By Ronan Shields
Mobile handset manufacturers have long touted the UAE as the ‘gateway to the Middle East' citing its advanced infrastructure and booming economy as providing unparalleled opportunities for growth. The country's telecoms market has proven no exception to this trend and is braced for a shake-up in 2007. Ronan Shields reviews.
The entry of Emirates Integrated Telecommunications Company (du) into the UAE telecoms market in February saw it challenge for the first time the 30-year monopoly enjoyed by incumbent network operator Etisalat.
Du obtained a 20-year licence to operate a phone network from the UAE's Telecommunications Regulatory Authority in February 2006 signifying the generic shift towards trade-liberalisation - a market trend that is growing in popularity across the GCC.
Du subsequently launched its mobile service in February 2007, citing figures claiming it had successfully booked 750,000 telephone numbers for over 500, 000 separate individuals and enterprises at the time of launch. The company also claimed it received over 120,000 subscription applications within the first two weeks of its opening for business.
Du has already invested sizeable amounts of money into its infrastructure, including almost US$300 million in property, plants and equipment. "Part of du's challenge is that in many areas it only offers mobile telephony solutions so it has had to invest further sums of cash to launch fixed-line and broadband services," claims Marc Hammoud, vice president of research at Shuaa Capital in Dubai.
Hammoud also highlights how the company's legacy infrastructure is based in the Dubai's free zones, which have experienced exponential growth across every tier of the telecoms industry in recent years. Dubai's high levels of mobile phone imports have also created a steady stream of revenue, encouraging many vendors to base their regional headquarters in the Emirate.
The UAE's status as a global trading hub has also created market conditions that allow the less scrupulous factions of the telecoms industry to flourish.
Taiwanese-based vendor BenQ Mobile has previously had to alter the terms of some of its distribution tie-ups as a direct result of grey market imports operating out of Jebel Ali Free Zone." The re-export channel fosters grey market trade which is something we have struggled with," says BenQ Mobile vice president Najib Ashraf Kazi. "We now stipulate in our contracts that distributors can only sell goods intended for the market which they have been assigned."
However, market conditions have continued to draw market players. Du's infrastructure rollout has benefited from a 20-30% annual decrease in equipment costs, enabling it to acquire WCDMA equipment at a substantially reduced cost. "Market rumours suggest that du will use a mix of different technologies as part of the rollout, such as WiMAX, fibre-2 and WCDMA as part of its fixed-line and broadband services," suggests Hammoud.
"If the operator can successfully leverage this opportunity to accelerate the rollout of its fixed-line segment at a lower cost then surely it can go some way to gaining ground on Etisalat."
Industry pundits have expressed concern at du's ‘faltering' launch in the market as it has been dogged by technical problems under intense market scrutiny. "Whenever a new player enters the service sector of the market its products are put to the test almost immediately," asserts Hammoud. "The early adopters in the UAE market consist of subscribers with high levels of disposable income and a high level of service expectations," he adds.
"I think that a lot of subscribers will return to use the Etisalat services as the initial launch period for any new player in the market is crucial to how a company can bolster its own brand equity," predicts Hammoud.
Du has trumpeted its extensive range of network capabilities to consumers and has also pitched its fortunes in the market by styling itself as a company with new ideas and strategies to give value back to subscribers. Undoubtedly the extra level of competition will benefit end users as plurality in the market enables both companies to target specific segments by tailoring their products and solutions to specific segments of the market.
"In a sense this development has almost liberated Etisalat itself from adopting a ‘one size fits all' approach to the market," claims Sherif Hamudah, director for telecoms and airlines and enterprise at software vendor Oracle.
The growing competitiveness of the UAE telecoms market has prompted Etisalat to tailor its solutions to both consumers and enterprise customers, exemplified by du's introduction of pay-per-second tariffs and Etisalat unveiling similar initiatives only weeks later.
