sector remained strong in both the collective UAE and Dubai particularly. “There is a lot of demand from industries such as financial services, and with traditional revenue sources suffering, there is increasing emphasis on diversifying the economy and developing these ICT capabilities across sectors, which is boosting demand,” he told OBG, adding that government recognition of the importance of digitisation would support business in the future.
This is echoed by Fahmi Karam, managing director of IT Works, who said that digitising businesses will require infrastructure support. “As cloud and data analytics become ever more important for businesses, investment in infrastructure is needed to increase capacity. This is especially important for many consumer-facing companies, as they face a more demanding environment.”
According to Jeroen Schlosser, managing director of Equinix Middle East, efforts to boost efficiency in the lower oil price environment are also helping drive business. “The decline in oil prices has increased focus on using technology to reduce costs, which has been good for business,” he told OBG. “As a result, we are doubling our capacity in Dubai.” He added that cloud computing was seeing particularly strong business growth, especially from government clients, with “large opportunities for cloud services in industries where it is still underutilised, such as aviation, hospitality and manufacturing”. Refaat, meanwhile, confirmed that cloud services in the private sector were continuing to experience double-digit annual growth rates.
Sudhir Kumar, senior partner at Morison Menon, an auditing, accounting and professional services firm, told OBG ahead of the rollout of value-added tax (VAT) on January 1, 2018 that this would give a further boost to the sector (see Economy chapter). “The introduction of VAT will require firms to implement new reporting systems and software, including many small and medium-sized enterprises that previously did not practice proper bookkeeping. As such, this will likely increase demand for IT services.”
Security is one of the most promising ICT segments in terms of growth prospects. Cybersecurity is receiving a lot of focus in both the public and private sectors, and is of particular importance in semi-government institutions, such as utilities. In response to rising concerns about the safety of digital information, local and federal authorities have introduced a range of measures to enhance cybersecurity. In May 2017 the Dubai government rolled out its strategy, while in August the TRA implemented a new cybersecurity network known as FedNet across 35 national government bodies to protect against cyberthreats and to allow emirate-level and federal government entities to securely exchange information. The TRA also operates a Computer Emergency Response Team, which reportedly prevented some 1054 cyberattacks in 2016, including 463 against public entities and 510 against private firms. “There has been a lot more focus on cybersecurity recently, and both the TRA and the Dubai police are doing a lot to establish safeguards,” Sultan bin Kharsham, managing director of the Wall Street Exchange Centre, a local foreign exchange provider, told OBG.
Despite high internet use and mobile connection speeds, the emergence of online shopping has been relatively slow. “So far the e-commerce market has not developed as much as one might have expected given the high levels of connectivity,” Matthew Reed, practice leader for the Middle East and Africa at Ovum, a UK research group, told OBG. “Low credit card penetration is a major barrier in much of the Gulf, though this is better in the UAE, and lack of a national postal code system is also a hindrance to development,” he said. The absence of such a system complicates home delivery of goods, a major component of e-commerce. In April 2017 neighbouring emirate Sharjah launched its own postal code system, potentially offering an example for Dubai to follow in the coming years. Some observers say the importance of physical retail – in the form of numerous large shopping malls – to the economy could mean that large industry players lack an incentive to develop e-commerce. However, there are growing signs of delivery-based retail models taking off in the emirate – including deliveries of prepared food, groceries, clothing and electronics – which in the future could have a significant effect on the shape of the nation’s economy.
The emirate hosts the Middle East’s primary e-commerce platform, Souq.com. Initially founded in 2005, the company reportedly received 45m monthly visitors to its site in 2017 and offered around 8.4m products. In early 2016 Souq.com held a funding round in the US, in which it raised $250m, earning it a valuation of around $1bn. Then, in July 2017 the international e-commerce giant Amazon acquired Souq.com for a reported $580m. The purchase will see the e-retailer integrated into the platform, with Amazon customers able to log in to Souq.com using their Amazon account information.
Another prominent e-commerce initiative based in the emirate is Noon.com, which is backed by Mohamed Alabbar, the founder and chairman of Dubai-based real estate developer Emaar Properties, and co-investor in the Public Investment Fund, Saudi Arabia’s sovereign wealth fund. However, Noon. com faced several challenges that contributed to a delay in its launch, initially planned for January 2017. The CEO and several staff members also left the company in May 2017, before its website went live the following September.
Alabbar made a number of acquisitions to prepare the company ahead of its launch. One of his technology funds acquired Dubai-headquartered e-commerce platform JadoPado in May 2017, likely a move to bring in sector expertise and experience to support Noon.com’s development. In addition, Emaar had previously bid a reported $800m for Souq.com, ahead of its eventual acquisition by Amazon. Two investor groups linked to Alabbar had previously acquired a combined 16.45% stake in Dubai-headquartered international logistics provider Aramex in July 2016, which could offer major synergies with planned e-commerce activities.
Several emerging and forthcoming technologies will likely transform not only the ICT industry, but also life in general over the next decade. These include the planned launch of mobile 5G services in 2019, which will further facilitate various related, technology-based services, such as machine-to-machine applications, thereby boosting continued efforts to achieve the goals of the Smart Dubai 2021 plan. The government’s emphasis on developing new technologies, such as blockchain and artificial intelligence, should also help improve the efficiency of public and private sector services.
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