Opportunity aplenty

Increasing competition is helping to drive the UAE's telco sector forward
Telecoms, UAE

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The UAE is a country that has seen amazing levels of change in a short time. This change has positively affected all sectors of the economy, especially telecoms, where penetration rates are high, but potential still significant.

The UAE’s telecoms sector is certainly one of the most robust, with coverage spanning across all the seven emirates and one of the highest rates of mobile penetration in the region. From 1976 to 2006 there was only one operator that held a monopoly in the sector, Etisalat. When the TRA announced another licence for Du in 2006, that’s when competition began to set in and the UAE was introduced to its second operator.

Mobile line adoption was the first to see a major boost. The increasing number of subscribers resulted in a drop in tariffs and a host of various offers. While many bought SIM cards from Du, some customers still held on to their Etisalat SIMs, and decided to use both numbers. To help this adoption of two SIMs, Du had an initial offering where customers could register their Etisalat mobile numbers and if available, Du would reserve the same numbers for them. The fact that Du charged customers for calls in per-second intervals, compared to Etisalat’s 30-second pulse, allowed the telco’s popularity to soar.

Ali Alahmed, chief corporate communications officer, Etisalat said: “The latest TRA statistics for January-June 2012 show the number of fixed lines grew by 86,572, active mobile subscriptions rose by 805,440 and Internet subscriptions increased by 48,482. This translates to just over 940,000 new telecom subscriptions in the first half of 2012.”

Victor Font, group MD, Delta Partners said: “Mobile subscriber growth has seen rapid uptakes in recent years as a result of wide network coverage paired with the introduction of the latest technological solutions and relevant price reductions. Another key driver behind the high penetration level of mobile revenues is the significant uptake of smartphones in the country.”

Font also said that the revenue increase from mobile data has not yet fully offset the revenue decrease from voice. He thinks that this will change soon, with operators increasing focus on the deployment of optic fibre networks and LTE technology, as well as attempting to change their pricing strategies.

Font continued: “As we can see in the most developed markets, the trend in the industry is to price data usage with a cap on traffic consumed and with different price levels depending on the bandwidth required. This is still not the case in the UAE but we expect this to happen soon.

An additional potential source of revenue growth in the future for Du and Etisalat will be the content and applications space. If telecom operators do not manage to grab a share of this market, OTT players will keep this growing segment of the market and Etisalat and Du will need to generate more limited growth focused on providing connectivity only.”

For fixed line networks, both operators still have a monopoly in the areas they serve. Du caters to most of the newly developed areas in Dubai, like the Dubai Marina, Jumeirah Lake Towers, Tecom and others. Etisalat serves every other area in Dubai, and also serves the rest of the six emirates.

The investment in broadband fibre connectivity has also been massive in the country. Alahmed said: “Etisalat has, over the past couple of years, invested more than AED 7 billion ($1.9 bn) in infrastructure development to provide world-leading fibre-optic capability across the country. Indeed, Abu Dhabi was the first capital city in the world to achieve full fibre connectivity and its roll out into the other emirates has seen the UAE ranked second globally for fibre penetration.

“This fixed broadband capability, which can deliver super speeds of more than 100mbps, will significantly improve digital applications for commerce and enhance home entertainment experiences such as Etisalat’s eLife service.”

Fixed line network sharing

The TRA had asked both operators to initiate the commercial launch of fixed-line network sharing by the end of 2011. In July 2011, a soft-launch of bitstream access was initiated between the two operators, with the plan being to allow a full rollout of the service by the end of 2011. The TRA has however said that it is delaying the full commercial implementation of the fixed network sharing ‘until the completion of technical readiness.’

With the introduction of network sharing, customers would be able to select an operator of their choice for fixed-line, voice and broadband services. Currently Etisalat and Du hold monopolies in their respective areas of operation, and each is barred from operating in the other’s territory.

Speaking about this, Font said: “The deadline has been postponed over and over during the last months and the delay is most probably driven by delays in the implementation of all requirements. This situation is not specific to the UAE market as it is common to see the same type of delays in other countries that have gone through the same process. Given the complexities involved and the limited interest from both players to allow direct competition in their respective captive areas, process related aspects mainly related to the provisioning of services and billing do not get resolved on a timely manner. It can also be that commercial agreements between operators need to be enforced by the regulator.”

