The great duopoly of UAE telecoms

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Rapid growth is likely to give way to falling ARPU as the UAE's mobile sector continues to evolve.

With a fast growing population and economic growth of more than 7% a year, it is not surprising that the UAE's two telecom operators, Etialat and du, are enjoying solid growth.

But with penetration rates either nearing saturation - or already beyond saturation - depending on the source of data, the UAE's mobile sector is likely to experience significant change in the coming years.

The UAE telecoms sector's path towards liberalisation is driven partly by the UAE's membership of the World Trade Organisation (WTO), which it joined in 1996, according to Irfan Ellam, equity research analyst at Al Mal Capital Research.

But while the WTO aims for the global telecom sector to be completely liberalised, free from monopoly or government protection by 2010, Ellam points out that the UAE negotiated concessions and, under current WTO rules, its deadline for complete telecoms market liberalisation has been extended until 2015.

The subject forms an important part of a report from UAE-based Al Mal Capital, which describes the UAE's telecommunications market as "a duopoly characterised by high GDP per capita of US$43,859 for 2007, an extremely high reported rate of mobile penetration at 166.4%, rapidly growing internet user penetration at 44.7% and steady fixed-line penetration at 30%."

It adds that record high oil prices have led to an economic boom in the GCC, resulting in rapidly growing expatriate populations, especially in the UAE, which has an estimated 80% expatriate population, according to Al Mal Capital's research.

The organisation forecasts the UAE's population to grow at a five-year CAGR of 4.8% to 6.3 million in 2012, up from 4.6 million in 2007.

And this in turn will feed into the UAE's mobile market, which Al Mal Research predicts will grow from 7.7 million subscribers in 2007 to 9.2 million in 2008 and to 11.9 million by 2012.

"Given the already very high penetration rates in the UAE, we expect penetration rates to grow modestly from 166 per cent in 2007 to 188 per cent by 2012," says Ellam, author of the report.

"Penetration jumped over 38% in 2007, from 127% in 2006, to 166% in 2007; that is impressive growth for any market, let alone one that already has penetration over 100%. At face value, these rates imply that there are nearly two SIM cards per person in the UAE."

However, Ellam adds that these penetration levels are likely to be inflated owing to ambiguities in the definition of ‘active subscriber'.

According to Ellam, until recently both Etisalat and du defined mobile customers as any customer who generated revenues in the financial year, regardless of how active the customer was.

However, the UAE's TRA has since defined an ‘active subscriber' as any mobile customer who has either made a call, sent an SMS or MMS, or received a call within the last 90 days.

As of first quarter 2008 results, du has restated its mobile subscriber base, with 1.76 million mobile customers being restated as 1.43 million active subscribers. Al Mal Capital says it expects Etisalat to do the same on the release of second quarter of 2008 results.

A significant number of users, such as business visitors using a local SIM and tourists who buy a mobile phone for use during their holiday, as well as residents having multiple handsets can inflate official subscriber numbers, all serve to inflate official subscriber figures.

"Many users are opting for one phone for business and one for personal use, as well as the use of devices such as Blackberries," Ellam says.

Furthermore, the rise in mobile broadband could also be encouraging people to have more than one SIM.

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