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Mon 6 Mar 2006 04:00 AM

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Game Over

The UAE's new operator, Emirates Integrated Telecommunications Company, has unveiled a corporate brand, du, and articulated some of its plans for market entry in the second half of this year. CEO, Osman Sultan and chairman, Ahmad Bin Byat, discuss the real nature and priorities of the operator.

|~|Sultan,-Osman200.jpg|~|Osman Sultan was recruited from the leading Egyptian mobile operator MobiNil, to head up EITC.|~|The introduction of commercial mobile services by the UAE's second all-service provider, du, is not expected for at least another five or six months. Within this period, the company is determined to communicate that it plans to exist as a worthy competitor to Etisalat's 30-year entrenchment.

Adding flesh to the brand is now the priority, and while UAE subscribers appear ready to try services offered by the fledgling entrant, it would be erroneous to think gaining an early foothold in the market will be an easy proposition. “We will not make the mistake of underestimating our competitor,” acknowledges Osman Sultan, the CEO of Emirates Integrated Telecommunications Company (EITC) and the company behind the du brand.

“But I think that I wouldn't be doing my job if I didn't claim that by being the new operator, by coming without any legacy…we have a serious opportunity to really come and lead,” he adds.

Behind-the-scenes negotiations are still ongoing between EITC and incumbent Etisalat regarding issues that will have a direct impact on du's operational direction, and will form the first acid test of just how committed to true competition the regulatory authority and UAE government are. Discussions are being held regarding interconnection rates, roaming and number portability, factors that will define du's ability to offer services in a robust fashion from the start of its operation.

The expectation is that mobile services will be brought to market first, planned for the second half of this year, with fixed-line, internet and television services expected to be launched throughout the course of 2007. Sultan states that negotiations with infrastructure suppliers for the mobile network are still ongoing and joint communications on the contract awards are expected to be made in the coming weeks.

Given du's intention to operate as an integrated telecoms provider, it is set to utilise IP technology at the core of its network and will likely continue its long-standing relationships with companies such as Cisco Systems and Avaya, which were technology partners to Dubai Internet City Telecom (TECOM). TECOM had been the monopoly fixed communications and internet access provider to the free zones in Dubai and was officially acquired by EITC last month at a cost of around US$330 million. It already counts 19,000 subscribers and offers voice, data and cable television services to business and residential subscribers in the free zones. The loss of Etisalat's monopoly across the country will be mirrored by the loss of TECOM's monopoly in the free zones.

“We should be able to access all Etisalat customers and Etisalat should be able to access ours,” comments Ahmad Bin Byat, chairman of EITC. “I think all customers in the emirates should be able to access both service providers — that should be the ultimate goal. Now, when the Telecommunications Regulatory Authority (TRA) is going to be able to reach that stage, I hope it will be soon.”

Du is set to launch with an EDGE-capable network from day one and will then migrate to 3G once it gathers momentum as far as applications are concerned, explains Bin Byat. He says du will not just launch 3G as a name. It will launch 3G with applications, which it is collaborating in the development.

Bin Byat also suggests that EITC's plans to launch mobile services ahead of any other is a question of the ease of network deployment rather than the potential of the mobile business being the most lucrative. “It [fixed line] is long term. It is not a quick win. It takes time to either interconnect with an incumbent operator or to dig your own trenches, and we will be doing both,” Bin Byat explains. “And again, that is in agreement with the TRA that we shouldn't completely depend on Etisalat for our interconnection, and over the years we have to build our own network. So it is good for the country. The more fibre in the ground you have, the better connected a country is.”

Bin Byat has forecast that on top of the 19,000 subscribers that are already serviced by TECOM, EITC could feasibly count 100,000 subscribers by the end of the year. As an overall forecast, EITC has estimated that it would be satisfied with a 30% market share and believes its lack of legacy infrastructure will assist in its pursuit of market share. Bin Byat does not believe the bid to gain 30% market share is a modest one.

“From an economics point of view, I agree with you (that a 30% market share objective may be relatively modest). We should be doing more there. But from a realistic point of view, you need to build a network to access those customers, and building a fixed network across the emirates takes time. It's a time issue — when can you access these customers, physically? That will be the main hindrance for us,” Bin Byat explains.

Capturing potential subscribers is a recurring theme for the management, with an emphasis placed on having the company's products being made as visible as possible, within easy access of the majority of the population. It is probably for this reason that in December last year TECOM announced it had acquired a 40% stake in Axiom Telecom, the Dubai-based mobile phone reseller, which is also the largest reseller in the Middle East with over 200 of its owns stores and a further 200 retail points via its Fono brand.
“Distribution is fundamental. Some agreements on distribution will be forthcoming in a few weeks. Distribution is as important as infrastructure. Ease of use has to exist across the entire value chain,” comments Sultan.

Du's emphasis on distribution and service differentiation rather than price is a likely indication that the entry of competition is not expected to result in deep price reductions. Du's strategy is likely to be centred on the segmentation of the market and the creation of packages and bundles of products that help drive value for money.
“More and more, value propositions to the market are based around different packages. So yes, our intention is to come with innovative pricing that reflects not necessarily a systematic lower pricing, but that reflects better value for money for each segment because each individual has a different usage pattern,” says Sultan. “This competition is not going to be soft and cosy. It is going to be fierce; it is going to be aggressive. Now when we say this, immediately the public imagines that it is going to be a cutthroat price war. I think we have to be realistic, I think any competition has to be built on the make or break of anything that is a sound financial equation,” he adds

Following a model used to great effect by Etisalat in Saudi Arabia, EITC is planning to launch an initial public offering of the company ahead of the commencement of services. The company is set to place 800 million shares amounting to 20% of the issued share capital on March 4. Shares are priced at AED3 (US$0.82) each.

Prior to the IPO, EITC's shareholding is divided among the federal government, with a 50%, Mubadala Development Company with a 25% stake, and Emirates Communications and Technology Company with a 25% share. Following the IPO this shareholding structure is expected to modify to 40%, 20% and 20% respectively.
The IPO is only opened to nationals though non-nationals will be permitted to trade on the secondary market, reflecting the second operator's strong nationalist agenda. It is this agenda that will also see the operator invest only inside the UAE.

“This is an emirates company, its main focus is the emirates and I believe we have the world here,” says Bin Byat. “We believe the world is in the emirates. This is our community and the diversity in the community will keep us busy. We really believe we are engaging heavily in market segmentation and trying to understand the needs of the market - whether it is the consumer or enterprise market.”||**||

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