LTE and data plans

The UAE has also embraced the global LTE trend and has also upgraded their networks to deploy the technology. Both operators have launched commercial LTE, and as more devices come equipped with the technology, adoption will follow. Etisalat’s LTE network was launched in December 2011, offering mobile broadband speeds of up to 100Mbps.

Etisalat said that the E398-LTE USB modems, which customers need in order to access the service, were available through Etisalat business centres and at outlets all over the UAE. The modems were priced at AED 799 ($217). Etisalat’s 4G LTE network will allow customers to enjoy speed-demanding apps such as video-streaming, video-conferencing, networked gaming and more, at speeds not available in the country so far.

Etisalat has deployed nearly 1000 base stations and its LTE footprint covers all of the UAE’s main cities and about 70% of the population. Alahmed also said that there is a need for availability of the 4G devices soon, in order to take advantage of the LTE deployment. He said: “One of the main challenges, which we hope will be addressed by the end of the year, is the availability of 4G-enabled handsets to populate the LTE 4G network we have installed. Once this happens, we also need to efficiently manage the high volumes of mobile broadband traffic that we anticipate and are prepared for.”

Du, on the other hand launched its LTE services in July 2012. Speaking about the launch, Farid Faraidooni, chief commercial officer, Du, said: “Our network is ready for 150mbps speed, but the devices out in the market can support a speed of 100mbps. Our LTE network is taking online connectivity to the next level. Customers with an LTE Internet Key can experience some of the fastest internet connection speeds in the world. This is the kind of real mobile broadband speed that creates significant positive impact in one’s day-to-day activities especially in today’s fast paced world; with the improved download speeds of up to 2.3 times faster compared to HSPA+.”

The cost for Du’s LTE Internet Key is also offered at a similar price to Etisalat’s. Du charges its customers a one-off payment of AED799 ($217) for the device, plus AED55 for a monthly data line. An LTE 25GB bundle is also available for AED500. Du’s LTE network currently covers 27.8% of the population of the UAE and 35.3% of urban areas, according to recent reports.

Besides the boom of LTE, Etisalat also aims to broaden the appeal of mobile broadband via its 3G and HSPA networks, for customers that don’t have smartphones equipped for LTE. There are a range of daily and weekly packages that the telco has launched for its subscribers.

The first was the UAE’s first ever unlimited daily and 100MB weekly data plans for new and existing Wasel prepaid mobile customers. The plans aim to give more choice and control to mobile prepaid internet users.

The plans are priced at a daily rate of AED5 ($1.36) for an unlimited data plan and AED20 for a 100MB weekly data plan. The AED5 package has a data limit of 25MB, after which speeds will drop. Etisalat has also reduced the price of its monthly plan and pack charges to AED99 for 1GB and to AED249 for 5GB data. Each of the daily, weekly and monthly prepaid data plans feature an auto-renewal feature.

Khaled ElKhouly, chief marketing officer at Etisalat, said: “People in the UAE are increasingly consuming the internet using their smartphone devices or tablets for surfing the web and staying in touch with friends or colleagues through emails, messengers or social networking sites. The new price points for the daily and weekly plans make data affordable for everyone to use to their desired content.”

Etisalat’s competitor, Du, also offers its customers access to pre-paid mobile data, starting with AED 20 for 40 MB of data valid for 30 days. Its most expensive pre-paid data plan offers customers 25GB for AED500, also valid for 30 days.

Speaking about competition in the UAE between the two telcos, Font said: “Competition has resulted in speeding up the race for infrastructure upgrades, roll out of new, improved points of sale, competition to get the best possible smartphones on their portfolio, improved content for triple and quadruple play offerings etcetera. This has been combined with a continued improvement of price levels, across services. In general, even though the UAE telecom market is still a duopoly, competition levels are quite intense allowing customers to benefit from the best services of the region.”