According to Hammoud though, both operators must practice caution when deciding what content to offer the market. "Du's strategy of pitching to the upper echelons of the market has revolved around its reputed ‘superior' service quality. This strategy of targeting high-end customers always carries with it an element of risk as it is less price-sensitive and can often prove unpredictable," he warns.
However, he does hasten to add that du's current strategy of utilising advanced technology does signify a step in the right direction. Value-added content, powered by 3G and 3.5G networks are expected to drive growth and help du build and maintain its subscriber base.
Another growth factor in the UAE is the population growth, which is being fuelled in the main part by economic migrants coming to work in the country, and both operators would be wise to target such potential users. "Economic migrants with high-end networking needs should be a priority for du, given that the operator has pitched itself as a high-end operator and there is little differentiation in cost with Etisalat," suggests Oracle's Hamudah.
Oracle, which provides software for over 90% of telecoms operators in the Middle East and North Africa, also predicts that the increased levels of competition will benefit the region's enterprise sector.
The UAE's Telecommunication Regulatory Authority has publicly stated that while it does not specifically rule out the prospect of price competition between the two players, the main purpose of introducing a second operator is to encourage a drive towards market maturity to the benefit of all consumers of communications products and services.
Industry speculation indicates that by streamlining their services both du and Etisalat could receive a major windfall from the Gulf's emerging outsourcing sector. The Dubai Outsource Zone (ODZ) has recently adopted a bold expansion strategy challenging the Indian call centre market by offering European and US multinationals incentives to set up operations in Dubai.
"By targeting the corporate segment of the market both operators would go a long way to boosting their revenues particularly if they can secure favourable interconnections tie-ups with international operators," claims Hamudah.
"Although the effects of market competition are still at an early stage I would predict that both companies will target the business enterprise sector of the market by offering companies a series of value-added deals given the enhanced profitability of that segment," comments Hammoud.
The UAE's growing level of competition has forced both network operators to maintain a high visibility in the market, resulting in the development of sophisticated channel strategies. Du has opted to market its products via a number of specialised retail outlets, which also retail consumer electronics and IT goods, and has teamed-up with over 10 distributors giving it access to over 90 specialised retail outlets.
Etisalat has also heralded its recent tie-ups with mobile handset retailer Cellucom as enhancing the network operator's relationship with its UAE subscriber base.
Hammoud notes that maintaining high levels of visibility and consumer access is crucial to succeeding in a buoyant market. "What may prove a point of difference is the expert advice that retail partners can provide customers," Hammoud suggests. "This is something that is not always readily available in the UAE. If an operator can successfully impress a customer at a point of purchase that could go some way to building customer loyalty."
Distribution companies and retailers have long bemoaned that increasing competition in the UAE, which has led to an erosion of profit margins. "The increase in rental costs - particularly in the lucrative shopping malls of Dubai - has led many handset retailers to adopt different channel strategies," claims Deepak Srivastava, concept head of GCC-based retail outlet Emax.
The increased levels of competition are also expected to have a knock-on effect for the network operator's channel partners. "Both operators will have to revise their channel strategies in order to offer better channel margins to the UAE's major channel players. This can pose a lot of risks, as operators effectively have to gamble on consumer behaviour but generally the market as a whole should benefit," says Hammoud.
Even the government is getting in on the act. Dubai e-government aims to have 90% of services available online by the end of 2007.
Efforts to improve government interaction and reduce bureaucracy traditionally associated with governmental departments were announced by Dubai e-government's e-services director, Salem Al Shair recently.
He also highlighted the government's plans to enhance the delivery of public services to the region by announcing 90% of all government services will be available by the end of this year.
"Dubai e-government was proud to showcase its portfolio of e-services to the upper echelons of the Middle Eastern business community, as we are committed to promoting the development of e-governance throughout the region.
"The e-governance system translates directly into good governance, developing a transparent relationship between citizens and governments where there is no place for corruption or ineffectiveness," said Al Shair.
"Very soon, citizens and residents of Dubai will only see the government officials on TV or in the newspaper, as visitors to any government department will not need to deal personally with government staff," he added.