The role of the TRA

The UAE’s regulatory authority has been contributing heavily towards the development of the telecom sector, first with the introduction of a second operator, leading to increased competition and the implementation of the Telecommunications Competition Framework, which encouraged increased scrutiny on anti-competitive practices, and a focus to induce price reductions.

Over the years there have been many counterfeit and non-compliant devices that have entered the UAE’s shores. The TRA has tried enforcing a clampdown on these devices, and in August this year it seized and confiscated 27,600 telecommunication devices that are non-compliant with the regulator’s set specifications.

Ahmed Al Shamsi, director of type approval at the TRA, said that the regulator is moving forward with its campaigns to reduce the number of unauthorised telecommunication devices. The campaigns launched by the TRA in the first half of the year resulted in the seizure of 35,000 sets, which included multiple and different unauthorised devices. Al Shamsi also stressed the seriousness of the spread of such devices in the telco market. He said that the devices could disrupt telecommunication networks and result in frequency interference that could affect subscribers of the network.

Another initiative launched by the TRA is the campaign titled, ‘My Number, My Identity'. The basis of this campaign is basically the re-registration of SIM cards. This is to further enhance security for the subscriber. In the past there have been times that complaints have arisen when photocopies of people’s passports or driving licenses have been used to buy SIM cards and open accounts for others. Sometimes, when leaving the country subscribers give their SIM cards away to friends and relatives. As a result of this, there have been criminal cases related to misuse of SIM cards by unauthorised people. The TRA aims to fix this problem through this campaign.

To re-register individuals need to present either a UAE ID, a GCC National ID or a passport and residence visa. Business and government customers will have to present a valid establishment card issued from the Ministry of Interior to register all their SIM cards under the establishment's name.
The TRA has worked closely with the operators to ensure that this campaign is as easy as possible for subscribers, and has implemented software that links the operators with kiosks at shopping malls, at the operator’s own business centres, and other places where subscribers can easily walk in and re-register their SIM cards.

However with the constant level of change in the telco scene, Font advises that there are still some challenges that the regulator has to address in order to take market liberalisation and competition to the next level. Font says some of these include: “Third-party licencing of managed services was announced back in 2010 but has not quite yet taken shape. The same is valid for Mobile Number Portability (MNP), infrastructure sharing and VoIP. All relevant initiatives that can benefit the end user if properly implemented.”

The Future

Analysts have forecasted that since the amount of data comsumed by users is continuously on the rise, it should be the primary area of focus for operators. The dwindling voice revenues will soon be irrelevant, and what the customer will be looking for is the best way to enhance their experience in the digital world.

With the increase in smartphones, tablets and other digital devices, connectivity is on the rise and with it there is an increase in the amount, and a change in the type of data exchanged by people. People are looking to have access to content through the virtual cloud, indirectly influencing the need to increase streaming rates. Previously, data was just limited to SMSs and MMSs going through the network. This has now changed to full fledged photos, videos in HD and other high capacity content being shared by smartphone and tablet users.

Font advised that operators in the UAE can engage this trend and contribute to the content and application space. “Driving innovation in the content and applications space and becoming enabling platforms in the digital economy has more challenging requirements and also significant implications. If such a strategy were implemented successfully, operators would be able to ride the next wave of growth and eventually further maximise shareholder returns. However, if we look at the historical track record of the telecoms industry, execution risks are high. Our belief is that few operators will succeed in making this move a reality.”

He also said that a more conservative alternate option would be focusing on managing infrastructure efficiently, in order to evolve the business model into a utility type of business. This way telcos can have a much more moderate top line growth but still see stable and reliable cash flows.

Alahmed of Etisalat added: “It is an exciting time for the telco sector, especially for Etisalat. The current environment is extremely dynamic with new innovations being launched every week. Etisalat’s investment in FTTH fibre-optic cabling and the LTE 4G network opens up many new doors for us to utilise these technologies for the benefit of our customers.”

He also said that Etisalat will continue to innovate in the telco field: “Etisalat will continue to work with our local, regional and international partners across the telco spectrum to maximise developing technologies. We will continue to innovate as these new technologies become available.”

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